What are the average taxes on an annuity withdrawal?


Quick Answer

Annuity withdrawals are generally taxed at ordinary income rates, notes both Edward Jones and the Insured Retirement Institute. A 10 percent penalty tax applies if a withdrawal is taken before reaching age 59.5.

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Full Answer

Annuity withdrawals are subject to ordinary income tax rates until the account value reaches the initial investment amount, states Edward Jones. In certain instances, interest and earnings are taxed first, while the principal is not taxed since it is a return of initial investment. Congress sets the rules on annuity withdrawals in order to encourage long-term investment, notes the Insured Retirement Institute. These tax rates relate to federal taxation, as an annuity recipient must also consider state, estate and gift taxes, which all vary.

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