10 Annuity Tax Facts Advisors Should Know

Annuity sales reached an all-time high last year due to a variety of factors, ranging from a surge in market volatility to the rapid rise of interest rates.

In fact, according to data provided by LIMRA, annuities boomed in 2022, with sales hitting $310.6 billion and marking a 17% increase from the previous record set in 2008.

Multi-year guaranteed annuities — a type of fixed rate annuity — blasted off, seeing $27.4 billion in sales in the third quarter alone of last year, though there were relatively weak sales of traditional variable annuities and other core products that kept the record sales figure from climbing even higher.

Moving forward, LIMRA predicts the strong overall pace of annuity sales will continue, implying that financial advisors should continue to expand their annuity knowledge base and consider what role different types of income guarantees can play in their clients’ retirement portfolios.

Given their diversity and complexity, however, understanding all the nuances of the annuity marketplace won’t be easy, even for advisors with significant experience building income-oriented portfolios. There is a particular challenge in understanding the tax treatment of different annuities, both when it comes to annual income taxes and issues pertaining to inheritance and estate planning.

See the slideshow for a list of 10 key annuity tax facts that can help advisors and their clients maximize income and fully take advantage of these products’ guarantees, drawn from ALM’s Tax Facts library.

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