What Is The Tax Rate On Annuities? 
When an annuity is subject to tax a determination is made as to the basis in the contract . The basis is the sum of all premiums paid into the contract . The difference is then subject to tax as ordinary income . However , the annuity could be the funding vehicle for a Roth IRA or Roth 403 -LRB- b -RRB- in which case the proceeds would not be taxed at all as long as the contract had been held for five years and the annuitant was more than 59.5 years old . 