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annuity income for life?
Old 02-08-2009, 04:52 PM   #1
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annuity income for life?

Does anyone know if there would be any penalty from the IRS is I turn a non-qualified annuity income an income for life one at age 50? Thanks.

Trying to get consistent monthly until 59 1/2. Thanks.
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Old 02-08-2009, 07:08 PM   #2
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Ask whoever issued you the annuity. It all comes down to whether they would send you a 1099.
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Old 02-08-2009, 10:19 PM   #3
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Originally Posted by hadavi View Post
Does anyone know if there would be any penalty from the IRS is I turn a non-qualified annuity income an income for life one at age 50? Thanks.

Trying to get consistent monthly until 59 1/2. Thanks.
I'm not a tax expert, but I can try to get you started.

I believe the general answer is "No penalty". You can read the "Tax on Early Distributions" section of Publication 575 (2008), Pension and Annuity Income

It includes this:


Quote:
General exceptions. The tax does not apply to distributions that are:
  • Made as part of a series of substantially equal periodic payments (made at least annually) for your life (or life expectancy) or the joint lives (or joint life expectancies) of you and your designated beneficiary (if from a qualified retirement plan, the payments must begin after separation from service). See Substantially equal periodic payments, later,
  • Made because you are totally and permanently disabled, or
  • Made on or after the death of the plan participant or contract holder.
You will still have to pay tax on the portion of each payment that the IRS deems to be "gain" rather than "principal".
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Old 02-08-2009, 10:30 PM   #4
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So just to make sure, if I have several non-qualifies annuities, I can turn them into income annuities at 50 years old and not have to pay a penalty?

I have had two financial planners say differently and an annuity rep. from Vanguard say that I wouldn't have any penalties if I set them up for equal payments for life.

??
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Old 02-09-2009, 07:25 AM   #5
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I think INDEPENDENT already answered your last question. (The score now is 2:2; but, it is YOUR tax return).
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Old 02-09-2009, 08:42 AM   #6
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Originally Posted by hadavi View Post
I have had two financial planners say differently and an annuity rep. from Vanguard say that I wouldn't have any penalties if I set them up for equal payments for life.
My understanding is that Vanguard is correct (but I'm not an expert in this area). Like Rule 72t with IRAs, annuities can be set up to allow "substantially equal periodic payments" before age 59 1/2 without penalty. But one does have to make sure that if they are going to convert a fixed or variable annuity into an SPIA with a 1035 exchange, that the annuity being converted is no longer subject to surrender charges or other penalties.
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Old 02-09-2009, 08:58 AM   #7
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Thanks for the clarification!
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