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Are Annuity Service Fees Tax Deductible?

Do you know your annuity tax rules? Don’t let the IRS get you! Tips and tricks that save time and money when doing your taxes with an annuity fund.

Why do Annuities Have Fees?

Annuities are different from other types of insurance products in that they have a lot of overhead and upkeep and thus, higher service fees. These fees are usually taken out of the balance of the account upon maturity and are part of the “quote” that your insurance specialist will give you. Usually these fees are not listed separately but are stated in the prospectus for your product.

What Kind of Fees do Annuities Have?

Most companies charge several kinds of fees for the upkeep, risk, administration and other items that are needed in the management of your account. Some common fees would be: the mortality and expense risk fee which can be .20 or 1.75 percent a year, administration charges or maintenance fees which are either a fixed fee or a small percentage and the investment management fees which can vary depending on the type of annuity you have from .10 percent to as high as 5 percent a year.

Are Annuity Service Fees Tax Deductible?

No, they are not. Unlike an IRA where the fees are paid out of the owner’s pocket each year, the fees on an annuity are paid from the money within the account. When you annuitize the money in the account has already been taxed since you fund annuities with money considered to be income. You are liable for taxes on any part of your annuity that are gains but not until you are ready to withdraw them. You can deduct any losses if your annuity does poorly or you withdraw early but cannot deduct the service fees from your taxes.

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