1099R box 7 Code 7D

[ddoshan]

ATSMAN: She got ahold of a local rep and he had the annuity dept at Prudential call her. The 1099R according to that dept is correct. She did not withdraw or receive any tangible money into her local bank account. It is the way the instrument is structured. She did not ever receive one in the past because there was never a positive gain whereas this year he explained to her there was thus that portion is taxable. And I would guess any in the future. thanks for all the posts!

I am no Annuity expert as they can be confusing. But if the amounts you showed on your initial post are correct the above does not make any sense to me. Isn't the purpose of an annuity to let it grow tax free until withdrawing any amounts. She had the annuity for 10 years and it never had a positive gain. Things just don't make sense to me.

[DONNA ASTON]

I realized that before we posted but getting the info on the instrument and trying to explain that to an 80+ can be difficult as she bought it over 10 years ago. I have seen this before but I also had one from BOA two years ago that was incorrect and had to be fixed.

Breaking Bad definitely put us on the map but no sightings lately!

have a good day

[FEDUKE404]

Problem solved

ATSMAN: She got ahold of a local rep and he had the annuity dept at Prudential call her. The 1099R according to that dept is correct. She did not withdraw or receive any tangible money into her local bank account. It is the way the instrument is structured. She did not ever receive one in the past because there was never a positive gain whereas this year he explained to her there was thus that portion is taxable. And I would guess any in the future. thanks for all the posts!

That's pretty much what I expected. Many folks who have a salesman bedazzle them with an annuity purchase later realize they are in for a few "surprises."

Of course, as you apparently now realize, the relevance/existence of any "tangible money" via a "withdrawal" is essentially irrelevant.

Ah, Albuquerque. Any sightings of Walter White or Skyler....or even Jesse?? "Better Call Saul!"

FE

And have an A1 day !!

[DONNA ASTON]

ATSMAN: She got ahold of a local rep and he had the annuity dept at Prudential call her. The 1099R according to that dept is correct. She did not withdraw or receive any tangible money into her local bank account. It is the way the instrument is structured. She did not ever receive one in the past because there was never a positive gain whereas this year he explained to her there was thus that portion is taxable. And I would guess any in the future. thanks for all the posts!

[Burke]

Another possibility.....she transferred the money to another custodian without doing the proper 1035 exchange? The elderly are often "persuaded" to change companies for a better deal. More often than not, it isn't. Get Pru on the phone with her present and you can sort this out.

[FEDUKE404]

Theft possibility

I wouldn't be too quick to rule that out. Some years ago I attended the funeral of a friend's mother. We were all impressed with the eulogy given by her investment advisor. The family was much less enamored with her when they went to cash in the life insurance and annuities she had sold the deceased. She had cashed out and borrowed from the various accounts she had set up. It took a couple of years to sort through what she had done.

I believe that event would better fall into the category of "fraud," and not what most people would refer to as identity theft. Not unlike a lawyer raiding a trust account for "funds."

It happens.

While such cannot be positively ruled out in this scenario, I still have my bet on the Form 1099-R being correct.

Hopefully the original poster will keep us updated?

FE

[DaveO]

She didn't receive any distribution. The issuer of 1099-R is reporting a distribution occurred. Did a distribution occur? (Identity theft - someone else taking distributions from her account?)

I wouldn't be too quick to rule that out. Some years ago I attended the funeral of a friend's mother. We were all impressed with the eulogy given by her investment advisor. The family was much less enamored with her when they went to cash in the life insurance and annuities she had sold the deceased. She had cashed out and borrowed from the various accounts she had set up. It took a couple of years to sort through what she had done.

[FEDUKE404]

Annuity income headaches

She didn't receive any distribution. The issuer of 1099-R is reporting a distribution occurred. Did a distribution occur? (Identity theft - someone else taking distributions from her account?)

I would seriously doubt this issue is in any way related to identify theft. Most institutions have way too many safeguards in place to allow a fraudulent $34k withdrawal to occur.

OTOH, annuities and their kin come in all kinds of flavors. You don't have to find a check in the mailbox for a taxable event to have occurred. (And many holders of annuities are....well, not completely aware of what they agreed to some time in the past.)

At this stage, the client and a responsible person should contact the holder of the account and ask for an explanation of the source of each of the dollar amounts shown on the Form 1099-R.

My 2¢ wager? : Everything is correct!

FE

[David1980]

She didn't receive any distribution. The issuer of 1099-R is reporting a distribution occurred. Did a distribution occur? (Identity theft - someone else taking distributions from her account?)

[ddoshan]

Seems odd that if your aunt never took a distribution that a 1099R would have been issued. It is possible that the annuity contract was such that at some time, date or age distributions would begin. Then again maybe it was put into her bank account and she just forgot or was not aware that it was. Apparently good that the company figured out the taxable portion. On the few annuities I have run into we have had to figure out the taxable portion of each distribution ourselves. It is probable that they have to include code D because, as mentioned, the company does not know all the other possible income the person has. All that means is that the taxable portion MAY be subject to the extra tax.

[mastertaxguy]

1099 Code D-Health Care Act

Code Section 1411 is part of the ACA which imposed the extra 3.8% tax on investment income, which as we all know by now, includes taxable portions of annuities. The 1099 code D (box 7) is correct in that there is $7000.00 of investment income which may or may not be subject to the 3.8% tax on investment income (TTB 6-1 and 6-6), depending on whether the taxpayer meets other income thresholds. Your facts indicate that of her annuity distrubtion, $7000.00 was subject to that and the code D reflects that protion (same amount in this case) subject to the Sec. 1411 extra 3.8% tax. Your facts do not indicate what other income is present; it may be that the taxpayer is not liable for the extra 3.8%. It is what it is, and no, it doesn't matter what the taxpayer claims an insurance agent told her some years ago. The form used to compute the net investment income tax (niit) is 8960 if this applicable.

As a prior post indicates, this is pretty straight forward.

[FEDUKE404]

Sounds fairly straightforward

The IRS instructions for Form 1099-R state, for Code "D", the following:

Annuity payments from nonqualified annuities and distributions from life insurance contracts that may be subject to tax under section 1411.

One would think the payer (obviously not aware of total taxpayer income) is simply providing relevant information that would be important for taxpayers who might be at the higher income levels??

I'm not quite sure if your client is having a problem with the dollar amounts shown (many people can, ahem, be "confused" on income from annuities) or the technical aspects of what is likely a properly prepared Form 1099-R.

You might face quite a challenge finding someone to verify/explain the dollar amounts shown. . .

FE

[DONNA ASTON]

Thanks for the info. I will post the outcome.

[ATSMAN]

I used to work for Prudential 30 yrs back. I believe their servicing center is in Scranton, PA for the 1099 forms.

You may want to go to their website and look for client services and get a US # to call.

I still have Prudential Life Insurance policies and when I have to call it gets routed to a call center in Iowa.

[DONNA ASTON]

No she does not have MAGI over $200K. I read it the same way you did the distribution code is a 7 and the D is just because they don't know what her total investment income is but could play into the threshold. According to her she did not liquidate and that is why she is upset and called me. She did call the issuing agency and got someone in the Philippines after two hours holding. gotta love it right. I gave her a local number to Prudential and we shall see where that goes tomorrow. I just wanted to see if there were any out of the box thoughts out there. thanks