Annuity Basics

An annuity is a type of policy issued by an insurance company that allows you to save money for retirement. The money you pay in can be either a lump sum or a number of payments. These contributions then earn interest, generally tax-deferred, and after a period of time, provide you with a stream of income.

Types of Annuities

There are two main ways to categorize annuities: immediate vs. deferred annuities and fixed vs. variable annuities. The immediate vs. deferred category has to do with when your income payout begins. The fixed vs. variable category has to do with how your contributions are invested.

With an Immediate Annuity, your money provides guaranteed payments to you that begin soon after you make your initial payment. Depending on the tax-qualified or non-tax-qualified status of your annuity, a portion, or the entire payment can be included in your taxable income. The owner can elect to receive guaranteed payments for life, or elect payments to be made over a specified length of time (period certain).

With a deferred annuity, your income payments are usually put off for a period of time allowing the money you've invested to earn interest generally tax-deferred. You choose when you want to start receiving income payments – typically, upon retirement.

Acceleration of Payments

For Guaranteed Income “immediate annuities”, an Acceleration of Payments Provision is available. This provision allows remaining certain period income payments to be accelerated after the first policy year. If the unexpected happens (home repair, medical bills, or family emergency), it's nice to know you have options. Minimums apply, and partial accelerations are limited to one per policy year and must be at least $5,000. Annuity income payments will be reduced, and a market value adjustment may apply. Acceleration of Payments is not available in NJ, PA, TX, and WA. Contact your local State Farm agent for specific details and restrictions.

With a Fixed Annuity, money is placed in fixed-rate investments such as bonds, where it will earn a fixed interest rate for a certain period of time. For most fixed annuities, a minimum interest rate is guaranteed. With a Fixed Annuity, the insurance company is taking the investment risk.

With a Variable Annuity, money is placed in market-based investments. This may include stocks, bonds, mutual funds, or money markets. You may have the option to move the money around among the different investments. In addition, the rate of return can vary based on the performance of the investments. With a Variable Annuity, the risk is taken by the annuitant, rather than by the insurance company.

Tax Advantages

Deferred annuities can also be a good way to help increase your retirement savings. The tax-deferral and compounding of interest provided by an annuity can help it to grow larger than an equal investment in a taxable account. Gains will be taxed as ordinary income once the money is withdrawn. Annuities can also be used to fund traditional IRAs, Roth IRAs and Simplified Employee Pension Plans. (Income tax-deferral is provided by the retirement plan.) You should contact your attorney or tax advisor for more complete information.

Plan Type Tax-Qualified Plans Non-Tax-Qualified Plans
Plan Name Business Retirement Plans TSA/403(b) Plans Traditional IRAs Roth IRAs –
Tax-Deductible Contributions Yes No No
W-2 Earned Income Required Yes Yes No
Contribution Age Limit Yes, age 70 for earned income No No
Mandatory Distributions Yes, Starting April 1st, the year you turn 70 1/2. No, for a qualified distribution. No
Distributions Taxable Yes No, for a qualified distribution. Only the interest earned is taxable; you do not pay tax on the principal.

More About Annuities

  • Death Benefits

    The death benefit is the value of the policy on the date of the annuitant’s death. If you die before payouts begin, your beneficiary will receive the current value of the annuity. Once you’ve begun receiving payments, the amounts paid to the beneficiary will depend on the payout agreement.

    With almost all annuities, the cash value of the policy will be left for your beneficiary. Your agent can help you set up your annuity to make sure the money will be passed down to your beneficiary.

  • Surrender Charges

    A surrender charge is a fee owed upon a premature withdrawal or “surrender” from an annuity. Surrender charges decline to zero over time and are a percentage of the accumulation value withdrawn. State Farm waives surrender charges in certain situations (see Annuities Mythbusters below), and not every annuity has surrender charges.

  • Annuities and Life Insurance

    Annuities are often mentioned in the same conversation as life insurance because most annuity contracts are written by life insurance companies. However, life insurance is intended to meet the needs of the beneficiaries after the death of the policyholder. With annuities, the intention is to provide additional income to policyholders during their retirement years.

Annuities Mythbusters

State Farm Annuities Products

Future Wealth Builder
Future Income Plus
Guaranteed Income

Archived Products

Looking for information on discontinued State Farm Annuities products? Our product archive provides resources that can help answer your questions


Policy Series Wording Information

Before investing, consider the funds' investment objectives, risks, charges and expenses. Contact State Farm VP Management Corp (1-888-702-2307) for a prospectus containing this and other information. Read it carefully AP2012/01/0020

Investing involves risk, including potential for loss.

Variable annuities are long-term investments designed for retirement purposes.

Variable annuities have fees and charges that include mortality and expense, administrative fees, fund expenses and may include surrender charge, transfer processing fee and additional deposit rider charge.

Bonds are subject to interest rate risk and may decline in value due to an increase in interest rates.

An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.



State Farm VP Management Corp. is a separate entity from those State Farm entities which provide banking and insurance products.



State Farm agents do not provide tax, legal, or investment advice. Please consult your tax, legal, or investment advisor regarding your specific circumstances.

Issued by:

State Farm Life Insurance Company (Not licensed in MA, NY or WI)
State Farm Life and Accident Assurance Company (Licensed in NY and WI)
Bloomington, IL

  • View additional disclosures

    Guarantees are based on the claims-paying ability of the issuing State Farm Life Insurance company.

    Withdrawals made prior to age 59 1/2 are subject to a 10 percent federal-income-tax penalty.

    In a tax-qualified retirement plan, federal-income-tax deferral is provided by the tax-qualified retirement plan. No additional tax deferral is provided by an annuity. You should contact your attorney or tax advisor for more complete information.

    Insurance policies and/or associated riders and features may not be available in all states, and policy terms and conditions may vary by state.

    Deferred Life Annuity policy series 10040, 10090, A10040, and A10090.

    Deferred Annuity policy series 03040, 03090, 03047, 03097, A03040, A03090, A03047, and A03097.

    Single Premium Immediate Life Annuity policy series 03041, 03091, and A03041.

    Single Premium Immediate Life Annuity with Choice of Certain Period policy series 03042, 03092, and A03042.

    Single Premium Immediate Life Annuity with Cash Refund policy series 03043, 03093, and A03043.

    Single Premium Immediate Joint & Last Survivor Life Annuity policy series 03044, 03094, and A03044.

    Single Premium Immediate Joint & Last Survivor Life Annuity with Choice of Certain Period policy series 03045, 03095, and A03045.

    Single Premium Immediate Annuity with Choice of Certain Period policy series 03046 and A03046.

Not FDIC Insured
  • No Bank Guarantee
  • May Lose Value

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