The ‘Gotchas’ In Annuity Taxation
December 23, 2019 by Steve Parrish
How are annuity taxation and attorneys alike? For both, the answer is “it depends.”
Contrary to popular wisdom, there is no simple answer to how annuities are taxed. Yes, they are generally income tax deferred, but there is more to it than that. Taxation depends on how the annuity is owned, and how distributions are made from the product. And if these details are ignored, there are hidden “gotchas” that can result in radically different tax outcomes. Let’s start with a refresher on annuity taxation, and then I’ll suggest some of the land mines and booby traps that might otherwise catch the unwary.
The Four Basic Principles
There are some fundamental tenets of annuity taxation. These are the four underlying principles that drive the general income tax regime for these products.