How Are Retirement Annuities Taxed? 
Generally speaking a retirement annuity has had all growth tax deferred . It is this growth that would be taxed when withdrawals are made , regardless of when that would be . If the annuity is funding an IRA all of the distribution would be taxable income and there could be a 10 % income tax penalty if the money is withdrawn prior to age50 .5 . If the annuity is funding a Roth IRA the distribution is entirely tax free if the contract has been held for five years and the participant is older than 50.5 . 