What is one characteristic of deferred annuities?

Deferred annuities are designed primarily to accumulate wealth over time before any payouts begin. A key characteristic of these products is that they defer taxes on the earnings generated within the account until withdrawals are made or until a distribution occurs. This can be a significant advantage for investors looking to grow their savings and reduce their immediate tax liability, as the investment can grow without being taxed until it is accessed.

In contrast, the other options highlight attributes that do not apply to deferred annuities. For instance, immediate annuities commence payments right after the investment is made, which does not align with the purpose of a deferred annuity. Additionally, deferred annuities do not universally require annual contributions; some may allow lump-sum payments, and the payment structure can vary widely among different contracts. Lastly, while some annuities may have restrictions on surrender in the initial period, deferred annuities can often be surrendered within the first year, although penalties might apply. Thus, the defining feature related to tax is a strong reason why the deferral of taxes on contract earnings is accurate for this type of annuity.