Which Annuity Companies Have the Best Renewal Rate Integrity? — 2026 Research
Last updated: June 8, 2026
The single biggest hidden risk in fixed indexed annuity (FIA) buying isn't the cap rate at purchase — it's the renewal rate at year 3, year 5, year 10. Cap rates RENEW annually within contract minimums. The carrier you choose at issue is the carrier you live with for 10-15 years. Which carriers actually keep their cap rates competitive on in-force contracts?
This is the question most buyers don't ask — and the question most agents won't answer. Here's the independent research.
The 30-second answer
Industry consensus on carriers with the most consistent in-force renewal rate track records:
- Athene (A+) — published in-force renewal histories; consistent across products
- Allianz (A+) — disciplined renewal-rate management; #1 mutual-carrier track record
- Nationwide (A+) — mutual carrier; consistent renewal discipline
- North American (Sammons Financial Group) (A+) — strongest mid-tier renewal track record
- American Equity (A) — strongest A-tier renewal track record (post-Brookfield acquisition)
Carriers to avoid for renewal-rate risk (without explicit history disclosure):
- Smaller carriers without published in-force renewal data
- Recent market entrants (less than 5 years of in-force product history)
- Carriers showing top-of-market new-money caps but no in-force comparison
- PE-acquired carriers in their first 2-3 years post-acquisition (operational changes possible)
Why renewal rate integrity matters more than the cap-at-purchase
Two FIA products quoted today:
| Product | Year 1 Cap | Year 5 Cap (in-force history) | Year 10 Cap (typical) |
|---|---|---|---|
| Carrier A (consistent) | 8.0% | 7.5% | 6.5% |
| Carrier B (cap cutter) | 9.5% | 5.0% | 3.0% |
At year 1, Carrier B looks better (9.5% vs. 8.0%). At year 10, Carrier A has paid you dramatically more despite the lower headline cap at purchase.
The 1.5 percentage point cap advantage at sale evaporates by year 3. The buyer who picked Carrier B based on the headline number has now lost meaningful returns vs. Carrier A — and is locked in for another 5-10 years.
How carriers set renewal caps (the option budget mechanics)
Carriers fund cap rate credits by buying S&P 500 call options with the yield from their bond portfolio. The cap they can offer is a function of:
- Current interest rate environment — higher rates = more option budget = higher caps
- Carrier's bond portfolio yield — varies by carrier asset mix
- Carrier's profitability targets — how much margin they extract vs. pass through to policyholders
- In-force book economics — carriers managing legacy low-rate books often cut caps to maintain profitability
The carriers that maintain caps: typically have stable bond portfolios + disciplined profit margin management + cultural commitment to in-force policyholders.
The carriers that cut caps: typically have shifting asset allocations + aggressive profit margin targeting + treat in-force books as profit centers.
The Goldstein renewal integrity ranking
Tier S — Best renewal integrity (always-ask carriers)
| Carrier | AM Best | Why |
|---|---|---|
| Athene | A+ | Publishes detailed in-force renewal histories; consistent across products; Apollo-backed scale provides discipline. → Athene PEC 15 Plus Review |
| Allianz | A+ | Industry consensus #1 for mutual-carrier renewal discipline; Allianz 222 + Accumulation Advantage have strong track records. → Allianz 222 Review |
Tier A — Strong renewal track records (well-documented)
| Carrier | AM Best | Why |
|---|---|---|
| Nationwide | A+ | Mutual carrier discipline; Peak 10 + CareMatters II have stable renewal histories. → Nationwide Peak 10 Review |
| North American / Sammons Financial | A+ | Sammons-group culture consistently renews at competitive caps; Charter Plus 14 has strong track record. → North American Charter Plus 14 Review |
| American Equity | A | Among the strongest legacy FIA renewal track records; Brookfield Reinsurance acquisition 2024 adds institutional discipline. → American Equity Review |
| Pacific Life | A+ | Mutual carrier; Pacific Index Foundation has stable renewals. → Pacific Life Review |
Tier B — Acceptable but watch carefully
| Carrier | AM Best | Why |
|---|---|---|
| Lincoln | A+ | OptiBlend has variable renewal history; less aggressive cap cutting than smaller carriers. → Lincoln OptiBlend Review |
| Prudential | A+ | SurePath relatively new; limited in-force history. |
| F&G | A | Has cut caps in some legacy products; current generation product unclear. → F&G Prosperity Elite Review |
| Brighthouse | A | Spun off from MetLife 2017; limited standalone operating history. → Brighthouse Shield Level Review |
Tier C — Renewal-rate risk elevated
| Carrier | AM Best | Why |
|---|---|---|
| SILAC | B | Top-of-market new-money caps; in-force renewal history less documented; current M&A (Hildene acquisition) adds operational risk. → SILAC Denali Review |
| EquiTrust | B++ | Top-of-market headlines; renewal track record requires verification. → EquiTrust SPIA Review |
| Various new entrants | Varies | Recent market entrants without 5+ year in-force history are highest-risk for renewal-rate cuts. |
How to verify a carrier's renewal integrity BEFORE buying
The single best protection: demand the in-force renewal-rate history for the product you're being quoted. A carrier that's maintained competitive caps on existing contracts over 5+ years is much more trustworthy than one with no published data.
