Is the income you receive from an annuity you own taxable?

When you purchase an annuity that will provide you with an income during retirement, the insurance company that’s selling it is responsible with providing you with this information upfront. In most cases, only the portion of the payment that represents your principal will be tax-free.

But, of course, rules vary. If, for example, you bought that annuity with pretax funds, 100% of your payment will be taxed as ordinary income.

And another thing you must consider as you work on your savings before your golden years is that you’ll have to pay at your ordinary income tax rate as opposed to capital gains rate. Sad, we know, but it is what it is.