Can a Monthly Annuity Be Rolled Over to a Roth IRA?

Distributions from a monthly annuity can be rolled over to a Roth IRA, subject to current tax laws and regulations.

Applicable Regulations

As of January 1, 2008, distributions from tax-sheltered annuities can be rolled over into a Roth IRA under the restrictions that currently apply to rollovers from traditional IRAs into Roth IRAs.

Rollover Definition

The IRS defines a rollover, generally, as a tax-free distribution to you of money from one retirement plan that you deposit into another retirement plan. Rollover funds are usually taxable when distributed from the second plan; however, annuity funds rolled over to a Roth IRA are usually taxable during the year they were distributed.

Direct Rollover

If you roll over income from an annuity directly to a Roth IRA (that is, the money is transferred directly from the institution holding your annuity to the institution holding the Roth IRA) no tax is withheld.

Indirect Rollover

Annuity distributions paid to you, even if you intend to roll them over to a Roth IRA, will usually have 20 percent withheld for income tax; however, you must report the full amount as distributed.

Annuities Held by Roth IRAs

You can also choose to deposit funds into an annuity which is held by a Roth IRA; this money is taxable in the year it is contributed to the Roth IRA-held annuity.

References

• Internal Revenue Service: Publication 590 (2009), Individual Retirement Arrangements – Traditional IRAs
• Internal Revenue Service: Publication 571 (2009), Tax Sheltered Annuity Plans – Tax Free Rollovers
• Internal Revenue Service: Publication 17 (2009), Your Federal Income Tax – Retirement Plans, Pensions, and Annuities