Originally Posted by LOL!
Gains in annuities are tax-deferred just like unrealized capital gains in a taxable account which are also tax-deferred. However, upon withdrawal, gains in annuities are considered ordinary income and are NOT taxed as capital gains. Instead they are taxed at one's marginal income tax rate. In contrast, when one sells and withdraws in a taxable account, any realized long-term capital gains are taxed at a favorable long-term capital gains tax rate which is currently as low as 0%.
Very interesting. That certainly makes annuities far less attractive if one has to pay ordinary income tax rates. I see some references on the internet to "qualified" and "non-qualified" annuities. Does purchasing one vs the other have any impact on the tax rates on gains?