Annuity purchased inside a Roth IRA
I know that annuity payouts in general are treated partly as a return of “basis”, and the remainder as taxable income.
If an immediate fixed annuity is purchased from within a Roth IRA (by definition, money withdrawn from a Roth is non-taxable after 59 1/2 after 5 years of account existance), are the annuity payouts free of tax?
Is anyone doing this?
Permalink Submitted by Alan Spross on Wed, 2008-03-26 21:22
Yes, the Roth tax rules trump the annuity tax rules, and distributions out of the Roth account follow the usual ordering rules. If the Roth is qualified as you indicated, then the payouts are tax free. If not qualified, the first dollars out would come from regular contributions etc under the ordering rules.
An immediate annuity in a Roth provides a life payout of tax free dollars just as there would be a taxable life payout from an immediate annuity in a traditional IRA.