A distribution of a nontransferable, nonforfeitable annuity contract that provides for payments to begin by age 73 (72 for 2020-2022, 70½ prior to 2020) and not to extend beyond certain limits is not taxable, but payments made under such an annuity would be includable in income under the appropriate rules.
Contributions to an IRA may be returned to the participant in a tax-free manner if certain conditions are met as discussed in Q 3670 (provided, in the case of a traditional IRA that no deduction was allowed for the contribution). If net income allocable to the contribution is distributed before the due date for filing the tax return for the year in which the contribution was made, it must be included in income for the tax year for which the contribution was made even if the distribution actually was made after the end of that year.1 With respect to distributions of excess contributions after this deadline, the net income amount is included in income in the year distributed. Any net income amount also may be subject to penalty tax as an early distribution.
Where a taxpayer transferred funds from a single IRA into two newly-created IRAs, the direct trustee-to-trustee transfers were not considered distributions under IRC Section 408(d)(1).2 The division of a decedent’s IRA into separate subaccounts does not result in current taxation of the IRA beneficiaries.3