ROTH IRA / COLLEGE SAVINGS / ANNUITY
I’m researching a 10 year fixed annuity sold to a 43 year old, ROTH IRA. She was told this annuity can be used for college for her kids. I forget…does IRA Rules Trump annuity rules? Meaning if past all surrender charges, the ROTH can be used and no 10% penalty if used for college if under age 59 1/2? Thank you.
Permalink Submitted by Alan - IRA critic on Tue, 2019-11-19 23:10
IRA tax rules do trump non qualified annuity tax rules when an annuity is purchased in an IRA, either a TIRA or a Roth IRA. A Roth IRA annuity is distributed under the Roth ordering rules, meaning that regular contributions come out first, then conversions, and earnings last. If a conversion less than 5 years is distributed before 59.5 to pay for college, there is no 10% penalty and if earnings are distributed, there is ordinary tax, but no penalty.