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Annuity Tax 101

Annuities Tax – What You Need to Watch For

It often comes as a surprise to annuitants that when they begin receiving regular annuity payments, they are required to pay Annuities tax. Are you prepared for this?

During the period of accumulating funds in your annuity account you get some wonderful tax breaks – on the money you deposit into the annuity account and on the interest earned. However, when you begin receiving your regular payments you become liable to pay taxation on the amounts received. This can come as a nasty surprise, especially as you have become accustomed to all these tax breaks during the accumulation phase. Contact your taxation expert for advice to ascertain how this will affect you. Generally, the rate of taxation that you pay is determined by your overall rate of taxation. By this, I mean that the annuity gets added to any other income you have. Your total annual income, including your annuity payments, determines the rate of taxation that you will ultimately pay. You need to be very careful about your overall income. In particular, Annuities tax can pose a problem to a beneficiary who receives an annuity through the death of an annuitant. This amount could push them up to the highest tax bracket!

Withholding Amounts

As you receive your regular payments withholding amounts may deducted. These are known as the Annuity tax and they are deducted on account of your taxation obligations. They will be adjusted, if necessary, in your annual taxation return.

In order to plan for the actual amount of income you will receive at each payment interval you should obtain an Annuity calendar. An Annuity calendar will set out clearly what payments you will receive and the amount of any Annuity tax that will be deducted. Watch out if you plan to make an early withdrawal from your annuity plan, because there could be early payout penalties.

Can An Annuity Calendar Help?

An Annuity calendar will help you remember what payments you will receive and when you will receive them thereby eliminating any confusion. Whilst the dates of payment are generally the same each period, the amounts may vary according to indexation and the withholding amounts. Your insurance company should, at the time you signed up, have provided you with details about the dates when your payments are due and the various amounts you can expect. However, if you do not have this information then they should be happy to provide it.

They may be able to issue you with an Annuity calendar. Some insurance companies have Annuity calendars on-line. First, check out their website because some companies have special on-line services for their clients. In order to access this, however, you may require special log-on details. They will be happy to provide you with these and then it is simply a matter of going into the website and setting up your password. When that has been done you will be able to access your personal Annuity calendar on-line.

Of course, if your insurance company does not provide an on-line Annuity calendar you can either ask them to provide you with a hard copy of one or make up your own. To do this all you need to do is simply get a calendar and mark all the dates of your payments on it together with the correct amounts.

When you are set up with your Annuity calendar you shouldn’t need to worry any more about remembering all the dates of your payments and Annuities tax. It will be clearly displayed for you in one place, either on-line or in written form.