Best Annuity Rates in Vermont (2026)

Vermont is a high-tax state, and retirees need to account for that when building an income plan. With a top income tax rate of 8.75% and no broad exclusion for retirement income, annuity withdrawals are taxed as ordinary income at Vermont’s graduated rates. That makes the tax-deferral feature of a MYGA particularly valuable here, every year of compounding inside the annuity is a year you are not writing a state income tax check on those gains.

How Vermont Taxes Annuity Income

Vermont uses a graduated income tax structure with rates ranging from 3.35% to 8.75% as of 2026. The top rate of 8.75% applies to income over $204,000 for single filers and over $248,350 for married filing jointly. Annuity withdrawals are treated as ordinary income and subject to Vermont income tax in the year distributed.

For qualified annuities (inside an IRA or 401(k)), the full withdrawal amount is taxable as ordinary income at Vermont rates. For non-qualified annuities, only the earnings portion is taxable, the return of your original after-tax principal is excluded. Vermont does not offer a general pension or retirement income deduction, so most retirees cannot reduce their annuity income before calculating state tax owed.

Vermont partially exempts Social Security benefits from state income tax, but the exemption phases out at relatively modest income levels. For single filers with AGI below $45,000 and joint filers below $60,000, Social Security is fully exempt. Above those thresholds, a portion becomes taxable at the state level until AGI reaches about $65,000 (single) or $85,000 (joint), at which point Social Security benefits are fully taxable in Vermont. Large annuity withdrawals can push income above these thresholds, triggering state tax on Social Security income that might otherwise be exempt.

Vermont Guaranty Association Coverage

The Vermont Life and Health Insurance Guaranty Association protects annuity policyholders in the event a licensed insurance carrier becomes insolvent. Coverage limits are $250,000 for annuity cash values per insurer per policyholder. This protection applies automatically to all annuities issued by Vermont-licensed carriers.

Given Vermont’s high income tax environment, some annuity buyers look at spreading large sums across multiple carriers to stay within guaranty association limits at each. Carriers appearing in the rate table above hold AM Best financial strength ratings of A- or better, which is the primary line of defense against insolvency risk.

Best Annuity Strategies for Vermont Residents

Vermont’s high income tax rates make deferral-focused strategies especially important. A non-qualified MYGA keeps your interest compounding without generating annual 1099-INT income, unlike a CD, which triggers ordinary income taxes every year even if you reinvest the interest. For a Vermont resident in the 7% or 8.75% state bracket, that annual deferral benefit adds up materially over a 5 or 7-year term.

Vermont retirees should pay careful attention to the Social Security AGI thresholds when planning withdrawals. Keeping annual income below $45,000 (single) or $60,000 (joint) preserves full Social Security exemption at the state level. If you have both a MYGA and traditional IRA assets, a financial planner can help sequence withdrawals to minimize the years in which your total income crosses those Social Security phase-out thresholds.

Roth conversions are also worth examining for Vermont residents who have a lower-income year, perhaps in early retirement before Social Security begins. Converting traditional IRA funds to Roth while in a lower bracket means future Roth distributions come out federal and state tax-free. Balancing a Roth conversion strategy against the Vermont income tax cost in the conversion year requires careful modeling, but it can meaningfully reduce lifetime state income tax for high-balance IRA holders.

Frequently Asked Questions