Tax Planning for Annuities
Favorable tax treatment is one of the main reasons for buying an annuity. But what exactly are the tax benefits? And are there any drawbacks? It's important to know the answers to these questions before deciding whether to purchase an annuity.
Of course, any information pertaining to taxes is complex, full of exceptions, and subject to change. Annuities may be funded with after-tax dollars, or they may be purchased within a tax-advantaged plan such as an IRA or 401(k). This discussion deals with the general rules for taxation of annuities funded with after-tax dollars--you should consult a tax advisor for more specific information before you take any action.