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A deferred annuity which grows by interest rate earnings alone is called a fixed deferred annuity (FA). A deferred annuity that permits allocations to stock or bond funds and for which the account value is not guaranteed to stay above the initial amount invested is called a variable annuity (VA). A new category of deferred annuity, called the ...
Earnings within the annuity grow tax-deferred. However, you will pay taxes on a portion of the payouts you receive. This portion is typically taxed as ordinary income. There may also be tax ...
Part of the lump sum must be used to buy an annuity and part can be taken a tax-free lump sum. Contributions receive basic tax relief claimed at source (although this was only introduced in 2001). The income and gains in the plan are free from tax (with the exception of the non-reclaimable 10% tax credit). At maturity, the tax-free cash can be ...
An indexed annuity (the word equity previously tied to indexed annuities has been removed to help prevent the assumption of stock market investing being present in these products) in the United States is a type of tax-deferred annuity whose credited interest is linked to an equity index—typically the S&P 500 or international index.
Whether you hold your annuity inside a tax-advantaged retirement plan such as a 401(k) or IRA – and whether it’s a Roth account – can also affect how an annuity’s distributions are taxed:
The tax treatment varies depending on whether you bought the annuity with pre-tax (qualified) or post-tax (non-qualified) funds. For qualified annuities, withdrawals are fully taxed as income.