Annuities are tax-deferred, not tax free. They grow without income tax until funds are withdrawn.
In a non-qualified annuity (that means it is not in an IRA or other retirement account) funds withdrawn are taxed on a last in, first out basis unless annuitized. This means all profit comes out first and is taxes before your original money is returned, which is not taxed (it was taxed before it was put in). If you annuitize, then profits and original basis are pro-rated.
Example: You put $20,000 into a non-qualified annuity and it grows to $40,000. If you take money out without annuitizing, then the $20,000 profit comes out first and is taxed at ordinary tax rates before the principle. If you annuitize, half of each payment is taxable profit and half is retrun of principle.
Note: If you take money out prior to age 59 1/2 you will pay a penalty in addition to the income tax unless taken out under Section 72(q), equal and periodic withdrawls.
Annuities are retirement products which let you pay an insurance company so they can pay you a steady stream of income in the future. Annuities are only tax-deferred and not totally exempted from tax. That means that when you withdraw your money from annuity, you will be taxed at a normal income tax rate.
by Nick Lucas6 years ago
I don’t understand this concept that Obama and many liberals keep clinging to…..So allow me to make it simple. If everyone is taxed at say 10% people who make more do pay more as 10% of a greater amount is...
by GA Anderson2 years ago
You work hard to build a fortune that you can pass on to your kids, or otherwise distribute however you desire on your passing. It is your money. Shouldn't you be able to do whatever you want with it, within our legal...
by GA Anderson5 years ago
Political pundits are saying the Obama admin is floating the typical "trial balloons", (ie. rumors to pundits to get it in the public conversation/news), of a wealth tax - to see if it would have a...
by hanzster3 years ago
Are annuities that are inherited taxable if you withdraw the funds?
by doodlebugs5 years ago
Should fireworks stands be taxed to help pay for firefighting?This Fourth of July, millions of dollars of legal fireworks are sold by stands around the country. Since they sell a product which causes many of the fires...
by trish10487 years ago
I just received a check for my remaining vacation hours that I accrued during my last employment. It wasn't a large amount that I was owed, however, the Federal government saw fit to take 25% tax out of my...
Copyright © 2018 HubPages Inc. and respective owners.
Other product and company names shown may be trademarks of their respective owners.
HubPages® is a registered Service Mark of HubPages, Inc.