How Are Annuities Given Favorable Tax Treatment
<p>Do annuities have a tax-free status? Not exactly.</p>
<p>Again. Taxes are deferred on annuities. As a result, you don’t have to pay taxes on the growth of the funds. But, the taxes are paid later when the funds are received.</p>
<p>Your annuity income is taxed as regular income when you do pay taxes. Tax rates depend on the amount of income you earn and the tax bracket in which you fall.</p>
<p>Annuities differ from investment products such as mutual funds, which are taxed as capital gains. In some cases, your federal income tax rate could be higher than your capital gains tax rate.</p>
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