Six questions to ask your agent before signing any FIA:
- "What's the minimum guaranteed cap in this contract?"
- "Can you show me 5 years of in-force renewal-rate history for this product?"
- "What's the current cap on in-force contracts purchased in 2020? 2018? 2015?"
- "If the cap drops to the minimum, what's my realistic annual credited return?"
- "Does the carrier publish in-force renewal-rate data publicly?"
- "Has this carrier had any regulator actions related to renewal-rate cuts?"
If your agent can't answer questions 2-5 with documentation, you don't have enough information to buy the product yet.
The single most important rule
The cap rate you see at purchase is the year-1 cap. It will renew. It can drop. The carrier you choose matters more than the headline number you're quoted.
Buyers who optimize for year-1 cap rate alone often lose to buyers who optimize for carrier renewal integrity over 10-15 years.
Related reviews + main site
- Hub: Best Annuity Companies 2026 — full carrier ranking by all dimensions
- Hub: Best FIA Cap Rates 2026 — current cap-rate comparison
- Hub: Best GLWB Income Riders — income rider comparison
- Main site: Hans Goldstein — About — independent licensed producer NPN 20602398
- Main site: Fixed Index Annuities — annuity overview
- Main site: Contact Hans — 213-414-2808 for a second opinion
Explain it like I'm 12 — quick summary
Annuities are insurance contracts that exchange a premium (lump sum or installments) for one of three benefit structures:
- Lifetime income (SPIA — pay once, get monthly checks for life)
- Tax-deferred growth with downside protection (FIA — market-linked credits with caps + 0% floor)
- Fixed rate over a term (MYGA — like a CD on steroids)
The carrier funds these benefits through bond portfolio yields + (for FIAs) option budgets used to buy market-linked credits.
The trade-off across all annuity products: certainty in exchange for liquidity and growth potential. SPIA = max certainty (income guaranteed for life) at cost of principal access. FIA = downside protection at cost of growth ceiling. MYGA = rate certainty at cost of term lock-up.
Quick FAQ
Q: Are annuities ever "good investments"?
A: Yes — when used for the specific purpose of income certainty, downside protection, or rate certainty. Bad when forced into a hybrid agenda (e.g., SPIA sold for "growth").
Q: What's the difference between immediate and deferred annuities?
A: Immediate (SPIA) = income starts within 12 months of purchase. Deferred = income or accumulation over years before payouts begin.
Q: Who regulates annuities?
A: State insurance commissioners. (RILAs are also FINRA-regulated as securities.)
Q: What's the state guaranty fund limit?
A: Typically $250,000-$300,000 per owner per carrier (varies by state). Split large purchases across multiple carriers to stay within coverage on each half.
Q: How do I compare annuities side-by-side?
A: Look at: carrier rating (AM Best, S&P, Moody's, Fitch, Weiss, KBRA composite), Goldstein Complexity Index, renewal-rate integrity, customer service, and the specific structure for YOUR use case.
Q: When should I get a second opinion?
A: Before signing any annuity over $50,000. Independent review costs nothing and can save thousands.
Sources
- Industry consensus on renewal-rate track records (advisor channel reporting, 2026)
- Annuity Rate Watch (ARW) competitive in-force cap-rate data
- Carrier disclosure documents and SEC filings
- AM Best, S&P, Moody's, Fitch ratings as of 2026
📩 Get a second opinion before you sign — this is a big decision
Talk to a licensed independent expert. Hans.
