Annuity withdrawal

Forum|Forum|3 years ago
February 5, 2023
10 replies
62 views

I took a $10,000 early withdrawal on my Annuity. In two years I have made just slightly over $2000 in interest yet box 2a on my 1099R says of the $10000 withdrawn, $1375 is taxable. How can it be so high?

DanaB27

Level 15

The amount you pay in taxes depends on whether you bought the annuity with pre-tax or post-tax funds.

If you purchase an annuity with pre-tax funds, the money you withdraw will be taxed as income.

If you use post-tax funds to buy the annuity you’ll only pay taxes on the earnings (please see this excellent post from Tax Expert DianeW777 for additional information).

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HavasuFlashAuthor

Level 2

Thanks so much Dana....the annuity was purchased with taxable dollars....it is a $100000 tax deferred annuity......have only made a little over $2000 since purchase so am confused why I'm they are saying $1375 is taxable income when I only withdrew $10000. Thanks again for your wonderful assistance.

JulieS

Level 15

What you are describing is a non-qualified annuity. Annuity companies are required to distribute all of your earnings first and show those earnings as taxable. The non-taxable portion represents a return of your after tax investment.

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dmertz

Level 15

I assume that this is a distribution from a nonqualified annuity (codes 1 and D in box 7 of the Form 1099-R). If you previously took no distributions from this annuity, I would have expected the taxable amount to be slightly over $2,000, the entire amount of interest earned. As JulieS said, non-periodic distributions from a nonqualified annuities come first from investment gains. Only after all of the gains present in the account have been distributed do the distributions include a portion of your investment in the contract.

Periodic (annuitized) distributions are different in that they include only part of your gains.