Are annuity withdrawals taxed as ordinary income?

Withdrawals and lump sum distributions from an annuity are taxed as ordinary income. They do not receive the benefit of being taxed as capital gains.

How is an annuity lump sum taxed?

Withdrawals and lump sum distributions from an annuity are taxed as ordinary income. They do not receive the benefit of being taxed as capital gains.

How much tax will I pay if I cash out my annuity?

Annuity withdrawals made before you reach age 59½ are typically subject to a 10% early withdrawal penalty tax. For early withdrawals from a qualified annuity, the entire distribution amount may be subject to the penalty.

What is the tax rate on a lump sum payment?

Mandatory Withholding

Mandatory income tax withholding of 20% applies to most taxable distributions paid directly to you in a lump sum from employer retirement plans even if you plan to roll over the taxable amount within 60 days.

Is it better to take a lump sum or annuity?

While an annuity may offer more financial security over a longer period of time, you can invest a lump sum, which could offer you more money down the road. Take the time to weigh your options, and choose the one that’s best for your financial situation.

How can I avoid paying lump sum tax?

Employers of most pension plans are required to withhold a mandatory 20% of your lump sum retirement distribution when you leave their company. However, you can avoid this tax hit if you make a direct rollover of those funds to an IRA rollover account or another similar qualified plan.