Qualified Annuity funded with non-qualified funds

Forum|Forum|2 years ago
April 11, 2024
1 reply
38 views

Hi all. I have an odd situation I've never seen before. I have a client who purchased a qualified annuity for about $140,000. She used funds from 2 accounts to purchase it. One acount was an IRA she rolled over of $90,000, the other account was a non-qualified account of $50,000, almost all of which was not taxable. All of this was put into the same taxable qualified annuity. According to the insurance company there is no way to undue this.

So what do we do about that $50k of non-taxable funds. Can we set up basis for it on an 8606? Anyone have this happen before and have any advice? Thanks for any help you can provide.

I hope your tax seasons have been good and that you all get a much earned rest on the 16th!

This topic has been closed for replies.

Best answer by BobKamman

"Once the funds were removed from the IRA, they are just like any other funds your taxpayer can spend. That large distribution event is taxable."

The funds were deposited with the new company within 60 days. So it should qualify as a rollover, right?

The rollover from one IRA to another is not the problem. Usually these are done trustee to trustee, when they are annuities, but that isn't a requirement. The problem is depositing another $50,000 in cash that did not come from an IRA rollover. She can just keep paying the $3,000 annual penalty until she figures out a way to put the toothpaste back in the tube.

This is not the fault of the new annuity company, but they could solve the problem just by breaking the one contract into two contracts with identical terms.

BobKamman

Level 15

What is a "taxable qualified annuity" ? If it's taxable, it's not an IRA. But if it's an IRA, and nonqualified funds were contributed to it, you need to withdraw them yesterday.

D

dhoytAuthor

Level 4

Sorry if I didn't make that clear. She rolled her traditional IRA over to purchase this Annuity IRA. Then she also took 50k from another account (some sort of annuity that the 50k was almost all not taxable on the 1099R ) and put it into the same IRA annuity that I believe she will get monthly payments for the rest of her life from. So the total cost of the new annuity is 140k, but part of it came from qualified funds, and part from non-qualified funds. On the 1099R she received from the insurance company for the new annuity it has the IRA box checked.

BobKamman

Level 15

Did she do this with no help from a professional, or is there a commission-hungry agent who can be sued? (Or, more likely, named in a complaint to the state insurance department along with the company that accepted the "rollover.") So she bought the annuity with illegal funds, then annuitized, and the new company refuses to help. This is a situation where she doesn't ask them to reverse the deal; she tells them to do it. If you can't help her, find a lawyer who can.

Sign up

Login with SSO

Let's get you signed in

Login with SSO