How tax deferred annuities can reduce the federal income tax on social security benefits for seniors

This calculator shows how the purchase of a deferred annuity can reduce or eliminate the tax that a senior pays on social security benefits by reducing the senior's provisional income. The social security benefits tax is explained and sample calculations provided in Publication 17 from the IRS. In some cases, the savings from the purchase of an annuity could amount to an extra 2% in yield for the annuity because the the savings of social security tax. In other words, if the annuity pays 5%, the tax savings could be worth another 2% making the annuity economic yield 7%. While this will not work for all retirees, it works for many. The purchase of a tax deferred annuity will typically result in federal income tax savings for most middle income seniors--those with household incomes from $40,000 to $80,000.

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