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Regulation and Compliance > Federal Regulation > IRS

IRS Completes Annuity Conversion Regs

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The Internal Revenue Service has published final regulations concerning moves to convert individual retirement account annuities into Roth IRAs.

Like the proposed regulations, which were issued in August 2005, the new final regulations talk about how to calculate the amount of assets distributed when an ordinary annuity is converted into a Roth IRA.

Under the regulations, the amount distributed “is the fair market value of the annuity contract on the date the annuity contract is converted,” IRS officials write in a preamble to the final regulations, which appear today in the Federal Register.

IRS officials note that the final regulations use a modified version of a method taken from the gift tax regulations to determine the fair market value of the annuity contract.

The gift tax method included in the proposed regulations assumes that the taxpayer can use sales of comparable annuities to determine the fair market value of the annuity being converted.

The final regulations provide a method for taxpayers who cannot find a comparable contract to use in coming up with an annuity’s fair market value, officials write.

The new alternative method establishes fair market value “through an approximation that is based on the interpolated terminal reserve at the date of the conversion, plus the proportionate part of the gross premium paid before the date of conversion which covers the period extending beyond that date,” officials write.


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