Tax Treatment of Immediate Annuities

Immediate annuities are sold as savings investments by insurance companies. They are used to increase pensions or retirement income. The immediate annuity supplies money into the owner's account. In this way, the earnings from the annuities become taxable and can affect your tax status.

Taxation on Immediate Annuities

When you receive money from your annuities, you should make sure that you have a precise record of how much you have received, and when you received it. Most earning distributions from annuities are viewed as earned income. 

Tax Penalties

You may also receive a tax penalty if you take out your annuity earnings before you reach the age of 59 1/2. This is the cut off age at which you can start receiving your retirement fund money. However, you can retire at 55, but you will need to discuss this with your tax office.

Capital Gains

If you make a lot of money from your annuities, you will be assessed capital gains taxes. They are added to an account that has either made money through the buying or selling of mutual funds or through some other method. This tax category is taxed at higher rates than personal income taxes.

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