Withdrawal from a Non-Qualified Annuity

[marg]

edited:  state of New York.   Non qualified Fixed Income open in 1994..  my first and not so smart investment.  

Let's say, I withdrew $5000.- from the total accumulation of $20,000.- The principal is 7,000.00.  


Is it subject to State Tax IT-201 line# 29, "Pension and annuity income exclusion". I know it is subject to federal tax as an ordinary income.
1099-R Box#1) $5000.-,2) $5000.- Box#16) State distribution. $5,000.-     State of New York 

Thanks

[uncleharley]

I believe that would depend on which state you live in. You might want to ask a local tax person.

[fishingrod]

All the Non Qualified annuities I have had, have been State taxable as regular income.

You may even have a premium tax.

www.annuity.org/annuities/taxation/state-premium-tax/

[marg]

 What retirement income qualifies for the pension and annuity income exclusion?
Qualifying pension and annuity income includes:
periodic payments for services you performed as an employee before you retired;
periodic and lump-sum payments from an IRA, but not payments derived from contributions made after you retired;
periodic distributions from government (IRC section 457) deferred compensation plans;
periodic distributions from an annuity contract (IRC section 403(b)) purchased by an employer for an employee and the employer is a corporation, community chest, fund, foundation, or public school;
periodic payments from an HR-10 (Keogh) plan, but not payments derived from contributions made after you retired;
lump-sum payments from an HR-10 (Keogh) plan, but only if federal Form 4972 is not used. Do not include that part of your payment that was derived from contributions made after you retired;
periodic distributions of benefits from a cafeteria plan (IRC section 125) or a qualified cash or deferred profit-sharing or stock bonus plan (IRC section 401(k)), but not distributions derived from contributions made after you retired.

Qualifying pension and annuity income does not include:
Distributions received as a nonemployee spouse in accordance with a court-issued qualified domestic relations order (QDRO) that meets the criteria of IRC section 414(p)(1)(A) or in accordance with a domestic relations order (DRO) issued by a New York court. For additional information, see Publication 36.

Distributions received as a result of an annuity contract purchased with your own funds from an insurance company or other financial institution. The payments are attributable to premium payments made by you, from your own funds, and are not attributable to personal services performed. For additional information, see Publication 36.

Age Limit
You qualify for the pension and annuity income exclusion if you were 59 1/2 before January 1, 2023 and have qualifying pension and annuity income included in your 2023 federal adjusted gross income. If you became 59 1/2 during 2023, enter only the amount you received after you became 59 1/2.

$20,000 limit - You may not take a pension and annuity income exclusion that exceeds $20,000, regardless of the source(s) of the income.


 If I answer "NO", see Paragraph #3.  for Non-qualified either "fixed or variable annuities",   The software will calculate as taxable (regular Income) 

[fishingrod]

Mar 16, 2024 22:49:07 GMT marg said:

 What retirement income qualifies for the pension and annuity income exclusion?
Qualifying pension and annuity income includes:
periodic payments for services you performed as an employee before you retired;
periodic and lump-sum payments from an IRA, but not payments derived from contributions made after you retired;
periodic distributions from government (IRC section 457) deferred compensation plans;
periodic distributions from an annuity contract (IRC section 403(b)) purchased by an employer for an employee and the employer is a corporation, community chest, fund, foundation, or public school;
periodic payments from an HR-10 (Keogh) plan, but not payments derived from contributions made after you retired;
lump-sum payments from an HR-10 (Keogh) plan, but only if federal Form 4972 is not used. Do not include that part of your payment that was derived from contributions made after you retired;
periodic distributions of benefits from a cafeteria plan (IRC section 125) or a qualified cash or deferred profit-sharing or stock bonus plan (IRC section 401(k)), but not distributions derived from contributions made after you retired.

Qualifying pension and annuity income does not include:
Distributions received as a nonemployee spouse in accordance with a court-issued qualified domestic relations order (QDRO) that meets the criteria of IRC section 414(p)(1)(A) or in accordance with a domestic relations order (DRO) issued by a New York court. For additional information, see Publication 36.

Distributions received as a result of an annuity contract purchased with your own funds from an insurance company or other financial institution. The payments are attributable to premium payments made by you, from your own funds, and are not attributable to personal services performed. For additional information, see Publication 36.

Age Limit
You qualify for the pension and annuity income exclusion if you were 59 1/2 before January 1, 2023 and have qualifying pension and annuity income included in your 2023 federal adjusted gross income. If you became 59 1/2 during 2023, enter only the amount you received after you became 59 1/2.

