Renwanz Insurance & Financial Solutions, Carlsbad, CA
If you purchase a deferred annuity with pre-tax money, the entire balance, including the gains will be taxable. As long as the money stays inside the annuity, the taxation is deferred.
A deferred annuity has an accumulation phase and a distribution phase. During accumulation, the annuity grows untaxed. When the annuity is paid out during the distribution phase, the payouts are taxed at ordinary income tax rates for you during that year.
If you buy a deferred annuity with after tax dollars then a portion of the payouts will be a tax free return of your principal. It is considered "last in, first out" meaning that withdrawals are taxed until the interest and earnings portion is depleted. After that, your principal can be withdrawn without taxes.
Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
Gain on an annuity is taxed as ordinary income. This is the situation with a non-qualified annuity. Gain is computed by the insurance company and is reported to both you and the IRS. If the annuity is held in a qualified plan, taxation will be in accordance with taxation for that plan.
That is a great question! The answer depends upon how your annuity is structured, but the short answer is that a good portion of it is taxable. If your annuity is rolled into a retirement plan that was a pre-tax deduction, then whatever you draw from it is taxable. If it is one that you purchased for yourself and paid for post-tax, then the amount that the annuity earned in interest is taxable. Your annuity may pay out all the interest first, (which is taxed at whatever tax rate you are in at the time) until you hit the non-taxable amount you'd invested into it, or it may pay a portion of both, and tax you upon the interest portion of that payout. I hope that helps, thanks for asking!
Agent Owner, Gilmore Insurance Services, Marysville, Washington State
How are annuity gains taxed? Well, depending on how you funded the annuity and how you choose to distribute from the annuity the answer and be part of the distribution to all of the distribution. If you use qualified money to fund your annuity, you've skipped paying taxes on those funds. This means when you have the funds distributed the entire amount is taxable. If you paid taxes on the money used to fund the annuity, you only pay taxes on the gains liquidated. The distribution is basically split in half for tax purposes. One thing as you consider distribution from your annuity.. only the money actually taken out is taxed, so taking funds out on a regular basis means you only pay taxes on what comes out of the policy.
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A deferred annuity has an accumulation phase and a distribution phase. During accumulation, the annuity grows untaxed. When the annuity is paid out during the distribution phase, the payouts are taxed at ordinary income tax rates for you during that year.
If you buy a deferred annuity with after tax dollars then a portion of the payouts will be a tax free return of your principal. It is considered "last in, first out" meaning that withdrawals are taxed until the interest and earnings portion is depleted. After that, your principal can be withdrawn without taxes.