An annuity is a contract between you and an insurance company. You buy an annuity with a lump-sum payment or a series of payments. What you get for your money is tax-deferred growth of your investment and the company’s promise to make payments to you, either immediately or in the future.
A fixed annuity offers guaranteed fixed payments that you receive at regular intervals. Fixed annuities are subject to insurance regulations. Check with your State regulator before you invest.
A variable annuity is considered an investment product, because your money is typically invested in stocks, either directly or via mutual funds. The payment you receive may vary according to the market value of the investments you choose.
During your annuity’s accumulation period, assets accumulate through growth, by adding additional money to the annuity or a combination of the two.
The payout period is just what it sounds like. You receive payments monthly or in a lump sum. At this point, the part of the annuity income you receive that’s due to growth during the accumulation period becomes taxable.