1099-R Questions and Information For 2007
What is the purpose of a 1099-R?
A 1099-R is an IRS tax form that reports distributions from annuities, IRAs, retirement plans, profit sharing plans, pensions, and insurance contracts. The gross
amount of the distribution, taxable amount, employee contributions (cost basis), tax withholding, and the distribution code are reported to the contract owner and
the IRS.
When is the 1099-R mailed?
Pacific Life is required to mail the 1099-R to the contract owner by January 31 of the year following the year in which the distribution(s) took place.
Who receives a 1099-R?- Contract owners with reportable distributions from their annuity during the previous calendar year will receive a 1099-R.
- 1099-Rs are mailed to the contract owner’s address of record (as of December 31, 2007).
- The information on the 1099-R is based on the contract owner, not the annuitant (except for 457 contracts).
- If the contract has joint owners, the 1099-R is issued to the primary owner.
- A 1099-R is not generated on corporate owned nonqualified, 501(c), and custodial-owned qualified contracts.
How do I access my 1099-R on-line?
A 1099-R can be accessed on the My Account Web Site—Contract Management as follows:
Active Contracts
For contracts in active status, the launching point to retrieve 1099-R information is from the My Contract section. Under the drop-down menu of available
transactions, select “On-Line Tax Documents” from which the 1099-R form can be accessed.
Annuitized Contracts
For annuitized contracts, the launching point to retrieve 1099-R information will be from the Annuitized Benefits section.
Note:
1099-R information is not accessible for inactive (e.g., fully surrendered, returned under a free-look provision) contracts via the My Account Web site. Only the most
current 1099-R tax information will be displayed on the web site.
Frequently Asked Questions
Q: What amount is reported as taxable?
A: Any earnings withdrawn from your contract. For qualified contracts, distributions are 100% taxable. For nonqualified contracts, any earnings above your cost basis are taxable.
Q: Why did I receive a 1099-R if I did not withdraw any money in 2007?
A: Listed below are some common reasons:
- A fee redemption may have occurred on a nonqualified contract, which is reported as a normal distribution.
- A Roth IRA conversion may have occurred.
- A collateral assignment may have been completed.
- An ownership change may have occurred.
Q: Why did I receive a 1099-R if I placed a 1035(a) tax-free exchange from your company?
A: A 1035(a) tax-free exchange is reportable; however, the 1099-R will show a taxable amount as 0 and distribution code 6 (1035 exchange). The IRS requires this to be reported.
Q: Why did I receive two 1099-Rs?
A: Listed below are some common reasons:
- The client has had multiple residence states when checks were sent.
- The client’s age changed (i.e., turned 59˝).
- The cancellation/start of a 72(t)/72(q) program may have occurred.
- There may be different distribution codes.
Q: I have a Roth IRA. Why did I receive two 1099-Rs for the same contract?
A: Contracts that were converted to a Roth IRA, converted back to a Traditional IRA and then back to a Roth IRA will receive two 1099-Rs. Roth IRA conversions are fully taxable to the contract owner.
Q. Why did I not receive a 1099-R?
A. Only distributions are reported on a 1099-R. If you did not take a withdrawal this year, there are no distributions that need to be reported to the IRS.
Q: What if I am enrolled in a scheduled withdrawal program and turned 59˝ last year, will I receive two 1099-Rs?
A: Yes, the client will receive two 1099-Rs (distribution code 1 [early distribution, no known exception], and another 1099-R with a distribution code 7 [normal distribution]).
Q: Why did I receive a 1099-R if I am taking 72(t)/72(q) distributions?
A: 72(t)/72(q) distributions are taxable; the client is only avoiding the 10% premature distribution penalty. The 1099-R should show a distribution code 2 (early distribution, exception applies).
Q: Why was the overnight fee reported on my 1099-R?
A: Overnight fees are not treated as a management fee; therefore, they are taxable and reportable. They are included in the amount that is provided in Box 1, Gross Distribution, on the 1099-R form.
Q: If I fully surrendered my contract in 2007 and the value was less than my cost basis, can I write the loss off of my taxes?
A: You should consult your tax adviser.
Q: Will a 1099-R be issued to a client who passed away during 2007?
A: Yes, if a withdrawal was taken prior to the date of death, a 1099-R will be issued under the deceased owner’s taxpayer identification number.
Q: I have not received my 1099-R or have misplaced it:
A: The most current 1099-R (on active contracts only) will be displayed on the My Account Web site. To access the 1099-R on the client Web site, review the instructions
above. In addition, a copy of the 1099-R can be faxed or mailed to the contract owner or the registered representative/assistant by contacting Customer Service.
Q: What is the turnaround time for a corrected 1099-R?
A: Until October 1, a corrected 1099-R will be mailed within eight calendar days. After October 1, corrected 1099-Rs will be completed on a monthly basis.
What is "cost basis"?
"Cost basis" is the original investment amount of after-tax dollars used to fund or invest in a contract.
Example:- Post-TEFRA cost basis reported by transferring insurer: $10,000.00
- Taxable gain: $15,500.00
- Amount of check to fund new contract: $25,500.00
- A purchase payment of $10,000.00 was used for the initial contract. The contract had a gain of $15,500.00 and upon transfer; the purchase payment for the new contract was $25,500.00.
- The cost basis for the initial contract carries over from the previous carrier as $10,000.00 post-TEFRA. Any distributions that are taken will be taxable as earnings for the portion above the cost basis or $15,500.00.
Note:
The IRS requires transferring insurers to provide this amount to the replacing insurer, so that the pre-TEFRA and post-TEFRA taxable gain can be calculated. The dollar amount exceeding the cost basis is reported as taxable earnings on the contract.
What is the difference between a reportable and a taxable distribution?- The IRS requires certain transactions to be reported to them, although the transaction may not be taxable. These types of transactions may include, but are not limited to, a 1035(a) tax-free Exchange or a direct rollover.
- The IRS has designated certain transactions as both reportable and taxable; there are tax consequences for the client. These may include, but are not limited to, a distribution (full or partial), beneficiary payout, or a Roth IRA conversion.
- A transaction can be reportable and not taxable; however, a transaction that is taxable is always reportable.
Types of transfers- 1035 (a) tax-free exchange—Allows for a tax-free exchange of a nonqualified annuity or life insurance contract into a new or preexisting nonqualified annuity. The contract registration must be like-for-like, and the transfer must be a trustee-to-trustee exchange.
- Direct transfer—A transfer of a qualified plan type to the same qualified plan type (i.e., IRA to IRA, TSA to TSA).
- Direct rollover—A transfer of a qualified plan type between different plan types (i.e., 401(k) to IRA, TSA to IRA).
Distribution Codes
For specific information regarding distribution codes on your 1099-R, click
http://www.irs.gov/pub/irs-pdf/i1099r.pdf to be directed to the IRS Web site.
