Are Annuities Taxed As Capital Gains?

Shawn Plummer

CEO, The Annuity Expert

Annuities and Taxation

  1. Tax Status of Annuities: Annuities are not taxed as capital gains. Instead, they are taxed as ordinary income. This means that when you withdraw money from an annuity, the earnings portion of the withdrawal is taxed at your regular income tax rate, not the typically lower capital gains rate.
  2. Examples of Taxation:
    • If you are in the 24% income tax bracket and make a withdrawal from your annuity, the taxable portion of your withdrawal will be taxed at 24%.
    • Conversely, capital gains, which might apply to stocks or property sales, are often taxed at lower rates, like 15% or 20% for long-term gains, depending on your income level.

Annuity vs. Capital Gains Taxation

FeatureAnnuity TaxationCapital Gains Taxation
Tax TypeOrdinary IncomeCapital Gains
RateBased on Income Tax BracketFixed % (Long-term: 0%, 15%, 20%)
ApplicabilityOn Earnings Portion of WithdrawalsOn Profits from Sale of Assets
ExamplesWithdrawal from AnnuitySale of Stocks, Real Estate

Conclusion

Understanding the tax implications of annuities is crucial for effective financial planning. While annuities are taxed as ordinary income, capital gains have different tax treatments. This distinction can significantly impact your tax obligations and retirement strategy.

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Shawn Plummer

CEO, The Annuity Expert

Shawn Plummer is a licensed financial professional, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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