Distributions from a nonqualified deferred annuity are taxable to the extent that they exceed the purchase premiums paid for the annuity. In other words, the earnings generated by the investments in the annuity are taxable. Non-periodic distribution consist first of taxable earnings, followed by nontaxable distributions of your original premiums. If you annuitize the deferred annuity, the resulting periodic distributions consist partially of a nontaxable return of your original premiums and partially of taxable amounts. Form periodic distributions you would have to find out from the annuity company how much of each distribution would be a nontaxable return of premiums.
