An annuity you purchase either with a single sum or with periodic payments to help save for retirement. Earnings in a deferred annuity are not treated as taxable income until they are withdrawn. Withdrawals may be subject to regular income tax, and if made prior to age 59½, may be subject to a 10% IRS penalty. In addition, company imposed surrender charges may apply. The policy owner can choose the point at which he or she can convert the accumulated principal and any earnings in the contract to a stream of income.