Is the distribution from an annuity fully taxable?

Question

A relative had purchased an annuity for me years ago, which was payable upon her death. I was instructed to cash in the annuity, which I did. Is the annuity fully taxable as income on my IRS return? Is the gross distribution listed in box 1 added to my income, and therefore fully taxable? Or do I list the amount in box 2a (taxable amount) as income, making the distribution only partially taxable?

Answer 1

The "basis" is not taxable. The rest of it is taxable. If you do not know how to compute the amount of basis, then assume that the form is correct.



However, all of it, including the non-taxable portion, must be reported.



You must enter the entire amount of the distribution (box 1) as pension and annuity income (Form 1040, line 16a). You enter only the taxable amount (box 2a unless you think it is wrong) as the taxable amount (Form 1040, line 16b).

Answer 2

You will have to pay income taxes plus the 10% penalty for early distribution,you have to be 591/2 not to pay the penalty-except for certain exceptions. You can take a lump sum distribution,pay the taxes and penalties,spend what you need to and invest some in a ROTH IRA for you and your spouse,put some into a regular savings account for emergency use and open a money market CD or other savings investment. Talk to a financial advisor about your options and the best way to go. If you lost your job due to the economy or closing,you will not have to pay the penalty on the distribution - 55 is the minimum age allowed to do this for now.

Answer 3

You show both the full amount and the taxable amount on your return, but only pay tax on the taxable amount. The difference is due to the purchase price of the annuity.

Answer 4

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Answer 5

put the information in exactly as it is. it is added to your income.

Answer 6

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