annuitized ROTH
67 yr old plans to take TIRA, convert it to RIRA and immediately annuitize for life time income. since the 5 yr seasoning period has not passed I am assuming the annual interest distributed would be taxable for the first 5 yrs.
Here is the question: will the interest that is distributed annually after the first 5 yrs be tax free and if the client lives long enough to have all the original principal distributed will the future payments become fully taxable or be tax free?
Permalink Submitted by Alan - IRA critic on Tue, 2021-03-23 20:26
Due to the Roth IRA ordering rules, there wouldn’t be any Roth gains distributed in the first 5 years. The conversion will have had no time to generate gains, and even if the person has other older Roth IRA accounts, there is likely to be enough Roth basis in those accounts to apply to the annuity distributions. Once the Roth is qualified (for taxpayer that will be once 5 years from the year of first Roth contribution), all distributions from the annuity or any other Roth accounts will be tax free, and also tax free for any beneficiaries.