Second, variable annuities are tax-deferred. That means you pay no federal taxes on the income and investment gains from your annuity until you make a withdrawal, receive income payments, or a death benefit is paid.

Is a fixed annuity deferred?

With a fixed deferred annuity, a guaranteed interest rate is locked in for an initial period. After that, interest rates may be adjusted each year. Fixed deferred annuities also provide you with a guaranteed minimum interest rate, regardless of market conditions.

When do you pay taxes on a deferred variable annuity?

Hang tight for 15 years, and you’ll owe current income tax only on the dividends; tax on the appreciation is deferred until you sell. Annuities are illiquid. If you try to get at the money inside an annuity before you’re 59-1/2 you’ll owe a penalty tax on any gains.

Are there any tax pitfalls with variable annuities?

Tax Pitfalls in Variable Annuity Contracts. Variable annuity contracts are sold as investment vehicles that can offer significant tax savings by deferring income taxes on any gains. You invest with after-tax money, and you pay no taxes on any interest, dividends, or capital gains until you begin taking withdrawals.

How are variable annuities taxed in a 403B plan?

For instance, if one of the investment options in your 403 (b) plan is a variable annuity, when you defer salary to contribute to the annuity within that plan, those deferrals will reduce your taxable income — and when you take money out of the plan it will be taxable as income.

What are the benefits of variable annuity contracts?

Variable annuity contracts are sold as investment vehicles that can offer significant tax savings by deferring income taxes on any gains. You invest with after-tax money, and you pay no taxes on any interest, dividends, or capital gains until you begin taking withdrawals.