An Annuity is a "container" for an investment to determine how the investment is handled for taxes. They are sold by insurance companies usually. As the name implies, a Tax-Deferred Annuity grows without taxes being taken out until you begin to siphon funds off the Annuity in retirement at which time they will be taxed as ordinary income. Currently as far as I know, there are two types of Annuities, Fixed and Varible. Fixed Annuities use relatively low risk investments, such as bonds for example, and they offer a fixed rate of return over the life of the Annuity. The other animal is the Varible Annuity, which in simple terms is basically one or more mutual funds held within the Annuity. A drawback to Annuities is that there is a fee that is paid to the insurance company that issues the Annuity to cover its administrative costs. So personally I would only use an Annuity when you've maxed out all your other tax-advantaged or tax-deferred options, like 401(K), 403(b), or 457 plan.. along with a Roth IRA and still have money left over for the year you would like to include in retirement.

Never put an Annuity inside of a 401(K) or other retirement account because the Annuity already is tax-advantaged, and would be redundant. Many people actually make this mistake.

Hope this helps.