1035 ANNUITY – BOTCHED – ANY SUGGESTIONS
A TAXPAYER CAME INTO MY OFFICE THIS WEEK WITH A 1099R FROM AN ANNUITY COMPANY SHOWING A $48,000 “TOTAL DISTRIBUTION”, DISTRIBUTION CODE “7”. THE TAXPAYER IS 70.
HE ADVISED ME THAT HIS LOCAL BANK FINANCIAL PLANNER ADVISED HIM TO TRANSFER THE ANNUITY TO A NEW ANNUITY AT A DIFFERENT COMPANY.
I ADVISED HIM THAT IF A 1035 EXCHANGE WAS DONE PROPERLY, THE DISTRIBUTION CODE WOULD SHOW A “6”.
APPARENTLY HIS PLANNER FAILED TO TELL HIM ABOUT 1035 EXCHANGES AND HAD HIM LIQUIDATE THE ANNUITY, PLACE THE PROCEEDS INTO HIS CHECKING ACCOUNT, THEN WRITE A CHECK TO THE NEW ANNUITY COMPANY FOR THE SAME AMOUNT.
WOULD THIS BE CONSIDERED A PROPER 1035? OR SINCE HE PHYSICALLY TOOK THE MONEY, IT IS A FULLY TAXABLE TRANSACTION?
IF IT IS TAXABLE, IT INCREASES HIS TAX LIABILITY BY $10,060.00.
CAN SOMEONE GIVE ME SOME GUIDANCE?
RESPECTFULLY YOURS,
BERNARD A. FAGNANI CPA/PFS
Permalink Submitted by Al Fry on Sat, 2008-02-23 13:30
This is NOT a legitimate 1035 exchange. There is no such “60 day rollover” period with NQ annuities as there is with IRAs. I don’t think it can be reversed. There was a PLR on this in 2007 where the 1035 was denied.
Permalink Submitted by [email protected] on Mon, 2008-02-25 19:49
Find out who the bank “Financial Planners” E & O carrier is. That was malpractice!