IRA annuity
My client has a $1.3 mil variable annuity, assuming it has gains of $200,000 on the accumulation side of the annuity she turns on the income stream account value which has an income rider which has been growing over the years is she taxed on the whole payment amount or is there an exclusion of some type of the payment? ? Her basis is around $700,000 or so? Thank you
Permalink Submitted by Alan - IRA critic on Tue, 2020-02-04 18:31
“Investment in the contract” which is the annuity premium is meaningless in an IRA account. IRA account tax rules completely trump NQ annuity tax rules. Therefore, all annuity IRA distribution are required to be reported on Form 1099R as taxable, but with the “taxable amount not determined” box checked. The gross distribution will only have a non taxable portion if the client made past non deductible IRA contributions (or rolled over after tax contributions from an employer plan) and reported these contributions on Form 8606. Form 8606 is then used to report the IRA annuity distribution and any IRA basis is pro rated on this form to determine the taxable amount. For most IRA owners, the entire 1099R will be taxable since most IRA owners never made non deductible contributions to their IRA. You might ask client if they have any such IRA basis, and it is up to the client to track such basis on Form 8606 if they do.