What is the benefit of tax-deferred growth in annuities?

The benefit of tax-deferred growth in annuities is centered around the ability to improve the overall return on investment by delaying tax payments. With tax-deferred growth, the investment inside the annuity can accumulate without being subject to immediate taxation. This means that any interest, dividends, or capital gains generated within the annuity are not taxed until they are withdrawn.

This delay in tax payments can lead to a compounding effect; the money that would typically go towards taxes can remain invested, potentially leading to greater accumulation over time. Essentially, investors can benefit from a larger amount of capital working for them longer, which can enhance the overall growth potential of their investment in the annuity.

The other options do not accurately reflect the primary advantage associated with tax-deferred growth in annuities. Immediate access to funds without penalties is not a characteristic of tax-deferred growth, as early withdrawals can incur penalties and tax liabilities. A guaranteed fixed rate of return is associated with specific types of annuities (such as fixed annuities) but does not pertain to the concept of tax deferral itself. Higher withdrawal limits each year can vary by the terms of the annuity contract rather than being a direct result of tax-deferred growth.