Annuities are financial contracts with an insurance company that provide a regular income at retirement. A deferred annuity allows you to contribute money now for use later. You are not allowed to touch this money until you reach the age of 59 and a half. When you reach retirement age, the money you have built up in your annuity will provide you regular income payments throughout your retirement.

An immediate annuity skips the step of making regular payments into an annuity fund. If you have a large sum of money, you can invest this in an annuity and receive regular payments throughout retirement.

There are no limits on how much you can contribute to an annuity. Unlike retirement accounts, the money you contribute is not tax-deductible, but the earnings on the funds are tax-deferred until you withdraw them.