| Following tax laws to the T is something that very few | | | | principal and as earnings. Tax will be applicable on the |
| people can boast of. Among the several options that | | | | earnings portion of the payout. The amount excluded |
| are available, the deferred tax growth of an annuity | | | | from the tax is based on the calculation of exclusion |
| account is what interests people the most. For the | | | | ratio which is dividing your contractual investment by |
| duration that the money lies in an IRA like account, the | | | | an approximation of what you think you will receive at |
| entire figure is not taxable. But you have to understand | | | | the end of the term. |
| that at some point, taxation is going to take place. | | | | In the case of variable annuities where the payout is |
| A deferred annuity remains untaxed for the time that it | | | | dependent on market conditions, an excludable amount |
| is accumulating. As your interest compounds you don't | | | | will have to be calculated. In this case it is arrived at by |
| have to worry about it being tax. The taxation laws | | | | dividing your contractual investment by the number of |
| come into play in the next phase, when the money has | | | | days over which you are going to receive it. |
| to be distributed or paid out. Depending on your choice, | | | | Withdrawals can also be made from annuities |
| this could be a lump sum payment or a fixed monthly | | | | however this is not considered a part of the |
| interest rate one. | | | | pre-determined payout. For the purpose of income tax, |
| No matter what you opt for, there are certain tax laws | | | | the first withdrawal you make will be acknowledged |
| that you will have to respect. In the case of a lump | | | | as earnings and will come under the ordinary income |
| sum payment, you will be liable for income tax on the | | | | tax. Also if withdrawals are made prior to maturity |
| amount that has grown during the period of | | | | based on retirement age, there is a further taxation of |
| accumulation. What's more is that you don't enjoy any | | | | 10 per cent. In the case of death of the annuity |
| capital benefits gain as the money is taxed as ordinary | | | | account holder, it goes to the nominee. If the nominee |
| incomes. | | | | receives a bulk payout it is liable to ordinary income |
| In the case of monthly payout, each installation handed | | | | tax. But if it has been annuitized, then it may not be |
| out is considered in part as return on the already taxed | | | | taxable. |