Deferred Anuity in a Roth IRA
A client has a deferred annuity in a Roth IRA. Client purchased the Guaranteed Lifetime Income Rider with the annuity. If he turns on the Income Rider, are his income payments tax-free forever? Is there such a thing as tracking basis in this situation? Would the income payments ever become taxable, such as if he lives a long, long time?
Permalink Submitted by Alan - IRA critic on Wed, 2020-07-29 21:35
IRA tax rules override all NQ annuity tax rules. Therefore, all Roth distributions from a Roth annuity follow the Roth IRA ordering rules with Roth basis being distributed first. Until the Roth is qualified at age 59.5 with at least 5 years since the first contribution, distributions must be reported on Form 8606 which apply the ordering rules. Once qualified, the 8606 is no longer applicable, all distributions no matter how large including even total distributions will be tax free regardless of how many years the Roth owner lives. Note that all Roth IRA accounts are combined for tax purposes as if a single account even though the Roth annuity will be held in a separate Roth IRA account. Form 8606 until it is no longer required reflects all Roth accounts, annuity or non annuity.