How are the annuity payments taxed?

The tax rates will differ for qualified and non-qualified plans.

An annuity that is tax-qualified is one that funds a qualified retirement plan. When this qualified annuity is used it follows the same tax laws as these retirement vehicles, such as:

• Tax deferral during the gestation period
• The earnings will not be taxed until withdrawal

A non-qualified annuity is bought with after-tax dollars, but the benefit of tax deferred savings still applies.