Taxation Of Variable Annuities

The tax rules that apply to variable annuities can be complicated before investing you may want to consult a tax adviser about the tax consequences to you of investing in a variable annuity.

Taxation of variable annuities. A qualified annuity is purchased as part of or in conjunction with an employer provided retirement plan or an individual retirement arrangement such as an Individual Retirement. There are varying types of annuities indexed variable etc and different situations that affect tax liability. If you buy an annuity with after-tax funds you are required to pay taxes only on the earnings.

You invest with after-tax money and you pay no taxes on any interest dividends or capital gains until you begin taking withdrawals. Non-Qualified Variable Annuities and Taxes Variable annuities allocate money to investments similar to mutual funds that are called subaccount funds. If the variable annuity is held in a retirement account the variable annuity is taxed almost like anything else within that account.

Nonqualified variable annuities offer many options for income. A feature of the variable annuity is tax-free transfers between subaccount investments. When you take distributions the IRS requires you to report those.

Contrary to popular wisdom there is no simple answer to how annuities are taxed. The value of the variable annuity account rises and falls with the performance of the subaccount investments. When the policyholder of a payout annuity becomes a non-resident we base their tax on the source of funds used to purchase the annuity and the policyholders country of residence.

Capital gains and dividends are not taxed until distributions are made from the annuity. Nonqualified variable annuities are tax-deferred investment vehicles with a unique tax structure. How Inherited Annuities Are Taxed.

For instance if one of the investment options in your 403b plan is a variable annuity when you defer salary to contribute to the annuity within that plan those deferrals will reduce your taxable income and when you take money out of the plan it will be taxable. Any distributions paid to the annuitant from a qualified annuity are. In a variable annuity the earnings in the account will vary according to the success of the investments the account holds.