Annuities Explained: Types, How They Pay, How They Are Taxed

The types of annuity, how each one pays, how the income is taxed, and what a $100,000 premium buys at 60, 65 and 70 on public mortality and Treasury data.

An annuity is a contract with an insurance company: you pay a lump sum or a series of payments, and the insurer pays income back, starting now or later, often for life (SEC Investor.gov). At the 4.95% 10-year Treasury yield of November 3, 2026, a fairly priced $100,000 immediate life annuity would pay a 65-year-old man about $761 a month (modelled, before any insurer charges — not a quote).

Last updated 2026-11-04. Sources are linked next to each figure and listed at the end.

Types of annuities

The main types, from the SEC’s investor guidance (Investor.gov: Annuities, Indexed annuities)
Type	What it does	Key trait
Single-premium immediate annuity (SPIA)	One payment buys income that starts within a year, usually for life	No growth phase; income fixed at purchase
Deferred income annuity (DIA)	Income starts years later; a qualifying longevity annuity (QLAC) is one held in an IRA or plan	QLAC premiums up to $210,000 in 2026 (Notice 2025-67)
Fixed (multi-year guaranteed, MYGA)	A guaranteed minimum interest rate during the accumulation phase	Least risky deferred type; surrender charges for early withdrawals
Fixed indexed (FIA)	Interest linked in part to an index such as the S&P 500, never below zero	Limits on how much you can earn; not registered with the SEC
Registered index-linked (RILA)	Index-linked, but the credited rate can be negative	You can lose money, usually within set limits; an SEC-registered security
Variable	Money goes into a menu of mutual-fund subaccounts	No limit on gains or losses; explicit contract and fund fees

An immediate annuity starts paying within about a year of purchase; a deferred annuity has an accumulation phase first, during which gains are tax-deferred, then a payout phase (Investor.gov). Fixed and fixed indexed annuities are insurance products regulated by state insurance regulators; RILAs and variable annuities are also securities registered with the SEC.

What $100,000 buys at 60, 65 and 70 (modelled)

Modelled monthly income from a $100,000 immediate life annuity, first payment one month after purchase, priced on the SSA 2022 period life table at the 4.95% 10-year Treasury par yield of November 3, 2026 (Treasury), with no insurer loading. Joint = a man and a woman of the same age, full payment to the survivor.
Age	Man	Woman	Joint, 100% survivor
60	$678	$622	$555
65	$761	$690	$606
70	$878	$791	$680

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These are model figures, not offers. Real quotes include the insurer’s expenses and profit, and buyers of annuities tend to live longer than the population table assumes, so quotes are usually lower. Check any quote on the annuity rates page, or price your own case in the annuity payout calculator.

Qualified vs non-qualified annuities: how they are taxed

A qualified annuity is bought with pre-tax money inside an IRA or workplace plan. Every payment is ordinary income, because none of the money was taxed going in (IRS Pub. 575).

A non-qualified annuity is bought with money already taxed. Each payment is split by an exclusion ratio: investment in the contract ÷ expected return, where expected return is the yearly payment times a life-expectancy multiple from the IRS tables (IRC §72(b); Treas. Reg. §1.72-9; Pub. 939). That part of each payment is a tax-free return of your money until you have recovered the whole premium; after that every payment is taxable.

Worked example (computed): the 65-year-old man above pays $100,000 for $761 a month ($9,126 a year). The Table V multiple at 65 is 20, so the expected return is $182,527 and the exclusion ratio 54.8%. Of each payment, $417 is tax-free and $344 is taxable, until the premium is recovered at about age 85.

Withdrawals from a deferred annuity before 59½ can owe a 10% additional tax on the taxable part (IRC §72(q)), and gains in a deferred non-qualified annuity come out first, as ordinary income. Every difference side by side, with a calculator: qualified vs non-qualified annuities.

Before you buy: a checklist

Surrender charges. Most deferred annuities charge for withdrawals in the first years; know the schedule and any market value adjustment (Investor.gov).
Free look. State law usually gives 10 to 30 days to cancel after you receive the contract.
Fees and limits. In a fixed indexed annuity, caps and participation rates limit what you earn; a variable annuity charges contract fees on top of fund fees.
The insurer. Income is only as safe as the company paying it; every state has a guaranty association with its own coverage limits, so check yours.
Inflation. A level payment buys less every year. See annuity or the 4% rule for what that does by year 20 and 30.
Exchanges. Moving one annuity into another can keep the tax deferral if the tax rules are followed, but may restart surrender charges.

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Common questions

What is an annuity?

A contract with an insurance company: you pay a lump sum or a series of payments, and it pays income back, starting immediately or at a future date, possibly for life (Investor.gov).

What is the difference between a qualified and a non-qualified annuity?

A qualified annuity is bought with pre-tax money in an IRA or plan, so every payment is taxable. A non-qualified annuity is bought with after-tax money, so part of each payment (the exclusion ratio) is a tax-free return of premium until the premium is recovered (IRC §72).

What is a fixed-term (MYGA) annuity?

A deferred fixed annuity that guarantees a stated interest rate for a set number of years. Compare its rate with a Treasury of the same term: the annuity rates page shows the current Treasury yields, and fixed-term annuities compares MYGAs with CDs and Treasuries.

What's an FIA in investments?

A fixed indexed annuity: interest is linked in part to an index such as the S&P 500 and is never below zero, but limits cap how much you can earn. Fixed indexed annuities are not registered with the SEC; registered index-linked annuities (RILAs), which can lose money, are (Investor.gov).

How much does a $100,000 annuity pay per month?

Modelled at the 4.95% 10-year Treasury yield of November 3, 2026 with no insurer charges: about $761 a month for a 65-year-old man; see the table above for 60 and 70, women and joint lives. Real quotes are usually lower.

Sources

The payouts and the exclusion-ratio example are computed by frontend/js/calc/annuity-payout.js (the annuity payout calculator’s engine) on the SSA 2022 period life table and the Treasury yield shown. QuantCalc is calculation software, not tax, legal, insurance or investment advice.

Annuity rates: what a fair payout looks like → Annuity payout calculator → Annuity or the 4% rule? → Pension lump sum or annuity? → How long will my money last? → Pension calculation formula → Qualified vs non-qualified annuity → Fixed-term annuities (MYGA) →