When I take annuity payments, how will they be taxed?
Updated Jan 26, 2021;
Q. I am 66 and I have two fixed annuities for life with a rider attached. I plan to start my monthly payments for life at age 71. I’m confused about how the payments are taxed. I’ve heard that for federal taxes, it goes by the “last in, first out” rule, meaning I would be taxed on the total monthly payment until all the interest and gains until I was 84, and then it would be tax-free. Is that true?
— Taxed enough
A. The taxation of your specific annuities depends on a couple of assumptions.