$20,000 limit - You may not take a pension and annuity income exclusion that exceeds $20,000, regardless of the source(s) of the income.


 If I answer "NO", see Paragraph #3.  for Non-qualified either "fixed or variable annuities",   The software will calculate as taxable (regular Income) 

Will you give a link please.

[yogibearbull]

Annuity taxation is complex.

Qualified and nonqualified annuities are treated differently at federal and state levels.

Many states don't tax withdrawals from qualified annuities (e.g. my state, IL), or exempt tax up to certain annual limits.

For nonqualified annuities, the principal isn't taxed (that is what para 3 in the quote means). But there are rules about that too. When there are ad-hoc withdrawals, interest/earnings come out first, principal the last. If annuitized, then principal is assumed to distributed uniformly over the life-expectancy, and that portion of withdrawal is not taxed.

OP state is unknown. But if the principal was only $7K, and the value now is $20K (a VA in hot tech?), the ad-hoc $5K withdrawal should be all earnings, and taxed as ordinary income at both federal and state levels.

Also, if withdrawn before 59.5, add 10% penalty.

[liftlock]

Mar 16, 2024 20:21:07 GMT marg said:

Let's say, I withdrew $5000.- from the total accumulation of $20,000.- The principal is 7,000.00.  


Is it subject to State Tax IT-201 line# 29, "Pension and annuity income exclusion". I know it is subject to federal tax as an ordinary income.
1099-R Box#1) $5000.-,2) $5000.- Box#16) State distribution. $5,000.-     State of New York 

Thanks

www.tax.ny.gov/pit/file/information_for_seniors.htm

[marg]

Sorry, for all the confusions , due to cut and paste alignment error. I edited it. thanks


New York Pension and Annuity Income Subtractions
Pensions of NYS and Local Governments and the Federal Government
Yes No
Did you receive a pension or other distribution from a New York State or federal government pension plan that was included in your federal adjusted gross income? - Tax Help


Pension and Annuity Income Exclusion. (SEE PARAGRAPH 3 Above)
Yes No
Do you have pension or annuity income that is NOT from a New York State or federal government pension plan? - Tax Help


Decedent Distributions
Yes No
Did you receive a decedent's pension or annuity distributions in 2023?
For example, if you are the beneficiary of a deceased grandfather's pension distributions, then answer Yes.

[marg]

yogibearbull , This is in State of New York,  

So if by next year, I withdraw the remaining $15,000.00.  $7,000.- is non taxable(principal) and $8.000+.- as ordinary income in Federal & State of New York?

  Thanks

[yogibearbull]

marg, "NY Pension/Annuity" means that from NY State or local gov. Your nonqualified annuity doesn't count (even when it's in NY).

So, IMO, the answers should be No, No, Yes, N/A.

[marg]

Mar 17, 2024 12:39:28 GMT yogibearbull said:

marg , "NY Pension/Annuity" means that from NY State or local gov. Your nonqualified annuity doesn't count (even when it's in NY).

So, IMO, the answers should be No, No, Yes, N/A.

#2 Questions from TaxHawk:
Pension and Annuity Income Exclusion. with ? for further reading:  See Paragraph #3)   
Do you have pension or annuity income that is NOT from a New York State or federal government pension plan? - Tax Help
Yes or No.  

If I answer "Yes"  the $5000.- appear in IT 201 line# 29, which is non taxable. But if "No" it is taxable.  It falls under the Paragraph 3 (last Paragraph)

 What retirement income qualifies for the pension and annuity income exclusion?
Qualifying pension and annuity income includes:
periodic payments for services you performed as an employee before you retired;
periodic and lump-sum payments from an IRA, but not payments derived from contributions made after you retired;
periodic distributions from government (IRC section 457) deferred compensation plans;
periodic distributions from an annuity contract (IRC section 403(b)) purchased by an employer for an employee and the employer is a corporation, community chest, fund, foundation, or public school;
periodic payments from an HR-10 (Keogh) plan, but not payments derived from contributions made after you retired;
lump-sum payments from an HR-10 (Keogh) plan, but only if federal Form 4972 is not used. Do not include that part of your payment that was derived from contributions made after you retired;
periodic distributions of benefits from a cafeteria plan (IRC section 125) or a qualified cash or deferred profit-sharing or stock bonus plan (IRC section 401(k)), but not distributions derived from contributions made after you retired.

