I began receiving periodic annuity payments from a nonqualified variable annuity in 2020. These payments are for lifetime income under a guaranteed minimum withdrawal benefit rider (GMWB). My 1099-R shows the taxable amount in box 2a as equal to the gross distribution in box 1. No boxes are checked in 2b. The distribution code in box 7 is 7D. The annuity company says that earnings are paid first, so that is why the full distribution is taxable. IRS publications 575 and 939 do not seem to address this situation for periodic payments; however, I have found some articles on annuities that indicate that periodic payments from lifetime income riders are not treated the same as periodic payments from an annuity that has been annuitized. That is, that they are taxable under the last-in-first-out method so that payments are fully taxable until earnings having been paid out, but not taxable once the cost basis has begun to be paid. If this is the case, may I still use the general rule to exclude a portion of the payment to figure a taxable amount that would be different from the taxable amount reported to the IRS in box 2a, and then use that exclusion ratio in future tax years instead of the taxable amount in box 2a of the 1099-R?
