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When it comes to retirement income planning, annuities can serve as a powerful tool to convert savings into a predictable income stream, either for a lifetime or a specific period of time. With that said, the decision about what assets to use when funding an annuity (i.e., in a taxable brokerage account, a traditional pre-tax IRA, or a Roth IRA) has important implications for tax efficiency, flexibility, and legacy planning. Each account type can trigger a different tax impact when purchasing and ultimately, beginning income payments from the annuity. Understanding these nuances can help retirees make more informed decisions. 

Understanding How Fixed Annuities Work 

There are various types of annuities, but the focus of this article is on annuities used for retirement income purposes, such as Single Premium Immediate Annuities (SPIAs), Deferred Income Annuities (DIAs), Qualified Longevity Contracts (QLACs), and other fixed products that offer lifetime income guarantees. 

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