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.
You will still have to pay tax on the portion of each payment that the IRS deems to be "gain" rather than "principal".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.
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.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.