Annuity Withdrawals

Submitted by James Arnold on Mon, 2017-07-10 20:47

There is an earned income limit for deductible IRA contributions, if withdrawals are taken from a non qualified annuity do these count as earned income for this calculations? I know they are taxed as ordinary income but not sure if they would go towards earned income.



Submitted by Alan - IRA critic on Mon, 2017-07-10 21:04

Annuity withdrawals are not considered earned income and cannot be used to fund regular IRA contributions. However, the taxable portion of an annuity withdrawal DOES count as modified AGI, and if modified AGI exceeds a certain amount for your filing status and you or spouse are covered by a retirement plan at work, you cannot deduct the IRA contribution. If you find that you cannot deduct the contribution, the next option is a Roth contribution, or a non deductible TIRA contribution would be the least desirable.

Submitted by James Arnold on Mon, 2017-07-10 21:18

Alan, thank you for the reply.  In regards to the employer plan, if it is available but the employee is not participating does that matter for the deductibility of the IRA?

Submitted by Alan - IRA critic on Tue, 2017-07-11 00:03

That depends on the type of plan because the active participant definition differs by plan type. What type of plan is this?  

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