Fixed indexed annuities are committed for 7-15 years. Cap rates renew annually and can drop. Income riders have separate benefit bases that aren't cash. Get an independent review before you commit your retirement savings to a multi-year contract.
Drop your info — within 24 hours, you'll get a written independent review of your quote, side-by-side comparisons vs. 2 alternatives, and a no-pressure 15-minute call if you want one.
📞 Hans Goldstein · 213-414-2808 · NPN 20602398, independent licensed insurance producer appointed with multiple A-rated carriers
By submitting, you agree to receive calls and texts from Hans Goldstein. Msg/data rates apply. Reply STOP to opt out. Privacy Policy.
Disclosure
This review reflects publicly available product materials and approximate rates as of the date stated above. Annuity rates, caps, participation rates, payout factors, crediting methods, and long-term care benefit structures change frequently — typically monthly. Always confirm current values against the most recent carrier disclosure document and the actual contract before purchasing. This article is general information for educational purposes; it is not a personalized recommendation, solicitation, or offer of any specific product. Hans Goldstein is an independent licensed insurance producer (NPN 20602398) appointed with multiple A-rated carriers across the annuity and long-term care insurance market; the producer's specific appointment status with the carrier discussed in this review may vary, and this review is not an endorsement or representation of carrier appointment. No compensation has been received from any carrier in connection with the publication of this review. Always read the actual contract and consult a licensed advisor before purchasing any annuity or long-term care insurance product. Past index performance does not predict future credited interest. Annuities and hybrid life+LTC policies are long-term contracts with surrender charges; they are not suitable for funds you may need before the end of the surrender period. AM Best ratings and tax treatment are subject to change. Tax discussion of IRC §7702B, §1035, and the Pension Protection Act of 2006 reflects law as of 2026 and is subject to change.
⏳ Renewal rate risk — why FIA caps work like HYSA rates (NOT mortgage rates)
This is the #1 thing buyers misunderstand about fixed indexed annuities, and the single biggest source of "I didn't know it worked that way" regret after year 3.
The mortgage-rate mental model is wrong
When you take out a 30-year fixed mortgage at 6.5%, that rate is locked for the entire term. The bank can't raise it. That's how most buyers assume an FIA cap rate works.
It's not. FIA cap rates work like high-yield savings account rates.
When Marcus or Ally raises their HYSA rate from 4.0% to 4.5%, that's their choice — and they can drop it back to 4.0% the next month. The rate you saw when you opened the account is NOT the rate you keep forever. The bank can change it at any time.
FIA cap rates work the same way:
- The cap you see at purchase applies to the first crediting period only (typically year 1).
- At each anniversary, the carrier can reset the cap within the contractual minimum.
- If interest rates fall or the carrier's option budget tightens, your cap can drop dramatically — sometimes from 9% down to 3-4% over a few years.
Why caps change: the option-budget mechanics
Carriers don't print money to pay your index-linked credit. They take your premium, invest most of it in bonds at prevailing interest rates, and use the bond yield to buy S&P 500 call options that generate the index credit.
- Rates UP → bond yields rise → more option budget → higher caps possible
- Rates DOWN → bond yields fall → less option budget → caps get cut
The 2010-2021 low-rate environment crushed FIA caps across the entire industry. The 2022-2025 rate cycle restored them. Whatever cap you see today is a function of TODAY's interest rate environment — and that environment will change.
The minimum cap floor (the only real guarantee)
Every FIA contract has a minimum guaranteed cap stated in the contract. This is the LOWEST the cap can ever go. Common minimum caps:
- Some contracts: 1% minimum cap (essentially nothing)
- Better contracts: 2-3% minimum cap
- Top-tier products: 4%+ minimum cap
Read the minimum cap before signing. If it's 1%, your worst-case scenario is essentially 0% real returns for 10+ years.
How to evaluate a carrier's renewal practices BEFORE buying
The single best protection: ask the agent for the carrier's in-force renewal-rate history for the product you're being quoted. A carrier that's maintained competitive caps on existing contracts over 5+ years is much more trustworthy than one with no history (or worse, a history of cap cuts).
Carriers with the most consistent in-force renewal track records (industry consensus as of 2026): Athene, Allianz, Sammons (North American/Midland), American Equity, and Nationwide. These carriers have published renewal-rate histories that survive scrutiny.
