Tax Treatment of Annuitization | Ed Slott and Company, LLC

Tax Treatment of Annuitization

If person under age 59.5 annuitizes a NQ annuity for a 20 year period certain would the payment portion representing a gain prior to age 59.5 be considered a premature distribution?

Thanks,

If the SPIA was newly purchased, the payouts would be penalty free due to the immediate annuity exception in Sec 72q. However, when an existing annuity held over one year is annuitized, RR 92-95 stated that the SPIA does not meet the definition of an immediate annuity because it is deemed purchased at the original purchase date of the NQ annuity. In that case, the immediate annuity penalty exception would not apply.

 

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