Please clarify what country you are talking about. Different countries have different tax laws.
Taxation rules for a nonqualified annuity owned by individuals subject to United States tax jurisdiction are contained in Internal Revenue Service Publication 17.
A nonqualified annuity is funded with after tax dollars and accordingly the tax basis for all contributions is zero. Any contract gains made above the tax basis are generally taxed at ordinary income tax rates.
The primary advantage of a nonqualified annuity is the benefit of allowing savings to grow on a tax deferred basis. In an ordinary savings or stock account all realized capital gains, dividends, and interest are taxed on a yearly basis. In a nonqualfied annuity account gains can compound tax free over time until funds are withdrawn.
Different tax rules apply depending on whether the annuity holder takes a withdrawal or an annuitization payment.
When a withdrawal is made from a nonqualified annuity gains are considered to be distributed first and will be fully taxable. For example, an individual holding a nonqualified annuity with an account balance of $200,000 consisting of $150,000 of after tax contributions and $50,000 in gains would owe ordinary income tax on $50,000 of a $70,000 withdrawal. The remaining $20,000 would be tax free since it represents part of the cost basis comprised of after tax contributions.
When an owner of a nonqualfied annuity chooses to receive annuity payments each year part of the payment will be comprised of a tax-free return of his basis and part taxable gain. The rules can become very complex and exceptions to the general rule cited above exist for contracts issued prior to August 14, 1982.
In addition to possible taxation of withdrawals a penalty tax of 10% is assessed on money withdrawn before the age of 59 1/2.
If the account owner dies with gains in the nonqualified annuity the beneficiary will inherit the tax basis of the decedent and owe ordinary income taxes on the distribution of any gains.
You mean qualified. It refers to the tax status of the funds inside it. If funds are qualified that is IRS/investment lingo for pre tax money, such as money in a 401K, IRA, or 403b. Non qualified obviously is money that income tax has already been paid on. Taxes in an annuity are defered until you use the money. In a qualified annuity all of the money would be subject to income tax upon withdrawal. In a non qualified annuity only the gains would be taxed. But since it is tax deferred you pay your income tax rate, not capital gains taxes. The original amount invested is not subject to tax when you withdraw it.
Your annuity policy document should have all the withdrawal provision detailed for you. If not contact the company you have the annuity with and they can give you instructions. Before you withdraw from an annuity be aware of the tax treatment of your annuity withdrawals.
No. The interest on a deferred annuity is tax-DEFERRED. That is, it is not taxed until it is distributed, at which point it will be taxed as Ordinary Income. (NO annuity EVER received Capital Gains treatment under current law).
does a beneficiary of an annuity pay pa inheritance tax
The biggest difference between a US annuity and a Swiss annuity is that Swiss annuities are not subject to the usual tax and bankruptcy reporting requirements and can be used in offshore tax planning.
Perhaps you meant a "non-qualified" annuity? If so, a nq annuity is an annuity purchased with after-tax dollars; conversely, a qualified annuity is one purchased with pre-tax dollars, such as in an IRA or a TSA.
You mean qualified. It refers to the tax status of the funds inside it. If funds are qualified that is IRS/investment lingo for pre tax money, such as money in a 401K, IRA, or 403b. Non qualified obviously is money that income tax has already been paid on. Taxes in an annuity are defered until you use the money. In a qualified annuity all of the money would be subject to income tax upon withdrawal. In a non qualified annuity only the gains would be taxed. But since it is tax deferred you pay your income tax rate, not capital gains taxes. The original amount invested is not subject to tax when you withdraw it.
A non qualified annuity is purchased with after tax dollars. The only portion of the annuity that is taxable is the interest portion. This is taxed upon the withdrawal from the annuity at a ration set forth by the company under the guidelines of the IRS.
I am not a tax advisor and you should always seek the advice of a professional, but, having said that, generally speaking, qualified funds in an annuity, with a qualified tax plan, such as an IRA are fully taxable when you take receipt of the funds. Non qualified funds in an annuity, are taxed only on the gains. These are guidelines only. Please seek the advice of a qualified professional tax advisor.
If the annuity is a non qualified tax deferred annuity (an annuity that taxes were paid on the money before they were placed into the annuity) you will pay taxes on any interest growth when it is removed from the annuity. If the annuity is a qualified annuity (no taxes were paid prior to placing the fund into the annuity) you will pay taxes on all withdrawals from the annuity.
There are two types of annuities at John Hancock Annuities Qualified annuity doesn't provide any additional tax advantages Non-qualified annuity avoids income tax fees until distributions are made.
a 401K is a tax deferred qualified annuity similar to an IRA.
Your annuity policy document should have all the withdrawal provision detailed for you. If not contact the company you have the annuity with and they can give you instructions. Before you withdraw from an annuity be aware of the tax treatment of your annuity withdrawals.
No. The interest on a deferred annuity is tax-DEFERRED. That is, it is not taxed until it is distributed, at which point it will be taxed as Ordinary Income. (NO annuity EVER received Capital Gains treatment under current law).
does a beneficiary of an annuity pay pa inheritance tax
No. The money payments to a annuity plan when you purchase the annuity plan the amount that you pay for the plan is not tax deferred. The amount is after income tax funds. The earnings that go on inside of the annuity plan will be tax deferred until the time that you start taking distributions from the annuity plan.
The biggest difference between a US annuity and a Swiss annuity is that Swiss annuities are not subject to the usual tax and bankruptcy reporting requirements and can be used in offshore tax planning.