Virginia Annuities & Taxes: A No-Jargon Guide for Retirees (2025)

Virginia Annuities & Taxes: A No-Jargon Guide for Retirees (2025)

Thinking about turning a chunk of savings into guaranteed income? Here’s how **Virginia** treats annuities—explained in plain English, with examples from **Richmond, Virginia Beach, and Roanoke**. No city or county adds its own income tax layer, so you’re really deciding how your payments show up on your **federal** and **state** returns.

Fast Facts (read this first)

* **Virginia taxes annuity income** to the extent it’s in your **federal AGI** (ordinary income).
* **Cities/counties don’t tax your income** separately in Virginia.
* Virginia offers a **65+ age deduction** (income-limited) that can reduce overall state taxable income.
* **Premium tax note:** Virginia **does not** apply its insurer premium tax to **annuity considerations**, so quotes aren’t typically reduced by a state pass-through on annuities.
* **Early withdrawals:** The **10% additional tax** on early distributions is a **federal** rule (before 59½), not a separate Virginia penalty.

What you own matters more than where you live (in VA)

1) Qualified annuity (IRA/401(k) money)

* Payments are **generally 100% taxable** as ordinary income at both federal and Virginia levels.
* Works well for: turning pre-tax savings into a predictable paycheck at retirement.

2) Nonqualified annuity (after-tax dollars)

* Only the **earnings** are taxable; your original premium (basis) comes back tax-free under the IRS **exclusion ratio**.
* Works well for: tax-deferred growth when you don’t need the money yet, or later-start income.

Three Virginia scenarios (with real-life flavor)

**A) Richmond couple, both 67, turning on income from an IRA annuity**
Their monthly payment is fully taxable federally and by Virginia. They may still get relief from the Virginia **age-based subtraction** depending on income limits. No local tax add-on.

**B) Virginia Beach single filer, 62, easing into retirement with a nonqualified FIA**
She starts 6% withdrawals. Only the **gain portion** is taxable each year. Because she’s under 59½, any distribution that counts as an **early distribution** could trigger the **federal 10%** on the taxable part—unless an exception applies. Virginia follows federal for what’s income; there’s no separate penalty.

**C) Roanoke retiree, 70, comparing quotes**
He hears some states have a **premium tax** that can nudge payouts down. In Virginia, **annuity considerations aren’t subject to the insurer premium tax**, so quotes aren’t typically haircut for that reason. Still, compare multiple carriers—crediting formulas and rider costs vary.

Withholding & paperwork: keep it simple

* You can elect **federal and Virginia withholding** on taxable annuity income so you’re not stuck with a surprise at filing time.
* If you’re considering early withdrawals (before **59½**), ask your advisor/CPA to review whether any **exceptions** apply and how to report them.

Smart questions to ask your advisor in Virginia

1. **What portion of my payment is taxable each year?** (Show it line-by-line.)
2. **How does the payout change if I start at 65 vs. 70?** (Run multiple ages.)
3. **What are the surrender charges and rider fees?** (List them clearly.)
4. **How are my spouse/beneficiaries protected?** (Joint life, period certain, or death benefit details.)
5. **What did you assume for rates/caps and changes over time?** (Don’t bury this.)
6. **What do you recommend for Virginia withholding, and how does the 65+ age deduction affect me?**

Quick decision path

* **Need income now?** Consider an **immediate** or **deferred with income rider**.
* **Want principal protection + growth linked to an index?** Look at **fixed indexed annuities** (FIAs).
* **Have after-tax cash you won’t touch for years?** A **nonqualified deferred annuity** can compound without current-year taxation.

Before you sign

* Compare at least **3 carriers** for the same premium and start age.
* Review **guaranteed** vs. **illustrated** values—and the assumptions behind them.
* Confirm how the policy handles **long-term care or nursing-home waivers**, if any.
* Coordinate with your **CPA** on withholding and the Virginia **age deduction**.

Talk to a fiduciary who works Virginia every day

We’ll translate illustrations into **after-tax dollars** you can actually spend, compare multiple carriers side-by-side, and map the annuity (if any) to your Social Security, pensions, and investments.

*This article is educational, not tax advice. Confirm details with your tax professional and review carrier illustrations carefully before purchasing.*