Are Indexed Annuities Tax-Exempt?

Shawn Plummer

CEO, The Annuity Expert

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  • Tax-Deferred Growth: Interest earned is not taxed until withdrawn.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  • Early Withdrawal Penalty: 10% if withdrawn before age 59½.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 WithdrawalTax on EarningsTax on PrincipalEarly Withdrawal Penalty
Under 59½Ordinary IncomeNone10%
59½ and overOrdinary IncomeNoneNone

Conclusion

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.

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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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