Deferred annuities cash accumulation grow tax free until the funds are disbursed. This "tax shelter" may be attractive to those in a high income tax bracket especially if they anticipate lower tax rates when they retire.
Annuity payouts are subject to regular income tax rates as ordinary income. There are no capital gains taxes on disbursement.
Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
A deferred annuity is a contract that accumulates money from two sources. The first source is additional contributions to the annuity. The second source is interest (except in a variable deferred annuity.) All of the growth inside a deferred annuity remains untaxed until the money is withdrawn. When the money is withdrawn there are three things to remember, there can be a penalty for “early withdrawal, there can be an income tax surcharge for drawing the money out too soon, and then the gain in the contract is most likely going to be taxed as ordinary income.
.JPG){kind=avatar}
Annuity payouts are subject to regular income tax rates as ordinary income. There are no capital gains taxes on disbursement.