LXEX55
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If I purchase an annuity, for say, $100,000, am I taxed on that amount of money or the monthlyincome generated by annuity payments?
..... If you withdrew the 100K from the IRA to purchase the annuity, it is non-qualified and you would pay tax on that withdrawal as well as any income from the annuity.
Is this not true? I am really confused:
Q. If I decide to roll over my IRA, 401(k), or lump sum pension payment into an annuity, will I be hit with a distribution tax?
A. NO. The reason you're permitted to roll over these payments into an annuity tax-free is because when you buy an annuity with IRA or 401k money the first thing the insurance company does is create an IRA holding account to receive your transferred funds.
So really buying an annuity with IRA money is the same as moving your money from its current IRA or 401k trustee to another IRA trustee. This kind of transaction is considered a "direct transfer" or a "direct rollover" which is tax-free. You will owe taxes on the monthly income you receive but not on the transfer.