How Are Annuities Taxed?

Wendy-Swanson-18-How are annuities taxed

Wendy Swanson explains that annuity taxation depends on the source of funds—qualified annuities are fully taxable as income, while nonqualified annuities are partly taxable, with a portion of each payment excluded based on principal return.
Video Transcript

Taxation on annuities can be a very complex situation. I would always recommend somebody work with their CPA or whoever their tax consultant is to really get down deep. But on the surface level, most of the times, yes, you're going to pay taxes on that. So if I am funding an annuity with money, let's say it was Ira that I'd set up for myself or a 401(k for 57 for three b, right?

These are monies that I've put aside that I've never, ever paid taxes on. So yes, when I put that into an annuity and I start taking income from that annuity, I'm going to have regular income taxes that I need to pay on that. Conversely, if I put non-qualified money into that, so money I have in checking savings, a lot of CDS, you know, maybe I've liquidated some of my investments that I have some cash holdings. I put that into an annuity.

If I go to annuitize that, that's where I'm going to get some tax exclusions, where part of the payment is going to be taxable while other portions would not be taxable.