Are Indexed Annuities Tax-Exempt?
No, indexed annuities are not tax-exempt. The earnings from indexed annuities are tax-deferred, meaning you don’t pay taxes on the interest earned until you make withdrawals or start receiving income payments. Upon withdrawal, the earnings are taxed as ordinary income. If you withdraw before the age of 59½, there may also be a 10% early withdrawal penalty. The principal amount (your original investment) is not taxed upon withdrawal since it was already taxed before you invested it.
Taxation of Indexed Annuities
- Tax-Deferred Growth: Interest earned is not taxed until withdrawn.
- Withdrawals: Earnings taxed as ordinary income.
- Early Withdrawal Penalty: 10% if withdrawn before age 59½.
- Principal Investment: Not taxed upon withdrawal.
|Age of Withdrawal
|Tax on Earnings
|Tax on Principal
|Early Withdrawal Penalty
|59½ and over
Indexed annuities offer tax-deferred growth, not tax exemption. Taxes are due on earnings at ordinary income rates upon withdrawal, with potential penalties for early withdrawals. Understanding these tax implications is essential for effective financial planning. Contact us today for a free quote.
Request A Quote
Get help or a quote from a licensed financial professional. This service is free of charge.