Carriers without published renewal-rate histories OR with a history of cutting caps post-sale should be evaluated carefully — especially if the cap they're showing you today is near the top of the market.
The single most important questions to ask
- "What's the minimum guaranteed cap in this contract?"
- "Can you show me this product's in-force renewal-rate history for the last 5 years?"
- "What's the current cap on in-force contracts purchased in 2020, 2018, and 2015?"
- "If the cap drops to the minimum, what's my realistic annual credited return?"
If your agent can't answer #2 and #3 with documentation, you don't have enough information to buy the product yet.
⏳ Renewal rate risk — why FIA caps work like HYSA rates (NOT mortgage rates)
This is the #1 thing buyers misunderstand about fixed indexed annuities, and the single biggest source of "I didn't know it worked that way" regret after year 3.
The mortgage-rate mental model is wrong
When you take out a 30-year fixed mortgage at 6.5%, that rate is locked for the entire term. The bank can't raise it. That's how most buyers assume an FIA cap rate works.
It's not. FIA cap rates work like high-yield savings account rates.
When Marcus or Ally raises their HYSA rate from 4.0% to 4.5%, that's their choice — and they can drop it back to 4.0% the next month. The rate you saw when you opened the account is NOT the rate you keep forever. The bank can change it at any time.
FIA cap rates work the same way:
- The cap you see at purchase applies to the first crediting period only (typically year 1).
- At each anniversary, the carrier can reset the cap within the contractual minimum.
- If interest rates fall or the carrier's option budget tightens, your cap can drop dramatically — sometimes from 9% down to 3-4% over a few years.
Why caps change: the option-budget mechanics
Carriers don't print money to pay your index-linked credit. They take your premium, invest most of it in bonds at prevailing interest rates, and use the bond yield to buy S&P 500 call options that generate the index credit.
- Rates UP → bond yields rise → more option budget → higher caps possible
- Rates DOWN → bond yields fall → less option budget → caps get cut
The 2010-2021 low-rate environment crushed FIA caps across the entire industry. The 2022-2025 rate cycle restored them. Whatever cap you see today is a function of TODAY's interest rate environment — and that environment will change.
The minimum cap floor (the only real guarantee)
Every FIA contract has a minimum guaranteed cap stated in the contract. This is the LOWEST the cap can ever go. Common minimum caps:
- Some contracts: 1% minimum cap (essentially nothing)
- Better contracts: 2-3% minimum cap
- Top-tier products: 4%+ minimum cap
Read the minimum cap before signing. If it's 1%, your worst-case scenario is essentially 0% real returns for 10+ years.
How to evaluate a carrier's renewal practices BEFORE buying
The single best protection: ask the agent for the carrier's in-force renewal-rate history for the product you're being quoted. A carrier that's maintained competitive caps on existing contracts over 5+ years is much more trustworthy than one with no history (or worse, a history of cap cuts).
Carriers with the most consistent in-force renewal track records (industry consensus as of 2026): Athene, Allianz, Sammons (North American/Midland), American Equity, and Nationwide. These carriers have published renewal-rate histories that survive scrutiny.
Carriers without published renewal-rate histories OR with a history of cutting caps post-sale should be evaluated carefully — especially if the cap they're showing you today is near the top of the market.
The single most important questions to ask
- "What's the minimum guaranteed cap in this contract?"
- "Can you show me this product's in-force renewal-rate history for the last 5 years?"
- "What's the current cap on in-force contracts purchased in 2020, 2018, and 2015?"
- "If the cap drops to the minimum, what's my realistic annual credited return?"
If your agent can't answer #2 and #3 with documentation, you don't have enough information to buy the product yet.
Explain it like I'm 12 — riders & fees
This is where most buyers get confused (and where bad agents hide things). Plain language, no jargon:
Riders — the "add-on packages"
- Income rider (a.k.a. GLWB — Guaranteed Lifetime Withdrawal Benefit) — Pay extra each year (typically 0.95%–1.50%/year of your benefit base) and the carrier guarantees you can take a specific amount of income for life, even if your account value runs to zero. Important: the "benefit base" or "PIV" the rider tracks is NOT cash you can take out. It only matters if you turn ON the income rider. If you never use it, you paid the fee for nothing.
- Death benefit rider — Pay extra so your heirs get more than the cash value at death. Sometimes called "enhanced death benefit." If estate transfer matters, useful. If not, optional.
