One of the most attractive features of an annuity is its tax-deferred status. Generally, you won\u2019t pay any income tax on the interest or earnings until you start taking withdrawals in retirement (age 59\u00bd or later).<\/p>\n
Qualified and nonqualified annuities are taxed differently. Qualified annuities (such as annuities in an employer-sponsored retirement plan or an IRA) are typically purchased with pre-tax money, so withdrawals are fully taxed as ordinary income. It\u2019s important to understand that purchasing an annuity in an IRA or an employer plan provides no additional tax benefits than those available through the original tax-deferred retirement plan.<\/p>\n
Annuities purchased with after-tax money are taxable upon withdrawal, but only the earnings are taxed. Nonqualified annuities bought after August 13, 1982, are taxed on a Last In, First Out (LIFO) basis. This means that as you take withdrawals, the accrued interest will be the first money taken out and taxed as ordinary income. After the interest has been paid, the initial investment amount will then be distributed without any further taxes.<\/p>\n
Generally, annuity contracts have fees and expenses, limitations, exclusions, holding periods, termination provisions, and terms for keeping the annuity in force. Most annuities have surrender charges that are assessed during the early years of the contract if the contract owner surrenders the annuity. In addition, if the contract is surrendered before age 59\u00bd, you may be subject to a 10% federal tax penalty. Any guarantees are contingent on the claims-paying ability and financial strength of the issuing insurance company.<\/p>\n
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The information in this newsletter is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the \u00adpurpose of \u00adavoiding any \u00adfederal tax penalties. You are encouraged to seek guidance from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the \u00adpurchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. \u00a9 2025 Broadridge Financial Solutions, Inc.<\/p>\n","protected":false},"featured_media":1072,"template":"","meta":{"_acf_changed":false},"article-category":[18],"class_list":["post-1071","articles","type-articles","status-publish","has-post-thumbnail","hentry","article-category-investing"],"acf":[],"yoast_head":"\n