Is an Annuity Considered Income?

An annuity can be quite helpful as you move closer to retirement and need funding each month to pay bills, buy necessities, and enjoy a few luxuries.

However, due to the nature of annuities, it can be confusing to distinguish what counts as income and what doesn’t.

Depending on your policy and how the money is distributed, you may need to readjust your retirement plans. Here, we’ll break down what is considered income and how you can use annuity funds to make your golden years even better!

What Counts As Income?

Income can be classified as any money that you make in a given period, which would include annuities. Whether it’s earned or unearned income, money is money to the IRS. A trusted financial advisor can break down the specifics of your policy for a full explanation.

However, as far as your taxes are concerned, it’s categorized as “unearned” income. This way, it won’t affect any social security benefits since annuities will be taxed like a standard income. Keep in mind that the payments may not be as much as previous paychecks when working a full-time job.

There are always exceptions to the rule, so check with a professional to ensure compliance.

How Annuities Can Help You

As part of your investment portfolio, annuities can be used to generate income throughout your retirement without having a typical nine-to-five job wearing you down. This source of income allows you to take bigger risks with your other investments, as you secure a profitable future with annuities.

The partially taxable nature of the investment means that you won’t receive all of the money, but you set yourself up for success during your retirement. Even then, the taxes are in favor of retirees, so you can rest easy instead of worrying about your finances.

A tax deferment means that you won’t have to worry about paying taxes while your money grows. Being taxed at the income tax rate instead of the capital gains tax rate, as mutual funds are, can save you money in the long run.

How To Use Annuity Funds

Annuity funds can be withdrawn in installments to supplement your income in retirement.

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