Tax Preferred Payouts

During the distribution phase there can also be some favorable tax arrangements. If over age 59 1/2, an individual can take penalty free distribution from his annuity. Of course, if an annuity is surrendered on a lump sum basis, all gains will have to be realized at that time. However, many annuitants take either periodic withdrawals, or "annuitize" with an immediate annuity. Either of these will allow the gain to be realized over a longer period of time, hopefully minimizing taxable income in any given year. It is important to note that when withdrawals are taken from an annuity, the IRS requires earned interest to be withdrawn before any principal can be distributed. The original investment, however, is considered return of premium and therefore not taxable to the recipient.

This document was last modified on July 15, 1999

Copyright ©1999, The Jacobs Company, All Rights Reserved