Ask the Experts!
The professionals at Advanced Underwriting Consultants (AUC) answer the tax questions posed by producers. Here’s the question of the day.
Question: My client took a distribution from her nonqualified deferred annuity (NQDA) and now wants to re-deposit it into the contract. She hopes to avoid an income tax result on the distribution. I’ve worked with one carrier that will treat money re-deposited within 30 days as never having been distributed for Form 1099 purposes. However, the current carrier insists that they will issue a Form 1099 showing a taxable distribution. Who is right?
Answer: If the annuity were an IRA, the client would generally have 60 days to re-deposit the money into the same contract and avoid an income tax event. That procedure is sometimes referred to as a 60 day rollover.
NQDAs do not have any equivalent tax-free re-deposit window. The IRS has consistently taken the position that once the taxpayer receives a distribution from a NQDA, the taxpayer recognizes the income tax result associated with the distribution.
The second carrier’s approach to Form 1099 reporting purposes seems correct. Even though the first carrier does not issue a Form 1099 when money is re-deposited, it still seems like the distribution is taxable.
The IRS maintains that it’s the taxpayer’s responsibility to report taxable income correctly, even where other parties do not.
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