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Annuities

Tax Considerations

It is important that individual taxpayers, especially those with high incomes, consult a qualified tax advisor for information on their own situations. However, some general guidelines include:

  • • Annuity benefits are fully taxable if the annuity is purchased entirely with before-tax dollars, which are funds on which no tax has been paid, such as amounts held in tax deferred programs like IRAs or qualified pension plans.
  • • If the annuity is purchased with after-tax dollars (funds on which all income taxes have been paid), benefits are tax-free until life expectancy has been reached (an age calculated on IRS actuarial tables). Once reaching that age, benefits are fully taxable.
  • • Depending on the state, a person may pay little or no state income tax on retirement income. For retirees with high income, the state of residence can make a big difference.

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