Annuity Tax Considerations

Last updated: October 7, 2015

What You Need to Know About Taxation on Your Annuity

All earnings from annuities are taxed as ordinary income.

  • If your ordinary income tax rate at retirement is higher than the current capital tax gain tax rate, you might end up paying higher taxes on distributions from annuities than you might otherwise pay on selling investments subject only to taxable gains.

However, note that annuities offer a tax deferral on interest earnings.

  • Other investments may be subject to annual taxation at ordinary income or capital gain tax rates even if you do not sell the investment.
  • Annual taxation of such investments can reduce the value of your earnings over time compared to tax deferral.

If you have further questions about annuities, contact the Kansas Insurance Department’s Consumer Assistance Hotline at 800-432-2484.