How are deferred annuity withdrawals taxed?
Withdrawals from qualified annuities, such as IRAs, are fully taxable as ordinary income since your principal 9the premiums you contribute) was excluded (i.e., deducted) from your taxable income in the year your contribution was made. For non-qualified annuities, the interest, but not your principal, is taxed when you withdraw it. Under current tax laws, you are deemed to withdraw interest before principal. An exception to this is premium paid before August 14, 1982 when principal is assumed to be withdrawn before interest. How can I avoid paying taxes in the year of a roll-over or exchange? To avoid paying tax in the year of a transfer or exchange, be careful to avoid taking “constructive receipt” of the funds. You can do this by having the money sent directly from the current financial instruction to the new insurance company. The easiest way to do this is to assign the old policy to the insurance company issuing your new policy. The new insurance company will then surrender the poli
