What is the accumulation period in an annuity?

The accumulation period in an annuity refers to the time frame during which the investor contributes money into the annuity and allows it to grow on a tax-deferred basis. During this period, the funds earn interest without being subject to income taxes until they are withdrawn. This tax-deferred growth is a significant advantage of annuities, as it allows the investment to potentially grow at a faster rate compared to taxable accounts.

In this context, the accumulation period is crucial for building up the value of the annuity before it transitions into the distribution phase, during which benefits are paid out. Understanding this phase is essential for both financial planning and maximizing the benefits of using an annuity as part of one's investment strategy. The focus on tax-deferred growth during this time highlights the accumulation period's significance in the overall performance and efficiency of the investment.