520 / Are multiple annuity contracts aggregated for purposes of determining the amount of a distribution that is includable in income?

All annuity contracts entered into after October 21, 1988 that are issued by the same company to the same policyholder during the same calendar year will be treated as one aggregated annuity contract for purposes of determining the amount of any distribution that is includable in income under the rules explained in Q 515 and Q 519.¹ An annuity that is received as part of an IRC Section 1035 exchange that was undertaken as part of a troubled insurer’s rehabilitation process under Revenue Ruling 92-43 ( Q 570) is considered to have been entered into for purposes of the multiple contract rule on the date that the new contract is issued. The newly-received contract is not “grandfathered” back to the issue date of the original annuity for this purpose.²

This aggregation rule does not apply to distributions received under qualified pension or profit sharing plans, from an IRC Section 403(b) contract, or from an IRA.³ The Conference Report on OBRA ’89 also states the aggregation rule does not apply to immediate annuities.

If the contract is owned by a corporation or other non-natural person, see also Q 513.

For amounts received under life insurance or endowment contracts, see Q 10. For distributions received under life insurance policies that are classified as modified endowment contracts, see Q 13.

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1.     IRC § 72(e)(12).