1099R rolled to non-qualified annuity

[Greenbriar]

I have a spouse with a 1099R code 4 (husband died) and the IRA/SEP/Simple box is checked. She rolled it to a non-qualified annuity. The gross distribution and taxable amounts boxes 1 and 2 are the same, e.g. 100,000. My understanding is the entire amount is taxable. Am I correct? Husband was born before 1936 so may be eliglble for 10 year averaging. Thanks.

[JoshinNC]

Why did she "roll it" to a NQ annuity?

I have a spouse with a 1099R code 4 (husband died) and the IRA/SEP/Simple box is checked. She rolled it to a non-qualified annuity. The gross distribution and taxable amounts boxes 1 and 2 are the same, e.g. 100,000. My understanding is the entire amount is taxable. Am I correct? Husband was born before 1936 so may be eliglble for 10 year averaging. Thanks.

She could have still put it into an annuity, but in an inherited IRA. If she put it in a NQ annuity she didn't really "roll it", she took a distribution from the IRA (fully taxable) and then funded the annuity with the proceeds.

[Greenbriar]

1099R folled to NQ annuity

She could have still put it into an annuity, but in an inherited IRA. If she put it in a NQ annuity she didn't really "roll it", she took a distribution from the IRA (fully taxable) and then funded the annuity with the proceeds.

Yikes, then the entire distribution is taxable? She assumed it was "rolled" over and not taxable. It's 100k.

[Burke]

You got it. And she would not be eligible for 10-yr averaging if it was an IRA. That's for qualified pension plans. She had to deal with a licensed agent to get an annuity. Did he tell her this would be a "roll-over?" A non-qualifed annuity cannot be an IRA. A qualifed annuity would possibly be okay. Does she actually know what she has? Look at the contract or call the agent.

[Greenbriar]

1099R IRA to NQ annuity

You got it. And she would not be eligible for 10-yr averaging if it was an IRA. That's for qualified pension plans. She had to deal with a licensed agent to get an annuity. Did he tell her this would be a "roll-over?" A non-qualifed annuity cannot be an IRA. A qualifed annuity would possibly be okay. Does she actually know what she has? Look at the contract or call the agent.

No, I'm sure she has no idea what she invested in. He hubby died and she just gave me the papers. Looks like she got bad advice from the investment company. Thanks.

[erchess]

I wonder

if it would be worthwhile for you to compute in writing the additional tax to which the bad financial advice exposed her? The idea would be to have her lawyer ask the company to quickly pay her this tax plus their fees plus whatever you charged extra for the written computation and whatever the lawyer charged. Seems to me their best move would be to pay that rather than face a jury the press and the SEC.

[Burke]

The better strategy would be to convince the company to rescind the contract and reissue a qualified plan using the original issue date due to a "misunderstanding." (This would only work if she actually did this original transaction within the allowable 60-day rollover period.) It's no loss to the company or the contractholder, they still have the same investment vehicle and the same investments. Values would not change. (Also assuming she has made no withdrawals to date. ) It's also the easier route from the insurance company's standpoint, considering a complaint to the state corporation commission or governing body of insurance companies in your state. It seems highly unlikely the taxpayer and the agent did not discuss where this money came from when this transaction took place. Banks have done this when it is their "error" that the funds were put into the incorrect kind of account.