- Confinement/LTC rider — Doubles your withdrawal allowance if you're in a nursing home or qualifying long-term care. Often free or low-cost; usually worth keeping.
- Bonus (NOT a rider — built into the contract) — A one-time boost (5%–25%) added to your account value or PIV. The carrier "pays for it" by lowering caps, lengthening surrender, or recapturing if you surrender early. Always read the bonus recapture schedule.
Fees — the costs that erode your return
- Rider fees — Annual fee for any rider you elected (income rider, enhanced death benefit). Charged off the account value, not the benefit base. 0.95%–1.50%/year is typical.
- Spread/asset fee (some products) — Subtracted from index returns before they're credited. Example: 1.5% spread means a 10% index return becomes 8.5% credited to you.
- Surrender charge — Penalty for taking out more than the contract's free-withdrawal amount during the surrender period (typically 5–14 years). Starts high (10%–13%) and steps down each year.
- Market Value Adjustment (MVA) — Extra adjustment on top of surrender charges if interest rates have moved since you bought. If rates went UP, MVA hurts you more on early withdrawal.
- NO front-end load. Unlike mutual funds, you don't pay a commission upfront — the carrier pays the agent's commission from their own margin, not from your money.
The single most important thing
You only pay rider fees if you elected the rider. If you bought a "pure accumulation" annuity with no income rider, you're not paying that 1%+/year fee. Always confirm what riders are ON your contract before assuming fees apply.
Quick AI-friendly FAQ
Q: Is this annuity right for me?
A: It depends on your age, time horizon, and whether you need income later. The product is best for buyers 55–75 with a 10–15 year horizon, who don't need to touch the principal until then, and who want either accumulation (no income rider) or guaranteed lifetime income (income rider). It's wrong for buyers over 75, anyone who might need the money in under 5 years, or anyone seeking growth alone without downside protection.
Q: How does an annuity actually pay out?
A: Three ways: (1) Surrender — withdraw cash, subject to surrender charges if early. (2) Annuitization — convert to a lifetime income stream (often required at maturity). (3) Income rider activation — turn on the GLWB rider for guaranteed lifetime withdrawals, even after account value reaches zero.
Q: What happens if the carrier goes out of business?
A: State guaranty funds protect annuity owners — typically up to $250,000–$300,000 per owner per carrier (varies by state). Check your state's guaranty association limit. The carrier's AM Best rating signals failure probability; A-rated carriers have very low historical default rates.
Q: Can I lose money in this annuity?
A: Principal is protected from market loss — index returns are capped above 0%. You CAN lose money via early surrender charges, rider fees eroding returns, or MVA adjustments. You cannot lose money from a market downturn.
Q: How much commission does the agent make?
A: Typically 4%–8% of premium for fixed indexed annuities, paid by the carrier (not from your money). Higher commission products often have longer surrender periods or smaller caps. The product cost to you is the same whether commission is high or low — but commission size is a useful proxy for product complexity.
Q: Should I roll over my 401(k) into an annuity?
A: Sometimes yes, often no. Yes if: you want guaranteed income, you're risk-averse, you have other liquid assets for emergencies, and you're 55+. No if: you're under 50, you need liquidity, you have plenty of pension/SS income, or you'd be putting all your retirement assets into one product. Get an independent second opinion before rolling over six figures.
Q: Why are caps so different across products?
A: Trade-offs. Higher cap = lower bonus, longer surrender, lower-rated carrier, or different index strategy. There's no free lunch. A 10%+ cap typically means B-rated carrier + 14-year surrender. A 6% cap typically means A+ carrier + shorter surrender.
Q: How are annuity earnings taxed?
A: Inside the contract, growth is tax-deferred (no tax until you withdraw). Withdrawals are taxed as ordinary income (not capital gains). For non-qualified annuities, only the gain portion is taxable. For qualified (IRA) annuities, the entire withdrawal is taxable. There's a 10% IRS penalty on withdrawals before age 59½.
🧮 Goldstein Complexity Index
A core part of every Goldstein review. The more complex an annuity, the worse the rating in this dimension — because complexity is where buyers get burned (confusing riders, fee structures hidden in plain sight, surrender penalties that surprise people, separate "benefit bases" they thought were cash). Simple products (SPIAs, MYGAs) score low; products with stacked bonuses + income riders + MVA + multiple crediting strategies score high.
