Annuitizing a Roth
2 questions:
1) If someone annuitizes a roth before age 59 1/2 (say age 58) how are the withdrawals taxed?
2) If that person lives beyond life expectancy does that change the tax free withdrawals to taxable in any way when they live beyond life expectancy?
Permalink Submitted by Alan Spross on Fri, 2012-10-26 16:15
1) IRA tax provisions trump annuity tax provisions when an IRA is annuitized. For a Roth IRA, this means that the regular Roth contributions still come out first and then the conversions. In most cases, the distributions would be entirely tax free, and the Roth would be fully qualified at 59.5 or 5 years from the first contribution year, whichever comes last. Therefore, a life annuity would be expected not to reach earnings for years unless most all contributions had been distributed before the annuity was purchased and/or if the annuity was purchased many years before 59.5.
2) If they live beyond life expectancy, the Roth would long since have reached full qualification and therefore distributions in the later years would remain tax free.
Obviously, a period certain annuity for a term far less than life expectancy would result in larger distributions and a greater chance that earnings might be reached before the Roth was qualified.