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taxation of annuity distributions

By Terry Savage on January 12, 2021 | Insurance & Annuities

I have a non-qualified annuity that we just started receiving distributions in 2020. Most of the internet articles say that each distribution will be a blend of earnings(taxable) and principle(not taxable). Yet the 1099 that the insurance company has provided indicates the entire distribution is taxable. How should I handle this ?

Terry Says

Go back to the insurance company and ask them. They may have mis-labeled your distribution. OR, you may not have read the fine print breakdown between ROP and taxable interest. OR you may not be in a “withdrawal” program, which discriminates between the two categories. But as a general rule, a withdrawal is first taxed as income: If money is left in your annuity account, the IRS considers the first and subsequent withdrawals to be interest and subject to taxes.

Read the entire article about annuity taxation here.
Then go back and talk to your insurer about the details of your withdrawals.



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