How Do Annuities Work? 
There are a variety of tax deferred annuities that have a diversity of crediting methods : interest rates , indices and separate sub accounts . Annuity companies establish a profit margin or spreads from the earnings generated from the crediting method . The accounts accumulate tax deferred and distribution of non-qualified annuities are taxed as ordinary income on policy gain and the return of basis tax free . Qualified annuity distributions are completely taxable as oridanry income , i.e. no basis . 