How Are Annuity Income Riders Taxed?
The Annuity Man
Annuities were first introduced in the Roman Times as a lifetime income pension type payment for the dutiful Roman soldiers and their families. The Latin word "annua" means payment, and is the origin of the word "annuity." Most annuity types are designed to provide a lifetime income stream, and that guarantee of payments regardless of how long you live is a monopoly that only annuities can offer.
One of the most popular annuity lifetime income guarantees is not even a stand alone annuity. Income Riders are actually an attached benefit to a deferred annuity. Most Income Riders can be attached to Fixed Index Annuities (FIAs) or Variable Annuities (VAs) at the time of application. You cannot add an Income Rider to a policy after it has been issued.
Income Riders are a separate calculation from the "accumulation value" within that deferred annuity policy. Income Rider values are primarily used to calculate your first lifetime income stream payments when you decide to begin that income flow.
Income Rider valuations can only be used to calculate a lifetime income stream and can't be cashed in, transferred to another annuity, or have interest peeled off like actual yield. It's a phantom account and monopoly money used only for lifetime income. Some Income Riders can also be used for a death benefit or confinement care type coverage, but the vast majority are used for lifetime income guarantees.
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