1099-R---Death of Spouse

[Super Mom]

My question is, I have a 1099-R for a widow, with 4 as the distribution code and and amount of the distribution and the taxable amount. My first question, was is the taxable amount a death benefit (non-taxable) and was since told that she would NOT have received that form if it were not taxable. I spoke with the investment counselor today and he said "it was underwater, really made no money but doesn't know original cost basis" then went on to explain that this was a "death benefit from a non qualified anuity" and he didn't know if that was taxable or not. The amount was rolled directly into another annuity in the spouse's name. Is the 'taxable' amount on the 1099-R really taxable to the widow?

[Bees Knees]

If I understand your question correctly, you have a 1099-R that shows the gross distribution as being greater than the taxable amount. Since it is a non-qualified annuity, it is possible that a portion of the distribution is a non-taxable return of basis. If there is a life insurance element, that too could make up a portion of the non-taxable amount.

I would tend to report the 1099-R exactly as it is. Thus, whatever it says is taxable, I would say it is taxable, unless the taxpayer can get the insurance company to issue a corrected 1099-R, or explain exactly why the 1099-R is wrong. Only the insurance company issuing the 1099-R has all the details necessary to determine how much of the distribution is taxable.

[Super Mom]

Thus far, my research is telling me that transfer of ownership is usually taxable, but not between spouses. Voting not taxable??

[Bees Knees]

If you are asking whether a rollover is taxable simply because the 1099-R shows a taxable amount, then the answer is, no, it is not taxable, as long as the taxable portion of the distribution was rolled over.

[Super Mom]

Thanks so much!!! It was rolled over into another annuity.

[ChEAr$]

Well now, her husband died, she got the money, so it's taxable.

[Super Mom]

Well now, her husband died, she got the money, so it's taxable.

This would not be spousal continuation if she rolled it over directly??? She didn't get the money, it was put into an annuity with a different company in her name.

[ChEAr$]

This would not be spousal continuation if she rolled it over directly??? She didn't get the money, it was put into an annuity with a different company in her name.

Are you sure she was eligible to roll it over? And if so, was it a direct rollover or did she first get the check before buying an annuity with some insurance company?

If it's the latter, then you have two separate events. First one is taxable.

[Super Mom]

I double checked with the investment person, and he verified that it was directly rolled over, that's as much as I know about qualifications.

[Super Mom]

I'm still researching this, please help!

[Super Mom]

I'm still leaning towards not taxable on this, any opposite opinions?

[ChEAr$]

I'm still leaning towards not taxable on this, any opposite opinions?

when I said above you have to make sure she qualified for a rollover, it's because we all have clients who say "I rolled it over". Then we come to find out a year later they "rolled" it over into a regular CD at a bank, not having understood what a true rollover is.

If it were an IRA of her deceased husband, of course she could have rolled it over into one of her own. In that case the issuer would not have issued a 1099R. But he did. And you said gross amount in box 1 differes from box 2, taxable amount.

What are those two figures?

[Burke]

First of all, IS this an IRA? Is the IRA box checked? If it is NOT an IRA, there is no "rollover" of a non-qualifed annuity. . If it WAS an IRA, then she had the right to roll it over into one of hers, or into a new one in her name. (Which also has to be an IRA.) And in re-reading the OP, the investment guy seemed to verify that it was a NON-qualifed annuity. So that means, it was NOT an IRA. So it is taxable. Now, if the proceeds paid out were less than the original amount deposited when the annuity was taken out, there may be some deduction on Sche A. It is easy enough to find out that information from the company. I don't know what he may have meant by it being "underwater" but that he did not have the cost basis available. So how could he tell? But the fact that it actually shows a gross amt and a different taxable amount tells me that they have taken his original contribution into consideration. That amount is not taxable. The earnings are. The only thing the spouse does not have (due to Code 4) is a penalty for early distribution, assuming she is under 59 1/2.

[Burke]

Thus far, my research is telling me that transfer of ownership is usually taxable, but not between spouses. Voting not taxable??

You are all mixed up on this. The non-taxable transfers between spouses refers to gift taxes, not income taxes.

[Super Mom]

when I said above you have to make sure she qualified for a rollover, it's because we all have clients who say "I rolled it over". Then we come to find out a year later they "rolled" it over into a regular CD at a bank, not having understood what a true rollover is.

If it were an IRA of her deceased husband, of course she could have rolled it over into one of her own. In that case the issuer would not have issued a 1099R. But he did. And you said gross amount in box 1 differes from box 2, taxable amount.

What are those two figures?

Figures are approximate--total distribution 23,000 taxable portion 8,000 premiums paid 15,000
Thanks for the help everyone I want to help this widow as much as possible, but want to do it right too!