Qualifying pension and annuity income does not include:
Distributions received as a nonemployee spouse in accordance with a court-issued qualified domestic relations order (QDRO) that meets the criteria of IRC section 414(p)(1)(A) or in accordance with a domestic relations order (DRO) issued by a New York court. For additional information, see Publication 36.

Distributions received as a result of an annuity contract purchased with your own funds from an insurance company or other financial institution. The payments are attributable to premium payments made by you, from your own funds, and are not attributable to personal services performed. For additional information, see Publication 36.

[liftlock]

Mar 17, 2024 12:39:28 GMT yogibearbull said:

marg , "NY Pension/Annuity" means that from NY State or local gov. Your nonqualified annuity doesn't count (even when it's in NY).

So, IMO, the answers should be No, No, Yes, N/A.

Marg,

I agree with Yogi.  It sounds like you are going to have a taxable amount on Line 10 of your NY IT-201.

But, read the instructions for IT-201 Line 29 to see if the annuity income on line 10 qualifies for an exclusion on Line 29.   Somewhere the tax software should be asking interview questions to determine that.

www.tax.ny.gov/pdf/current_forms/it/it201_fill_in.pdf
www.tax.ny.gov/forms/current-forms/it/it201i.htm

[yogibearbull]

marg, I am familiar with general annuity rules, but not with TaxHawk software. Hopefully, someone else can jump in. Or, there may be TaxHawk user community or help line.

[liftlock]

Mar 17, 2024 13:05:43 GMT marg said:

Mar 17, 2024 12:39:28 GMT yogibearbull said:

marg , "NY Pension/Annuity" means that from NY State or local gov. Your nonqualified annuity doesn't count (even when it's in NY).

So, IMO, the answers should be No, No, Yes, N/A.

#2 Questions from TaxHawk:
Pension and Annuity Income Exclusion. with ? for further reading:  See Paragraph #3)   
Do you have pension or annuity income that is NOT from a New York State or federal government pension plan? - Tax Help
Yes or No.  

If I answer "Yes"  the $5000.- appear in IT 201 line# 29, which is non taxable. But if "No" it is taxable.  It falls under the Paragraph 3 (last Paragraph)

 What retirement income qualifies for the pension and annuity income exclusion?
Qualifying pension and annuity income includes:
periodic payments for services you performed as an employee before you retired;
periodic and lump-sum payments from an IRA, but not payments derived from contributions made after you retired;
periodic distributions from government (IRC section 457) deferred compensation plans;
periodic distributions from an annuity contract (IRC section 403(b)) purchased by an employer for an employee and the employer is a corporation, community chest, fund, foundation, or public school;
periodic payments from an HR-10 (Keogh) plan, but not payments derived from contributions made after you retired;
lump-sum payments from an HR-10 (Keogh) plan, but only if federal Form 4972 is not used. Do not include that part of your payment that was derived from contributions made after you retired;
periodic distributions of benefits from a cafeteria plan (IRC section 125) or a qualified cash or deferred profit-sharing or stock bonus plan (IRC section 401(k)), but not distributions derived from contributions made after you retired.

Qualifying pension and annuity income does not include:
Distributions received as a nonemployee spouse in accordance with a court-issued qualified domestic relations order (QDRO) that meets the criteria of IRC section 414(p)(1)(A) or in accordance with a domestic relations order (DRO) issued by a New York court. For additional information, see Publication 36.

Distributions received as a result of an annuity contract purchased with your own funds from an insurance company or other financial institution. The payments are attributable to premium payments made by you, from your own funds, and are not attributable to personal services performed. For additional information, see Publication 36.

It looks like Tax Hawk is telling you that your Line 10 annuity income qualifies for the NY pension exclusion on Line 29 because it wasn't from NY or Federal Government pension plan.  But only you can decide whether your annuity meets the qualifications for exclusion on Line 29.  If it meets the qualifications for exclusion you wont pay tax on up to $20,000 of annuity income. 

[marg]

Mar 17, 2024 14:26:24 GMT liftlock said:

Mar 17, 2024 13:05:43 GMT marg said:

#2 Questions from TaxHawk:
Pension and Annuity Income Exclusion. with ? for further reading:  See Paragraph #3)   
Do you have pension or annuity income that is NOT from a New York State or federal government pension plan? - Tax Help
Yes or No.  

