Glossary

Accumulation phase

The years when money in a deferred annuity grows tax-deferred before payments begin, ending at annuitization or when withdrawals start.

Also called: accumulation period, deferral period

The accumulation phase is the first stage of a deferred annuity: the period after you buy the contract and before you start taking income. You pay a single premium or a series of premiums, and the account value grows according to the contract's terms — a declared rate in a fixed annuity, an index-linked formula in an indexed annuity, or the performance of subaccounts in a variable annuity.

Growth during this phase is tax-deferred. Hypothetical example: a 55-year-old puts $100,000 into a fixed deferred annuity crediting 4% a year. If nothing is withdrawn, the account would be worth about $148,000 after 10 years, and no income tax is owed on the gain until money comes out. The phase ends when the owner annuitizes the contract, starts withdrawals or a lifetime income rider, or surrenders it.

The accumulation phase usually overlaps with the surrender period, so taking out more than the free-withdrawal amount early can trigger surrender charges. Withdrawals of earnings before age 59½ generally carry a 10% federal tax penalty on top of income tax. The payout stage that follows is covered under annuitization; see also how annuities are taxed.

Last reviewed October 4, 2026

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Related terms

Deferred annuity An annuity that grows tax-deferred for years before income begins, used to build retirement savings or lock in future lifetime payments. Annuitization Converting an annuity's account value into a stream of guaranteed payments for life or a set period, usually giving up access to the lump sum. Surrender period The years after purchase during which cancelling or over-withdrawing from an annuity or permanent policy triggers a surrender charge. Annuity A contract with a life insurer that grows savings tax-deferred, turns them into guaranteed income, or both, in exchange for one or more payments. Free withdrawal provision An annuity clause that lets you take out a set share of the contract value each year, often 10%, without paying a surrender charge.