by Jeff Heimler, CPA
I plan to retire in California in three years at the age of 59 1/2. At that time I plan to draw my annuity. Will the state assess a special tax on the annuity when I first begin drawing upon it in addition to normal state income taxes? I've heard that some states charge a special assessment of 3.5% of the total value of the annuity and that it is due immediately.
An annuity is like an insurance contract designed as a retirement plan. Some invest in stocks, some in mutual funds and others in CDs. The earnings grow tax deferred until withdrawn. Regular income tax rates will apply to the earnings. If you have reached age 59 1/2 when you start withdrawing from the annuity, you will only be subject to ordinary income tax rates on the earnings. There will be no early distribution penalty and there is no special assessment charge that applies in California.
Jeff Heimler is principal of Heimler & Associates, CPA. He can be reached at (949) 252-8192.
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