Is Interest Earned On Annuities Taxable?

  1. 12689 POINTS
    Ted Ratliff
    Owner, SFS Associates,
    There are two basic types of annuities, qualified and non-qualified.  A qualified annuity would be a traditional IRA for example.  You can deduct contributions from your taxes each year up to a specified amount.  Once you begin taking payments, you pay taxes on the payment amount.  A non-qualified plan is not tax deductible but the interest is tax deferred until you withdraw the funds.  You will pay taxes in either case it is just a matter of how and when.
    Answered on May 25, 2013
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    David RacichPRO
    Fountain Hills, Arizona
    In general terms tax deferred annuities, during the accumulation period defined by the policy, does not pay taxes until constructive receipt of any distributions. During distributions, all gain is taxed at ordinary income tax rates of the owner of the annuity. Non-qualified annuities have basis which will not be taxed but generally are received last in a payout. If the annuity is annuitized for the life of the annuitant, basis with be part of the payout until it is exhausted. That is the exclusion provision for basis, which can have a positive impact on cash flow.
      
    Answered on May 25, 2013
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