Are there any tax implications for withdrawals from my variable annuity?

Yes, withdrawals from a variable annuity can have significant tax implications. When a policyholder takes money out of their variable annuity, the tax treatment generally depends on several factors, including the type of withdrawal, the account's growth, and how long the account has been held. Withdrawing earnings from a variable annuity is typically taxed as ordinary income. This means that any growth or earnings accumulated within the annuity will be subject to income tax at the policyholder's current tax rate. Additionally, if the withdrawals are made before reaching the age of sixty-two, the policyholder may incur an additional ten percent penalty tax on the taxable portion of the withdrawal. It is essential to understand that the initial investment in the annuity, often referred to as the principal or basis, is not subject to tax upon withdrawal. Only the earnings portion is taxable. For example, if a policyholder invests ten thousand dollars and later withdraws fifteen thousand, only the five thousand dollars in earnings will be taxed as ordinary income. Furthermore, it is important to consider the long-term implications of withdrawals. Taking money out of the annuity can affect the overall growth potential of the investment, as it reduces the amount of capital that can compound over time. It may also impact any death benefits associated with the annuity. For specific guidance regarding individual circumstances, it may be helpful for policyholders to look on the current website for more resources or consult with a tax professional.