Process

• A variable annuity may be deferred indefinitely. This means that no conversion of your annuity's savings must be made into monthly payments. If you do not convert your annuity savings, the annuity continues to grow tax-deferred inside of the annuity account.
  
  

Significance

• By not annuitizing your annuity (converting it to monthly payments), you may take withdrawals from the account. These withdrawals may be periodic or systematic. Periodic withdrawals are withdrawals that are made infrequently. Systematic withdrawals are withdrawals made every month or withdrawals made on a consistent and ongoing basis.
  
  

Benefit

• The benefit of not annuitizing your variable annuity is that you retain control over your entire annuity savings. You only take whatever money you need and when you need it. You may continue to invest the money any way you choose. You will not be forced to take distributions from the variable annuity by the IRS unless the variable annuity is inside of a traditional IRA.
  
  

Disadvantage

• The disadvantage to not annuitizing your variable annuity is that, when you do make withdrawals, your withdrawals are considered to be a withdrawal of interest before principal. With annuitization, your payments constitute mostly of a return of principal with a small amount of interest, thus reducing income taxes payable on your annuity funds. With a withdrawal, you pay tax on all of your withdrawal to the extent that there is more money in the account than you deposited.
  
  When the contract is not annuitized, you also do not get the guarantee of monthly payments. A variable annuity invests in mutual funds, which are not guaranteed to return anything to you. Instead, you may lose money, which may make it harder to withdraw the money you need over time.