Taxes can be a major burden for retirees and people saving for retirement, so choosing the right investment vehicle is essential. However, once you retire, one of the most important things to consider is how you will receive your income. Many people choose to annuitize their retirement savings, which can be a great way to let their savings grow tax-deferred and guarantee a steady income stream during retirement. However, there are a few things you need to know about annuities and taxes before making your decision. This post will explain how annuities are taxed and offer some tips on avoiding paying too much in taxes. Read on to learn more.
How Does the IRS Tax Annuities?
You may have heard that annuities offer tax advantages, but what exactly does that mean? Does it mean that you won’t pay taxes on the money you put in an annuity? The answer is no; it doesn’t. You may be surprised to learn that annuities, 401(k)s, and even government pensions are taxed on the year we start receiving them.In general terms, the IRS sees annuities as investment vehicles for retirement, giving you the benefit of deferring taxes on your income until you retire. In other words, you won’t pay taxes for the income used to pay your premium now, but later, when you start making withdrawals or receiving your annuity income.
