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Deferred annuities allow interest to accumulate internally without taxation by delaying payments, often for periods of ten or twenty years. By far more popular than the immediate payment option, people commonly select this option for their annuity because of the savings that can be expected from protecting their payments from taxes. Although payments on deferred annuities are subject to taxation just like immediate annuities, the accumulation of interest within the annuity before taxation means that compound interest functions faster and without hinderance. So, when the purchaser is ready to begin receiving payments, say, twenty years after the initial purchase, these payments will be significantly larger because of the money saved from taxes.
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