Rolling over annuities

[JenMO]

Client had a 1099-r from an investment co, gross amount, taxable amount, Fed w/h, dist code 7. Said it was not an IRA or 401 or retirement, just an annuity purchased. She said they rolled it over into another annuity with a different investment co. I saw no papers, but believe what she said. Is that money taxable? Can you rollover a tax deferred annuity into another one tax free?

[Matt Sova]

1035

To exchange 1 annuity for another you can do a 1035 exchange. However, I am not sure if you can take the money out then open a new one, in other words I think it has to be trustee to trustee maybe someone that deals with investments knows for sure.

[S T]

Section 1035 Exchange

Here is a link that might assist you http://www.irs.gov/irb/2003-33_IRB/ar11.html

Annuity - Section 1035 Exchange. Should have been a direct rollover - investment company to investment company,

Sandy

[JenMO]

Would a 1035 exchange show up on the 1099 issued by the first company? There was federal withholding on the 1099 that my client received. So, the monies that the second company received would have been the amount less the w/h. So does that make the w/h partly taxable? I understand if she took the money out in cash (or check), then invested it with the second company, the whole amount becomes taxable. But if it was a trustee to trustee transfer it would be tax free. But what about the fed w/h amount?

[Bees Knees]

If it is a 1035 exchange, the insurance company issuing the 1099-R would use code 6 in box 7.

A 1035 exchange is not going to have any federal withholding, so I doubt yours is a 1035 exchange.

[Matt Sova]

Agree

I think Bees hit it on the head. Even if it was rolled over directly it sounds like they did not do it as a 1035 exchange so the amount is taxable.

Matt

[JenMO]

Thanks, That's how I reported it, and the client owes quite a bit because they did not hold out enough. But, the daughter is going to check with her investment guy and is supposed to give me a call. I guess we'll see. At least I have some info.

[Burke]

To exchange 1 annuity for another you can do a 1035 exchange. However, I am not sure if you can take the money out then open a new one, in other words I think it has to be trustee to trustee maybe someone that deals with investments knows for sure.

You cannot. Any 1031 or 1035 exchange has stringent requirements about a direct transfer of the funds from (in this case) one policy to another with both companies involved.