How are withdrawals from a deferred annuity taxed?
Your annuity’s earnings, when withdrawn, are taxed as ordinary income. Your contributions, when withdrawn, are not taxed. For taxation purposes, withdrawals are treated as coming from earnings first, then contributions. Withdrawals of earnings prior to age 59 1/2 are generally subject to an additional 10% tax penalty. There are additional rules and exceptions; see your tax advisor for more details. More information is also available in IRS Publication 575, Pension and Annuity Income.
