Penality on Variable Annunity?

[drdino]

Client has a variable annuity that allows him to have a registered investment advisor manage the funds inside the annuity and have the annuity (insurance carrier) pay the client's management fee.

This year, client got a 1099 from the insurance carrier for the fees and it was classified as a taxable distribution, first time this ever happened. My question is will be taxed as ordinary income plus 10% penalty because before 591/2?

I told client he should have paid the fees out of his personal checking account, but his current RIA claims this is always done and they have never had this problem and it must be a mistake - the insurance carrier said it is not. Thoughts?


drdino

[Burke]

Client has a variable annuity that allows him to have a registered investment advisor manage the funds inside the annuity and have the annuity (insurance carrier) pay the client's management fee.

This year, client got a 1099 from the insurance carrier for the fees and it was classified as a taxable distribution, first time this ever happened. My question is will be taxed as ordinary income plus 10% penalty because before 591/2?

I told client he should have paid the fees out of his personal checking account, but his current RIA claims this is always done and they have never had this problem and it must be a mistake - the insurance carrier said it is not. Thoughts?


drdino

Has the RIA taken fees from this particular annuity before and not had them treated as distributions? I know this is standard practice with financial planners/investment mgrs I work with but the IRA accounts are in mutual funds, not annuities. The fees are automatically deducted from the IRA's and they are not treated as distributions, nor are the fees deductible by the taxpayer.