How Are Deferred Annuities Taxed? 
This is a different question from how are IRAs and Roth IRAs taxed even though they are frequently funded with annuities . The tax on the gain in a non-qualified annuity is deferred until you start withdrawing money . The deferred earnings are taxed as ordinary income whether received by the annuitant or a non-spouse beneficiary . There isnt a step-up in basis . Upon death the annuity is included in the estate of the decedent . For specific information on taxation , consult with a tax professional . 