Non-periodic Non-qualified Annuity Distributions
This entry was posted on 4/4/2007 10:49 PM and is filed under uncategorized.
An annuity purchased not as a part an employers retirement plan, that is, from an insurance agent or stock broker, is referred to as a non-qualified annuity. Like most annuities, its earnings are tax deferred. Distributions from it can be either periodic or non-periodic. Periodic means, a series of substantial equal payments, over a significant amount of time. Non-periodic means, you decide you want to make a withdrawal, and leave the rest alone for now, or you have started periodic distributions, and want and are allowed to, take out an extra amount. A non-periodic distribution from a non-qualified annuity, is fully taxable, until all the tax deferred earnings are used up, and its basis is reached. Many annuities have a basis. If you invest $10,000 after tax dollars in an annuity you buy from your insurance agent, your basis is $10,000. If 5 years later, after taking no distributions, you withdraw the entire balance that has now grown to $13,000, your taxable part of the distribution is only $3,000. If in the above case, you withdrew only $7,000, you would still have $3,000 of taxable income, and $4,000 of non-taxable basis coming out. Your remaining basis in the annuity would be $6,000. You can see that for these types of distributions, your earnings come out first, then the basis. IRS
Publication 575 covers this subject.