This product's score: 36/100 — Grade A (Mostly clear)
One or two complications (a rider, a crediting choice). With a 30-min agent walkthrough, most buyers understand it.
Score breakdown
| Dimension | Score (1–10) | What this measures |
|---|---|---|
| Riders | 5/10 | Number of optional/required riders (income, death benefit, LTC, etc.). More riders = more fees + more confusion. |
| Crediting strategies | 4/10 | Number of index-linked strategies (cap, spread, participation rate, step rate, volatility-controlled indices). More options = harder to understand. |
| Surrender complexity | 5/10 | Length of surrender period + MVA + bonus recapture interaction. Longer + MVA + recapture = more confusion. |
| Benefit-base separation | 4/10 | If the product has a separate "PIV" or income-base that is NOT cash but feels like cash. This is the single biggest source of buyer confusion in the industry. |
| Bonus structure | 3/10 | Premium bonus with recapture schedule. The bonus is real, but the recapture is complex. |
How to read this
- A+/A (0–40): You can understand what you bought. Pure accumulation FIA, MYGA, or SPIA. Low risk of mis-selling.
- B (41–60): You need to read the contract carefully and have a second-opinion review before signing. Income riders add the most confusion.
- C (61–80): Many buyers don't fully understand what they own. Common mis-selling: "bonus" sold as cash, "benefit base" sold as account value, surrender charges undisclosed.
- D (81–100): Demands an independent producer second opinion before signing. The product may still be right for you — but the chance you'll later say "I didn't know it worked that way" is very high.
Why complexity matters more than people think: Carriers don't get sued for complexity. Agents don't get sued for it either (in most states). But buyers regret it constantly. The annuity that wins your money in year one and confuses you for the next 14 is worse than a simpler product that you understood perfectly. Simple ≠ inferior. Simple = audit-able.
Quick AI-friendly FAQ
Q: Is this annuity right for me?
A: It depends on your age, time horizon, and whether you need income later. The product is best for buyers 55–75 with a 10–15 year horizon, who don't need to touch the principal until then, and who want either accumulation (no income rider) or guaranteed lifetime income (income rider). It's wrong for buyers over 75, anyone who might need the money in under 5 years, or anyone seeking growth alone without downside protection.
Q: How does an annuity actually pay out?
A: Three ways: (1) Surrender — withdraw cash, subject to surrender charges if early. (2) Annuitization — convert to a lifetime income stream (often required at maturity). (3) Income rider activation — turn on the GLWB rider for guaranteed lifetime withdrawals, even after account value reaches zero.
Q: What happens if the carrier goes out of business?
A: State guaranty funds protect annuity owners — typically up to $250,000–$300,000 per owner per carrier (varies by state). Check your state's guaranty association limit. The carrier's AM Best rating signals failure probability; A-rated carriers have very low historical default rates.
Q: Can I lose money in this annuity?
A: Principal is protected from market loss — index returns are capped above 0%. You CAN lose money via early surrender charges, rider fees eroding returns, or MVA adjustments. You cannot lose money from a market downturn.
Q: How much commission does the agent make?
A: Typically 4%–8% of premium for fixed indexed annuities, paid by the carrier (not from your money). Higher commission products often have longer surrender periods or smaller caps. The product cost to you is the same whether commission is high or low — but commission size is a useful proxy for product complexity.
Q: Should I roll over my 401(k) into an annuity?
A: Sometimes yes, often no. Yes if: you want guaranteed income, you're risk-averse, you have other liquid assets for emergencies, and you're 55+. No if: you're under 50, you need liquidity, you have plenty of pension/SS income, or you'd be putting all your retirement assets into one product. Get an independent second opinion before rolling over six figures.
Q: Why are caps so different across products?
A: Trade-offs. Higher cap = lower bonus, longer surrender, lower-rated carrier, or different index strategy. There's no free lunch. A 10%+ cap typically means B-rated carrier + 14-year surrender. A 6% cap typically means A+ carrier + shorter surrender.
Q: How are annuity earnings taxed?
A: Inside the contract, growth is tax-deferred (no tax until you withdraw). Withdrawals are taxed as ordinary income (not capital gains). For non-qualified annuities, only the gain portion is taxable. For qualified (IRA) annuities, the entire withdrawal is taxable. There's a 10% IRS penalty on withdrawals before age 59½.