Applicable Regulations

• As of January 1, 2008, distributions from tax-sheltered annuities can be rolled over into a Roth IRA under the restrictions that currently apply to rollovers from traditional IRAs into Roth IRAs.
  
  

Rollover Definition

• The IRS defines a rollover, generally, as a tax-free distribution to you of money from one retirement plan that you deposit into another retirement plan. Rollover funds are usually taxable when distributed from the second plan; however, annuity funds rolled over to a Roth IRA are usually taxable during the year they were distributed.
  
  

Direct Rollover

• If you roll over income from an annuity directly to a Roth IRA (that is, the money is transferred directly from the institution holding your annuity to the institution holding the Roth IRA) no tax is withheld.
  
  

Indirect Rollover

• Annuity distributions paid to you, even if you intend to roll them over to a Roth IRA, will usually have 20 percent withheld for income tax; however, you must report the full amount as distributed.
  
  

Annuities Held by Roth IRAs

• You can also choose to deposit funds into an annuity which is held by a Roth IRA; this money is taxable in the year it is contributed to the Roth IRA-held annuity.