An annuity buyer is a contract sold by an insurance company designed to provide payments to the holder at specified intervals, usually after retirement. The annuity buyer is taxed only when they start taking distributions or if they withdraw funds from the account. All annuity buyers are tax-deferred, meaning that the earnings from investments in these accounts grow tax-deferred until withdrawal.

Annuity buyer earnings are also tax-deferred so they cannot be withdrawn without penalty until a certain specified age. Fixed annuities guarantee a certain payment amount, while variable annuities do not, but do have the potential for greater returns.

Both are relatively safe, low-yielding investments. An annuity buyer has a death benefit equivalent to the higher of the current value of the annuity or the amount the buyer has paid into it. If the owner dies during the accumulation phase, his or her heirs will receive the accumulated amount in the annuity.

This money is subject to ordinary income taxes in addition to estate taxes.