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Can I rollover a non-qualified annuity to an IRA?


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#1 jeremiahtu

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Posted 03 February 2007 - 10:08 AM

I bought a Non-qualified variable (flexible premium) deferred annuity years ago. My wife (now 58) was written down on the application as the owner and myself (now 63) the joint owner, and the account was set up that way. All of the contributions were made with after-tax money. The annuity income date is in year 2009, so the account is just earning tax-deferred interest right now. We simply thought of it as a joint account and didn't think about who's name is in the owner box and whose in the joint owner box, until... We made an withdraw last year to invest elsewhere, and now received a 1099-R form from the financial institution to my wife stating the withdraw is an early distribution (with a 10% penalty tax) because my wife is younger than 59 1/2.

Not wanting to make the same mistake and yet want to move money out of the annuity to invest elsewhere, we are considering the following steps. Is there danger in taking any of these steps? Are there implications I should be aware of?

1) Transfer owner name from a joint ownership to myself: We called the financial institution that manages the Annuity a few times about who is responsible for tax purpose on a joint annuity account, and got different responses each time we called. At first, it's the one written down as owner, not joint owner. Then it becomes the Annuitant. And last time we called, it becomes the younger of the two. We were told that transferring annuity between spouses is not a taxable event, so we plan to transfer the ownership from the joint owners to myself (the older) to avoid incurring any future penalty tax on our withdraws. Once owner is myself, I plan to withdraw the full-amount of the non-qualified annuity, and pay income tax on the interest earned.

2) Rollover the annuity to an IRA: We went to the local IRS office, and asked about rollovering to an IRA. The IRS advisor said we could roll the annuity (while still under joint ownership) to either my wife's or my IRA account. But, when we asked which kind of IRA account we could rollover the non-qualified annuity, the advisor said she doesn’t know and we can call IRS's 1800 number to find out about details. We did, but the person answering the call also doesn't know the answer, and has posted the question to some task team. Has anyone out there done this before? Can I rollover a non-qualified annuity to an IRA? Am I limited to certain kind(s) of IRA?

Thanks for reading my long posting.

#2 BPickerCPA

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Posted 05 February 2007 - 09:11 PM

You cannot roll over non qualified money into an IRA. All you can do is contribute the annual limit to an IRA, if there is sufficient earned income.
Barry Picker, CPA/PFS, CFP
New York, NY
www.BPickerCPA.com

#3 Bird

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Posted 06 February 2007 - 08:33 AM

I think your game plan to transfer ownership to yourself and then withdraw is sound.

And you definitely can't roll this to an IRA.