Distribution from a Roth Conversion Annuity
It is my understang that The Order of Distribution from a Roth Conversion account is to follow FIFO. Does this superceed the current LIFO treatment of Annuity Distributions? Does LIFO even apply to qualified accounts?
The reason I ask is I have a client that did a conversion 2 years ago. They want to take a 10% free withdrawal which, according to publication 590, the distribution would have to follow those rules and be a FIFO distribution. The Ins. Company is telling them it has to be LIFO and since the earnigs exceed the availabe free withdrawal it will be a fully taxable withdrawal. I am certain they are wrong. Am I missing something here? Do annuities have go by other rules or by pub. 590, Page 69 , Order of Distribution?
Please Advise.
Permalink Submitted by Alan Spross on Fri, 2009-12-04 23:33
The IRA taxation of distributions trumps the non qualified annuity provisions when an annuity is in an IRA contract. Sec 408A applies to Roth annuities. Therefore, you are correct that the ordering rules apply as usual per p 69 of Pub 590. Earnings would come out last. Most likely the insurance co Rep does not encounter many Roth IRAs in an annuity, although quite a few annuities were converted up until about 3 years ago when the IRS shut down a valuation scam using surrender values for the taxable amount of a Roth conversion.