How Are Retirement Annuities Taxed?

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    David RacichPRO
    Fountain Hills, Arizona
    Retirement Annuities are generally annuities held in qualified retirement plans. Contributions are deductible. When qualified plan distributions are paid to the plan participant, the entire amount is taxed. Non-qualified annuities used as retirement plans are taxed on gain, but not on basis or original contributions. Original contributions are not deductible.
     
    Answered on May 29, 2013
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    David G. Pipes, CLU®, RICP®
    Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
    Generally speaking a retirement annuity has had all growth tax deferred.  It is this growth that would be taxed when withdrawals are made, regardless of when that would be.  If the annuity is funding an IRA all of the distribution would be taxable income and there could be a 10% income tax penalty if the money is withdrawn prior to age50.5.  If the annuity is funding a Roth IRA the distribution is entirely tax free if the contract has been held for five years and the participant is older than 50.5.
    Answered on August 15, 2014
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