Which of the following best describes an annuity's tax advantages?

Annuities offer significant tax advantages primarily because the investment grows on a tax-deferred basis. This means that any earnings, such as interest or dividends, are not taxed as long as they remain in the annuity. Tax is only applied when the funds are withdrawn from the annuity, which typically occurs during retirement when the individual may be in a lower tax bracket. This feature allows individuals to accumulate more wealth over time compared to other taxable investments, where earnings are taxed annually. This structure generally helps in effective retirement planning as it provides tax benefits during the accumulation phase and offers flexibility regarding when to incur tax liabilities. This is why the option indicating "no tax until withdrawal is made" accurately captures the key benefit of an annuity’s tax treatment.