How annuities are taxed, one decision at a time.

Nothing about annuity tax makes sense until you know which kind you hold. One line on your paperwork decides how every dollar comes out, whether the government forces withdrawals, and which tax-free exits exist.

• Qualified or non-qualified?Start
  IRA money or after-tax money. Establish this before reading anything else on this page.
• How are annuities taxed?Core
  The core guide: exclusion ratio, gain-first withdrawals, the 59½ line, and what the insurer reports.
• How does tax deferral actually help?
  And the case where it does nothing at all — inside an account that already defers.
• What is my cost basis?
  The after-tax money you put in. It returns tax-free, and losing track of it is how people overpay for years.

Every withdrawal route has its own rule, and the order matters more than the amount. These are the four doors and what each one costs in tax.

• Withdrawals before annuitizing
  The LIFO rule: gain comes out first, basis last. The opposite of what most people assume.
• Annuitized payments
  The exclusion ratio spreads basis across the stream, making part of every payment tax-free until basis is recovered.
• Withdrawing before 59½
  The 10% additional tax, when it applies, and the exceptions that avoid it.
• Rule 72(t) and SEPP schedulesGuide
  Penalty-free early access through substantially equal periodic payments — and the schedule you cannot break.
• When to convert to Roth
  Gap years, bracket filling, IRMAA, and the five-year clocks.
• Qualified charitable distributions
  IRA to charity, excluded from income, counts toward the RMD.
• Required minimum distributions
  Which annuities have them, which don't, and the one structure that reduces them.
• Selling payments for a lump sum
  Structured settlement versus ordinary annuity, and how a sale accelerates the gain into one tax year.

Two doors, and they do not interchange. Using the wrong one — or taking receipt of the money along the way — turns a tax-free move into a taxable event.

• 1035 exchangesGuide
  Contract to contract, preserving basis and deferral. It does not waive the old surrender schedule and can start a new one.
• Rollovers and trustee-to-trustee transfers
  The qualified-money equivalent, governed by retirement plan rules rather than Section 1035.
• Why your exchange still generated a 1099-R
  Reportable is not the same as taxable. Code 6 and code G are the ones to look for.

What arrives in January, what each box means, and the checkbox that quietly makes people pay tax on their own money.

• Form 1099-R, box by boxGuide
  The gross distribution, the taxable amount, and the full Box 7 distribution code table.
• “Taxable amount not determined”Trap
  When the payer hands you the calculation. Treating a blank Box 2a as fully taxable is the classic overpayment.
• Where it lands on the 1040
  Lines 4a/4b for IRAs, 5a/5b for pensions and annuities. When the two lines differ, the return is asserting a reason.

Annuities are taxed harshly at death relative to almost everything else you can own, and the elections that soften it have deadlines.

• Inherited annuity optionsGuide
  Spousal continuation, the five-year rule, the nonqualified stretch, and the SECURE Act ten-year rule.
• Why there is no step-up in basisKey
  Inherited stock loses its gain at death. Inherited annuities do not — the untaxed gain passes as ordinary income.
• Death benefits and beneficiaries
  What passes, to whom, and how titling at purchase decides it.
• Private annuities and family transfers
  The estate structure Treasury rewrote in 2006, and what survives of it.

Employer plans and government programs layer their own rules on top of the annuity's. These are the three where the interaction matters most.

• 403(b) tax-sheltered annuitiesGuide
  The teacher's plan: contracts versus custodial accounts, the vendor menu, and the rollover rules.
• QLACs and RMD deferral
  The one annuity structure that removes value from the required-distribution calculation.
• State tax: the Florida caseFlorida
  Zero state tax on annuity income, and the federal layer residency does not touch.
• IRMAA brackets and the two-year lookback
  Cliffs, not phase-ins, and the appeal most people never file.
• The widow’s penalty
  Single brackets on nearly the same income, within two years of the death.
• Which account to draw first
  The sequencing that decides how much of the withdrawal you keep.
• Annuities and Social Security taxation
  How annuity income interacts with provisional income and the taxation of benefits.
• Medicaid-compliant annuities
  A different tax and eligibility question entirely, governed by the Deficit Reduction Act.