Final answer:
Annuity premiums within retirement savings vehicles like a 401(k) allow for tax deferral on earnings, rather than being tax-deductible or increasing the owner's tax liability immediately. They don't typically reduce the annuity payout, which is determined by the contract terms.
Step-by-step explanation:
If an annuity is purchased or added as a rider, the premiums do not tend to be tax-deductible nor typically increase the tax liability of the owner directly. Instead, annuities usually provide a means to defer taxes on earnings until the funds are withdrawn.
This is one of the advantages of using retirement savings vehicles like a 401(k), where individuals can invest in various financial instruments, including stocks, bonds, and annuities, with the benefit of deferring taxes. It's important to note that the premiums paid do not generally reduce the annuity payout; the payouts are determined by the amount invested and the terms of the contract. When evaluating the impacts of annuity premiums on taxes, it is crucial to consider both the immediate effects and the long-term tax implications of the investment.