If I answer "Yes"  the $5000.- appear in IT 201 line# 29, which is non taxable. But if "No" it is taxable.  It falls under the Paragraph 3 (last Paragraph)

 What retirement income qualifies for the pension and annuity income exclusion?
Qualifying pension and annuity income includes:
periodic payments for services you performed as an employee before you retired;
periodic and lump-sum payments from an IRA, but not payments derived from contributions made after you retired;
periodic distributions from government (IRC section 457) deferred compensation plans;
periodic distributions from an annuity contract (IRC section 403(b)) purchased by an employer for an employee and the employer is a corporation, community chest, fund, foundation, or public school;
periodic payments from an HR-10 (Keogh) plan, but not payments derived from contributions made after you retired;
lump-sum payments from an HR-10 (Keogh) plan, but only if federal Form 4972 is not used. Do not include that part of your payment that was derived from contributions made after you retired;
periodic distributions of benefits from a cafeteria plan (IRC section 125) or a qualified cash or deferred profit-sharing or stock bonus plan (IRC section 401(k)), but not distributions derived from contributions made after you retired.

Qualifying pension and annuity income does not include:
Distributions received as a nonemployee spouse in accordance with a court-issued qualified domestic relations order (QDRO) that meets the criteria of IRC section 414(p)(1)(A) or in accordance with a domestic relations order (DRO) issued by a New York court. For additional information, see Publication 36.

Distributions received as a result of an annuity contract purchased with your own funds from an insurance company or other financial institution. The payments are attributable to premium payments made by you, from your own funds, and are not attributable to personal services performed. For additional information, see Publication 36.

It looks like Tax Hawk is telling you that your Line 10 annuity income qualifies for the NY pension exclusion on Line 29 because it wasn't from NY or Federal Government pension plan.  But only you can decide whether your annuity meets the qualifications for exclusion on Line 29.  If it meets the qualifications for exclusion you wont pay tax on up to $20,000 of annuity income. 

liftlock ,  

#2 Questions from TaxHawk:
Pension and Annuity Income Exclusion. with ? for further reading: See Paragraph #3)
Do you have pension or annuity income that is NOT from a New York State or federal government pension plan? - Tax Help
Yes or No.

 I tried to answer "Yes", and the next screen asked me:

Your Pension and Annuity Income Exclusion
Enter any qualifying retirement income you received during 2023. Don't include pensions of New York State and the federal government with this exclusion(?). - Tax Help.  The (?). refer to Paragraph 3 :
Taxable Pensions and Annuities:
Federal Income $5000.-        New York Subtraction Amount $ 

If I enter $ 5000.- on New York Subtraction amount . it will show in Line 29, it will say Pension and Annuity exclusion is $5000.00, (Good news, you qualify for the Pension and Annuity Income exclusion)  so, non taxable.  

But the Pension and Annuity exclusions has this: 

Qualifying pension and annuity income does not include:
Distributions received as a nonemployee spouse in accordance with a court-issued qualified domestic relations order (QDRO) that meets the criteria of IRC section 414(p)(1)(A) or in accordance with a domestic relations order (DRO) issued by a New York court. For additional information, see Publication 36.

Distributions received as a result of an annuity contract purchased with your own funds from an insurance company or other financial institution. The payments are attributable to premium payments made by you, from your own funds, and are not attributable to personal services performed. For additional information, see Publication 36.

So I thought I should left it blank on " New York Subtraction Amount$ " because NY state is exclusive.. if so, then line 29 is blank.  taxable as ordinary income

[liftlock]

Mar 17, 2024 15:24:38 GMT marg said:

Mar 17, 2024 14:26:24 GMT liftlock said:

It looks like Tax Hawk is telling you that your Line 10 annuity income qualifies for the NY pension exclusion on Line 29 because it wasn't from NY or Federal Government pension plan.  But only you can decide whether your annuity meets the qualifications for exclusion on Line 29.  If it meets the qualifications for exclusion you wont pay tax on up to $20,000 of annuity income. 

liftlock ,  

#2 Questions from TaxHawk:
Pension and Annuity Income Exclusion. with ? for further reading: See Paragraph #3)
Do you have pension or annuity income that is NOT from a New York State or federal government pension plan? - Tax Help
Yes or No.

 I tried to answer "Yes", and the next screen asked me:

Your Pension and Annuity Income Exclusion
Enter any qualifying retirement income you received during 2023. Don't include pensions of New York State and the federal government with this exclusion(?). - Tax Help.  The (?). refer to Paragraph 3 :
Taxable Pensions and Annuities:
Federal Income $5000.-        New York Subtraction Amount $ 

If I enter $ 5000.- on New York Subtraction amount . it will show in Line 29, it will say Pension and Annuity exclusion is $5000.00, (Good news, you qualify for the Pension and Annuity Income exclusion)  so, non taxable.  

