How can my annuity proceeds be distributed?

The terms "immediate annuity" and "deferred annuity" simply indicate when the distribution phase of the annuity begins. Both allow unlimited contributions, and both provide a continuous stream of payments for life.

• Immediate annuities allow you to convert a lump sum of cash into an income stream. They differ from most annuities in several ways. First of all, immediate annuities do not have an accumulation period. They are funded with a single, lump-sum payment rather than a series of premium payments. An annuity option is chosen and the distribution period begins within 12 months after the purchase.

  Immediate annuities have very limited flexibility. They may be appropriate if you have an immediate income need and you have a large sum of money to invest. They appeal to those who prefer the security of a fixed income and who are uncomfortable managing their own investments.

Deferred annuities are the "normal" type of annuity, and are much more common than immediate annuities. With a deferred annuity, you typically make a series of premium payments during the accumulation period. Deferred annuities may also be funded with a lump-sum payment. In either case, you begin taking distributions at some future time, typically in retirement. Deferred annuities may be appropriate if you are saving for retirement, and will not need the money for several years. Remember, withdrawals prior to age 59 ½ may be subject to a 10% IRS tax penalty. For most people, a deferred annuity is a more appropriate choice than an immediate annuity.