Purchasing an immediate annuity with a Roth Ira
If only $20,000 of Roth Ira is more than the 5 year waiting period rule and $30,000 of Roth Ira was converted about 2 years ago, can a $50,000 lifetime immediate annuity be purchased without any tax consequences? The payout of the immediate annuity would be approximately $17,000 in 5 years which is still under the original $20,000 and the original $30,000 would be past the 5 year rule.
Permalink Submitted by Alan - IRA critic on Tue, 2018-02-13 20:32
The Roth IRA ordering rules still apply to SPIA distributions. If the 20,000 is basis (no gains), the payouts would not trigger the 10% penalty as it would be gone before conversions were tapped. There would be no tax or penalty until the total of all distributions exceeded the Roth basis of 50,000. Remember, that if there are any other Roth accounts, they are all treated as one combined account for purposes of reporting distributions on Form 8606.