Multiple annuity contract taxation

[John3cpa]

Retired client owns owns six annuity contracts all purchased at different times in 1996 from 3 different companies (2 from each). He would like to start taking yearly withdrawels rather than annuitizing. Under our understanding of IRC Sec 72(e)(11)(A), in order to calculate the amount includable in gross income of these withdrawels, all contracts issued by the same company during the same year must be aggregated and considered one annuity contract. This would require aggregation of the 2 contracts from each company, allowing planning of withdrawels, taxability and the timing of getting into cost basis.

Is anyone aware of any additional reg or case authority that would require aggregation of all six contracts, therby changing our planning and probably making annuitization more attractive than planned withdrawels.

[JoshinNC]

I see no reason to aggregate the 6 policies,

provided that they were sold in lumps of 2 by 3 different companies. So, each lump of 2 must be aggregated, but not the 6 together.

[New York Enrolled Agent]

Retired client owns owns six annuity contracts all purchased at different times in 1996 from 3 different companies (2 from each). He would like to start taking yearly withdrawels rather than annuitizing. Under our understanding of IRC Sec 72(e)(11)(A), in order to calculate the amount includable in gross income of these withdrawels, all contracts issued by the same company during the same year must be aggregated and considered one annuity contract. This would require aggregation of the 2 contracts from each company, allowing planning of withdrawels, taxability and the timing of getting into cost basis.

Is anyone aware of any additional reg or case authority that would require aggregation of all six contracts, therby changing our planning and probably making annuitization more attractive than planned withdrawels.

Are you sure you gave the correct section of the IRC? §729(e)(11)(A) refers to LTC policies. I think you are referring to §72(e)(12). The plain language of that section only aggregates contracts of the SAME company. I believe your interpretation is correct - in essence, you have "3" annuities.