As you research annuity contracts, it’s also important to pay attention to whether they’re “qualified” or “non-qualified.”
The IRS only regards qualified annuities as eligible for all the tax benefits available to retirement funds. Those are the funds to which you can contribute using pre-tax dollars.
As far as the tax authorities are concerned, non-qualified annuities are just a special kind of savings account. You can’t contribute to them using after-tax dollars but you can defer the earnings those savings generate. Instead of paying capital gains tax on the fund’s growth each year, the full value of fund’s growth will remain in your account. Those earnings will compound each year until you start making withdrawals after the age of 59.5.
At that point, you’ll need to pay income tax on those revenues.