Yes, if you paid for the annuity with after tax dollars, then you have what is called a tax basis. However depending on whether you are retirement age depends on how it will be treated for tax purposes.
- Non-qualified annuities are purchased with after-tax dollars so only the earnings on your investment are taxable. There is no legal age requirement for withdrawing from a non-qualified annuity.
- IRS Publication 575
- IRS Publication 939 (General Rule for Annuities-Worksheets on page 12 & 13)
- After you enter the 1099-R, you are asked a series of questions. Each time, a question will ask if the amount in 2b is used as the taxable amount. If you say No, you will continue on and will be given a choice between the Simplified or General Method. This will calculate the taxable amount taking into account your cost in the plan. You will be allowed a tax free portion each month for as long as you take distributions at the annuity start date.
Distribution Before Annuity Starting Date From a Nonqualified Plan
If you receive a nonperiodic distribution before the annuity starting date from a plan other than a qualified retirement plan (nonqualified plan), it is allocated first to earnings (the taxable part) and then to the cost of the contract (the tax-free part). This allocation rule applies, for example, to a commercial annuity contract you bought directly from the issuer. You include in your gross income the smaller of:
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The nonperiodic distribution, or
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The amount by which the cash value of the contract (figured without considering any surrender charge) immediately before you receive the distribution exceeds your investment in the contract at that time.
Distributions At The Annuity Starting Date:
Who must use the General Rule. You must use the General Rule if you receive pension or annuity payments from a:
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