But the Pension and Annuity exclusions has this: 

Qualifying pension and annuity income does not include:
Distributions received as a nonemployee spouse in accordance with a court-issued qualified domestic relations order (QDRO) that meets the criteria of IRC section 414(p)(1)(A) or in accordance with a domestic relations order (DRO) issued by a New York court. For additional information, see Publication 36.

Distributions received as a result of an annuity contract purchased with your own funds from an insurance company or other financial institution. The payments are attributable to premium payments made by you, from your own funds, and are not attributable to personal services performed. For additional information, see Publication 36.

So I thought I should left it blank on " New York Subtraction Amount$ " because NY state is exclusive.. if so, then line 29 is blank.  taxable as ordinary income

Marg,

I am not sure what you are asking.  You want to take the pension exclusion on line 29 if you are entitled / eligible to do so.   Taking the exclusion by showing a number on line 29 will reduce your adjusted gross income and your tax. 
 You need to determine whether the type of annuity income you have qualifies for the exclusion.  If the answer is yes, you want to include a number for your annuity income on line 29.  If the answer is no, you want to enter a zero on line 29.

The software is telling you that you should not take an exclusion on line 29 if your annuity is for one of the two types listed under the words "Qualifying pension and annuity income does not include:"

See pages 11 and 13 of NY "Publication 36: General Information for Senior Citizens and Retired Persons" for more information:
www.tax.ny.gov/pdf/publications/income/pub36.pdf

[marg]

Mar 17, 2024 18:36:25 GMT liftlock said:

Mar 17, 2024 15:24:38 GMT marg said:

liftlock ,  

#2 Questions from TaxHawk:
Pension and Annuity Income Exclusion. with ? for further reading: See Paragraph #3)
Do you have pension or annuity income that is NOT from a New York State or federal government pension plan? - Tax Help
Yes or No.

 I tried to answer "Yes", and the next screen asked me:

Your Pension and Annuity Income Exclusion
Enter any qualifying retirement income you received during 2023. Don't include pensions of New York State and the federal government with this exclusion(?). - Tax Help.  The (?). refer to Paragraph 3 :
Taxable Pensions and Annuities:
Federal Income $5000.-        New York Subtraction Amount $ 

If I enter $ 5000.- on New York Subtraction amount . it will show in Line 29, it will say Pension and Annuity exclusion is $5000.00, (Good news, you qualify for the Pension and Annuity Income exclusion)  so, non taxable.  

But the Pension and Annuity exclusions has this: 

Qualifying pension and annuity income does not include:
Distributions received as a nonemployee spouse in accordance with a court-issued qualified domestic relations order (QDRO) that meets the criteria of IRC section 414(p)(1)(A) or in accordance with a domestic relations order (DRO) issued by a New York court. For additional information, see Publication 36.

Distributions received as a result of an annuity contract purchased with your own funds from an insurance company or other financial institution. The payments are attributable to premium payments made by you, from your own funds, and are not attributable to personal services performed. For additional information, see Publication 36.

So I thought I should left it blank on " New York Subtraction Amount$ " because NY state is exclusive.. if so, then line 29 is blank.  taxable as ordinary income

Marg,

I am not sure what you are asking.  You want to take the pension exclusion on line 29 if you are entitled / eligible to do so.   Taking the exclusion by showing a number on line 29 will reduce your adjusted gross income and your tax. 
 You need to determine whether the type of annuity income you have qualifies for the exclusion.  If the answer is yes, you want to include a number for your annuity income on line 29.  If the answer is no, you want to enter a zero on line 29.

The software is telling you that you should not take an exclusion on line 29 if your annuity is for one of the two types listed under the words "Qualifying pension and annuity income does not include:"

See pages 11 and 13 of NY "Publication 36: General Information for Senior Citizens and Retired Persons" for more information:
www.tax.ny.gov/pdf/publications/income/pub36.pdf

Liftlock,
yes, it is in the second paragraph of the "Qualifying pension and annuity income does not include:"  Distributions received as a result of an annuity contract purchased with your own funds from an insurance company or other financial institution.The payments are attributable to premium payments made by you, from your own funds, and are not attributable to personal services performed

Therefore, I will answer "0" and the software will  skip line# 29 or leave it blank.  

Appreciate your time here, thank you very much..