Taxation of Annuities


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question 1 of 3

Consider the following. You invest $75,000 in post-tax dollars in an immediate annuity. Payments are $5,000 per year. The IRS thinks you'll live another 20 years. How much of each payment is tax-free income?

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1. What can you do to defray the tax burden on a deferred annuity (when you are ready to start withdrawing funds)?

2. You have invested $50,000 in a deferred annuity and the account has grown to $75,000. How much of the earnings are taxable, should you withdraw them?

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About This Quiz & Worksheet

Answer these questions about annuity taxes for a quick self-assessment. You'll be tested on specific topics like tax-free income in an immediate annuity and defraying the tax burden for a deferred annuity.

Quiz & Worksheet Goals

Find out what you know about the following key points:

  • Taxable earnings upon withdrawal in an account that has grown by fifty percent
  • Payments for an immediate annuity account
  • A certain type of withdrawal on an immediate annuity

Skills Practiced

  • Knowledge application - use your knowledge to answer questions about annuity taxes
  • Distinguishing differences - compare and contrast topics from the lesson, such as a deferred annuity and an immediate annuity
  • Information recall - access the knowledge you've gained regarding taxable income with regard to these types of annuity accounts

Additional Learning

Learn more about taxes from the lesson we've named Taxation of Annuities. These areas of study will be covered to help you grasp the subject:

  • Definition of an annuity
  • Characteristics of an immediate annuity and a deferred annuity
  • Annuitizing a withdrawal
  • Pros and cons of investing in an annuity account