Non-IRA Annuity Distributions - Taxable Income?

Question

In one of our joint non-retirement brokerage accounts my wife and I have an annuity which we purchased with funds that belonged to us and on which taxes had already been paid. That annuity permits us to draw funds from it if we wish. Last year we drew out about one thirtieth of the value of what is still in that annuity.

Today I received a 1099R from the insurance company which issued the annuity, and it shows a "taxable amount" in Box 2A.

I keep finding items on the web which state that we don't have to declare as income money we take out of an annuity until we have removed as much as we initially paid for it.

Now I'm confused, which is it?

Jeff

Alan · Accepted Answer

It sounds like you have a non-periodic distribution from a nonqualified retirement plan (not an employer/employee retirement plan). E.g., an annuity purchased from an insurance company. I will assume that you took this distribution before the actual annuity starting date as the annuity allowed for this. Under these conditions, first out is considered earnings and then after earnings would be your nontaxable cost. The taxable part of the distribution is the lesser of the distribution or the difference between the cash value and your basis immediately before the distribution. Surrender charges are excluded from this calculation.

Typically, the company making the distribution computes the taxable amount for you.

Non-IRA Annuity Distributions - Taxable Income?

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