Annuity Taxation Guide (2026) - Tax Treatment of Annuity Income
Annuity taxation guide: qualified vs non-qualified annuities, exclusion ratio, tax-deferred growth, and withdrawal tax treatment.
Summary
Annuity taxation: qualified (pre-tax contributions, all withdrawals taxable), non-qualified (after-tax contributions, exclusion ratio for partial tax-free). Tax-deferred growth during accumulation. 10% penalty before age 59½. Qualified annuities: required minimum distributions after 73.
Key Steps
- 1Qualified annuities: pre-tax contributions (401k, IRA rollover), all withdrawals taxable.
- 2Non-qualified: after-tax contributions, exclusion ratio = investment / expected return.
- 3Exclusion ratio: portion of each payment tax-free (return of principal).
- 4Tax-deferred: no tax on growth until withdrawal.
- 5Penalty: 10% early withdrawal before age 59½, RMDs required at 73 for qualified.