Annuity Question

[FloridaJim57]

If an immediate annuity is purchased using Roth IRA money is the montly payout taxable? I know that if purchased using a traditional IRA the income generated is considered untaxed income and subject to taxation.

 

[RunningBum]

No, it's not taxable. I have such an SPIA, bought last year, and did not expect nor did I get a 1099.

 

[FloridaJim57]

Thank you

No, it's not taxable. I have such an SPIA, bought last year, and did not expect nor did I get a 1099.

Thank you. May the Tax Gods smile upon you forever.

 

[pb4uski]

Let's be careful here though.

If the Roth IRA buys and owns the annuity and the annuity benefits are received by the Roth IRA and then distributed to the owner/beneficiary then the benefit payments are not taxable, like any other Roth IRA distributions.

I'm not sure, but it might be that the annuity benefits can be paid directly to the Roth owner/beneficiary tax free as long as the Roth IRA "owns" the annuity.

OTOH, if one takes a big chunk of money out of your Roth IRA and use the proceeds to buy an annuity then a portion of the annuity benefit payments would be taxable, no different from if you bought an annuity with taxable account money.

 

[VanWinkle]

Let's be careful here though.

If the Roth IRA buys and owns the annuity and the annuity benefits are received by the Roth IRA and then distributed to the owner/beneficiary then the benefit payments are not taxable, like any other Roth IRA distributions.

I'm not sure, but it might be that the annuity benefits can be paid directly to the Roth owner/beneficiary tax free as long as the Roth IRA "owns" the annuity.

OTOH, if one takes a big chunk of money out of your Roth IRA and use the proceeds to buy an annuity then a portion of the annuity benefit payments would be taxable, no different from if you bought an annuity with taxable account money.

Good point pb, and i would assume that any payments beyond the life expectancy would be 100% taxable when purchased with Roth funds outside
of the Roth IRA?

VW

 

[RunningBum]

Yes, good point, but they know how to do this correctly. I bought mine from Mass Mutual via Stan the Annuity Man. They took my payment directly from my Roth IRA, and the contract shows a Roth IRA annuity rider.

Likewise, if you bought an annuity with tIRA funds you would have them take payment directly from the account. If you withdrew then bought the entire withdrawal would be immediately taxable.

 

[Koolau]

Yes, good point, but they know how to do this correctly. I bought mine from Mass Mutual via Stan the Annuity Man. They took my payment directly from my Roth IRA, and the contract shows a Roth IRA annuity rider.

Likewise, if you bought an annuity with tIRA funds you would have them take payment directly from the account. If you withdrew then bought the entire withdrawal would be immediately taxable.

Not for everyone, but this actually sounds like a good option for some. Thanks all for sharing the idea and details.