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I sent $200,000 to invest in an annuity, filed a

Customer Question
commutation, received $100,000, now received...
I sent $200,000 to invest in an annuity, filed a commutation, received $100,000, now received a 1099-R - do I have to report this as taxable income? It is my understanding I only pay tax on what I made above and beyond the $200,000 = thank you
Submitted: 2 years ago.Category: Tax
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2/11/2016
Tax Professional: Lev, Tax Advisor replied 2 years ago
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 32,973
Experience: Taxes, Immigration, Labor Relations
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You are correct - distribution of what you actually contributed with after tax dollars will be tax free.
That will be very true if you take a full distribution.
However - if you are receiving a partial distribution - we need to be clear HOW a taxable portion is determined.
The administrator of your annuity should issue you a form 1099R which reports total distributions AND taxable amount.
In some situations - the administrator not able to determined the taxable amount - and will check the appropriate box on 1099R. If that is your case - you or your tax preparer will need to prepare a special worksheet to determine the taxable portion of your distribution.

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Customer reply replied 2 years ago
in Box 7? I have the code 7D - what does that mean?
Tax Professional: Lev, Tax Advisor replied 2 years ago

code 7 means "Normal distribution." - generally that code indicates no penalty for early distribution.

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

section 1411 is about NIIT - net investment income tax - applied at 3.8% to those having income above the statutory threshold amounts.

For singles - above $200,000.

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Customer reply replied 2 years ago
cool, so from all of that, it looks like I should owe no taxes?
Tax Professional: Lev, Tax Advisor replied 2 years ago

That depends on what amount is reported as taxable distribution in box 2a - can you verify?

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Tax Professional: Lev, Tax Advisor replied 2 years ago

In general - the administrator of your annuity will calculate which part of your distribution is taxable and which is related to recovery of your original contribution.

You should get form 1099R and

line 1 reported total distribution

while line 2a reports only taxable portion

If the administrator doesn't report taxable portion - you may need to calculate it on your own using following worksheet

https://apps.irs.gov/app/vita/content/globalmedia/simplified_method_worksheet_1040i.pdf

Let me know if you need any help with reporting.

Otherwise,

I appreciate if you take a moment to rate the answer.
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If you still have any doubts, need clarification - please be sure to ask.
I am here to help you with all tax related issues.

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