GLOSSARY

Canadian Financial, Real Estate and Mortgage Glossary

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Tax Deferred Annuity


Synonyms:tax aid, tax deferment, tax postponement
Acronyms &
abbreviations:
TDA
Notes:More commonly known as a Tax Sheltered Annuity (TSA).
Filed Under: annuities, estate-management, financial-banking, investments, taxation
Tags: investment, retirement, taxes
 

Definition of tax deferred annuity (TDA)

tax deferred annuity (TDA)
1. A type of annuity with two distinct phases: a savings phase where money is invested into the annuity, and a payout phase where income payments are made to the annuitant. Funds contributed to the annuity in the savings phase are not taxed; instead, taxes are deferred until the payout phase. The rationale behind a tax-deferred annuity is that by the time the annuitant receives income payments from the annuity, usually after retirement, the annuitant's income will be significantly less than it was when the contributions were initially made; as a result, the annuitant will be in a lower tax bracket and less will be paid in taxes.

Related Terms and Acronyms:

  • charitable gift annuity (CGA)   A method to facilitate charitable giving whereby an individual transfers assets to a charity in exchange for a tax deduction and lifetime retirement income payments from the charity.
      ➥  A form of planned giving.
  • deferred annuity   An annuity that makes payments to the annuitant at some date in future instead of immediately.
  • exchange   A trade of property for other property or services. Like-kind property exchanges are a popular tax-deferral strategy.
  • life expectancy method   A method of calculating the appropriate size of payments in an annuity's income phase by estimating the annuitant's life expectancy.
  • payout phase   The phase of a deferred annuity where the annuity begins to make payments to the annuitant.
  • Registered Retirement Savings Plan (RRSP)   A savings plan introduced by the federal government to encourage Canadians to save money for retirement. The investment and the interest earned on it is sheltered: it will not be taxed as long as it is left in the plan.
      ➥  Tax deferred investment contribution used to reduce income tax.
  • single premium deferred annuity (SPDA)   A deferred annuity funded with a single payment.
  • tax deferral   The postponement of taxes to a later year, usually by recognizing income or a gain at a later time. Remember, this only delays your tax liability; it doesn't eliminate it.
  • tax sheltered annuity (TSA)   An arrangement where employees are given the option to make tax-deferred contributions to an annuity set up by their employer.
      ➥  See also Tax Deferred Annuity (TDA).
  • wraparound annuity   An annuity that allows the annuitant to control how funds in the annuity are invested.

More Related Terms and Acronyms

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