1. 12689 POINTS
    Ted RatliffPRO
    Owner, SFS Associates,
    In most cases yes, you will pay income tax on your annuity income.  Since most people use annuities to fund their retirement when income is usually lower, the tax will be according to the reduce income schedule.  Funds in an Annuity are tax deferred until you begin taking withdrawals.  If the plan is a qualified plan such as an IRA, you can deduct the amount of your payment from your income each year.  The IRS has special rules set up for when you begin taking withdrawals and the minimum distribution.  Again, you will pay taxes on the distribution.
    Answered on June 24, 2013
  2. 0 POINTS
    David RacichPRO
    Fountain Hills, Arizona
    Non-qualified annuity distributions of gain are taxable at ordinary income rates. Non-qualified annuity distributions of basis are tax free. Annuity distributions recognize gain first and basis second or “last in first out. The exception to the rule is lifetime annuitization where basis is amortized to the annuitant’s life expectancy as a portion of the payment until it’s exhausted. This special treatment is called the exclusion ratio, the part of the annuity payment excluded from taxation. All qualified annuities are fully taxable at ordinary income tax rates.
    Answered on June 24, 2013
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