non-qual annuity

TheDan

This year we liquidated a non-qual annuity in order to get better returns elsewhere. The company sent a check covered the entire amount less 10% FITW, and stated in the accompanying letter that the entire amount was taxable. The annuity was purchased with after-tax dollars (non-qual) so should have a cost basis associated with it. We have contacted the company several times to correct this ahead of issuing a 1099, but the matter is still "under review" by their investigators. The annual statement clearly shows the purchase price and states "non-qualified" for the tax qualification status, as does the original contract. Can I correct this on my 1040 assuming the company is still dragging their feet at filing time?

MatthewD

Hi TheDan,

Thank you for the details.

You can withdraw the principal of your nonqualified annuity, also called your cost basis, without paying taxes since you’ve already been taxed on it. However, you’ll need to pay taxes on any earnings. Withdrawals are considered to come from earnings first.

The 1099-R would reflect 100% of the distribution in Box 1 and then the taxable portion in box 2a and a code in box 7. We do have a section to enter you cost basis after you enter your 1099-R. If the code is 1 in box 7 and the IRA/SEP/Simple box is checked, after you enter the 1099-R, then yes, you can proceed to the "Prior Year IRA Contributions" page answer yes that you had nondeductible contributions and then enter your basis.

Continue and work with your retirement admin.  They will likely find the correct solution and get you the right 1099-R.  Even if it is after the first of the year.  Often situations like this may require an extension or even an amendment.