Annuity Income Riders

Submitted by Joseph Arsenault on Fri, 2009-05-01 16:33

Can anyone point me to the code or regs that discuss how to calculate the taxable portion of distributions received from income riders on non-qual annuities? Maybe someone already knows..?

Thanks



Submitted by Al Fry on Fri, 2009-05-01 22:05

If the annuity is under water, then the distibutions are a return of cost basis (tax-free). Of course once the cost basis is paid out (reduced to zero), then future distributions would be fully taxable.



Submitted by Joseph Arsenault on Fri, 2009-05-01 22:12

Thanks alfry,

I had read somewhere that once you turn on the income rider, that becomes your value against the basis for determining gain..
example:

Annuity Cost Basis = $100,000
Accumulation Value = $110,000
Income Value = $200,000

Participant elects income payments, even though they directly come out of the accumulation value, the income value has to drop below 100k before they reach their basis. That did not make sense to me because the basis would already be depleted. What your saying makes sense. Say the income payments are 10,000 a year from the 200,000 value. Assuming no more growth, the first year would be taxable (bring the acc value to 100k), and the second year would not be, because you have eaten into the basis.

Is that what you are essentially saying alfry?



Submitted by Al Fry on Sat, 2009-05-02 02:33

That is correct.



Submitted by charles lore on Sun, 2009-05-03 15:05

The income value is merely a notional value used to determine what the income will be if it is triggered. It is not real money so to speak. When the real money comes it it is deemed to come first from earnings.



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