You may have to pay a 10% tax penalty if you withdraw the accumulation from a deferred annuity before age 59 1/2. Income tax on annuities is deferred, which means you aren’t taxed on the interest your money earns while it stays in the annuity.
The earnings grow tax-deferred as long as you leave them in the annuity. Any money your annuity earns is tax deferred. You’ll pay ordinary income tax when you take a withdrawal or receive payments, and may owe a 10% tax penalty before age 59 1/2.
A deferred annuity has two parts or periods. During the accumulation period, the money you put into the annuity, less any applicable charges, earns interest. During the second period, called the payout period, the company pays income to you or to someone you choose. This Guide isn’t meant to offer legal, financial or tax advice. You may want to consult independent advisors.
Receive your free NAIC Buyer’s Guide to Fixed Deferred Annuities at
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Educational content provided by Jeffrey Scott McLeod, LUTC, National Insurance Producer License #558629. This is for informational purposes only and is not a recommendation to buy or sell any annuity. Guarantees are subject to the claims-paying ability of the issuing insurance company. Always consult your own advisor and read the full NAIC Buyer’s Guide. For residents of your state.
Jeffrey Scott McLeod, LUTC — National Producer #558629.
Questions? Contact Jeff@AnnuitiesExplained.org.
Source: © 2025 National Association of Insurance Commissioners (NAIC). Reprinted with permission. Further reprint or distribution strictly prohibited without written permission of NAIC.
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