Are Indexed Annuities Tax-Free?

Shawn Plummer

CEO, The Annuity Expert

Are Indexed Annuities Tax-Free?

Indexed annuities are not tax-free. The earnings from an indexed annuity are tax-deferred, meaning you don’t pay taxes on the earnings until you withdraw the money. However, there is an exception with Roth IRA indexed annuities. In a Roth IRA, contributions are made with after-tax dollars, and both contributions and earnings can be withdrawn tax-free in retirement, provided certain conditions are met.

Taxation of Indexed Annuities

  • Regular Indexed Annuities: Tax-deferred growth; taxes are due upon withdrawal.
  • Roth IRA Indexed Annuities: Contributions are after-tax; withdrawals can be tax-free.

Example

  1. Regular Indexed Annuity: If you invest $10,000 and it grows to $15,000, you pay taxes on the $5,000 gain when you withdraw.
  2. Roth IRA Indexed Annuity: If you invest $10,000 (after taxes) and it grows to $15,000, you can withdraw the entire amount tax-free under qualifying conditions.

Conclusion

While indexed annuities offer tax-deferred growth, they are not entirely tax-free, with the notable exception of Roth IRA indexed annuities under qualifying conditions. Understanding these tax implications is crucial for effective retirement planning.

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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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