Annuity in trust account
Hi,
Later this month, I am able to withdraw 10% of my original contributions to a variable annuity that I hold in a trust account. The original contributions were $132,500 and right now the value is $135,500 so I will be able to withdraw $13,250. My question refers to the taxation on the withdrawal. Will my $13,250 withdrawal include the $3,000 of gains and the rest as $10,250 of principal? If so, am I just taxed at my ordinary income rate for the $3,000 or are there any other taxes/penalties involved?
Thanks for the help!
Permalink Submitted by Alan Spross on Mon, 2008-05-05 17:14
Assuming this is a non qualified annuity purchased after 1982, your earnings are distributed before your investment in the contract for non periodic distributions. Since this describes your distribution, you are correct that the earnings of 3,000 are the first part of your distribution. That 3,000 will be subject to tax at your full marginal rate, and if you are under 59.5 on the date of distribution, a 10% early withdrawal penalty will also apply to the 3,000 portion. The rest of the withdrawal is tax free.
Permalink Submitted by [email protected] on Mon, 2008-05-05 18:14
That makes sense. Thanks Alan!
Permalink Submitted by Al Fry on Thu, 2008-05-08 21:30
Or if the trust is a non-grantor irrevocable trust, using it’s own tax id, then the 10% penalty applies to any gain distributed, regardless of the age of annuitant.