Annuity Taxation
My mother who has an old SunAmerica Polaris Advantage now AIG annuity. The policy is a Roth IRA and has the Income plus rider so she will receive money even once her account value is $0. When the account reaches $0 AIG will begin to pay out 3% of the income base, how will this be treated for tax purposes, will this be taxable even though it is a Roth IRA? This contract is not annualized either.
Permalink Submitted by Alan - IRA critic on Tue, 2018-06-26 19:47
IRA and Roth IRA tax rules trump NQ annuity tax rules. If her Roth IRA is qualified (5 years and 59.5), then all distributions from the Roth will be non taxable. If not qualified, the usual Roth IRA ordering rules apply with regular contributions coming out first tax free and reported on Form 8606. If she receives more money than she needs, she must remember that she can only roll over one distribution in a 12 month period, so would have to arrange for non reportable transfers if she wanted to retain this money in a Roth IRA.
Permalink Submitted by Scott Gelbach on Tue, 2018-06-26 21:31
Does it matter that the money she will be receiving will be on AIG’s dime since the account value will have reached zero and is only continuing due to the income rider on the annuity?
Permalink Submitted by Alan - IRA critic on Tue, 2018-06-26 23:15
No, does not matter. These dollars are treated as Roth gains, but only taxable if the Roth is not yet qualified.