How Are Qualified Annuities Taxed? 
Qualified Annuities are taxed as ordinary earned income . But they are only taxable upon withdrawal of funds . A `` Qualified '' account means that the funds were contributed on a pre-tax basis . This can be a significant advantage when accumulating assets . But for the IRS to allow this advantage , they require that the full amount be subject to income tax instead of capitol gains taxes . It is also important to know that at age 70 1/2 , they require you to start `` Required minimum Distributions '' . This is a requirement that you withdraw a certain amount per year -LRB- and pay taxes on it -RRB- from age 70 1/2 , for the rest of your life . 