How Are Deferred Annuities Taxed?

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   David G. Pipes, CLU®, RICP®

   Business Development Officer, T.D. McNeil Insurance Services, Fresno, California

   This is a different question from how are IRAs and Roth IRAs taxed even though they are frequently funded with annuities.  The tax on the gain in a “non-qualified” annuity is deferred until you start withdrawing money.  The deferred earnings are taxed as ordinary income whether received by the annuitant or a non-spouse beneficiary.  There isn’t a “step-up” in basis.  Upon death the annuity is included in the estate of the decedent.  For specific information on taxation, consult with a tax professional.

   Answered on August 11, 2014

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