What tax forms are most frequently produced by Prudential Annuities, and what do they report?
Tax Forms most frequently produced are Form 1099-R, 5498, 1099-INT, 1099-B, 1099-DIV, 1042-S
1099-R - IRS Form reporting distributions from Pensions, Annuities, Retirement or Profit Sharing, Plans, IRAs, and Insurance contracts. This form is mailed to contract owners by January 31st.
5498 - is issued for IRA, Simple IRA, Roth IRA and SEP. Form 5498 discloses the amount of the IRA contributions, Rollovers and the Fair Market Value as of December 31st. This information is reported on the 4th Quarter Statement if there is a 4th Quarter Statement. This form is mailed by May 31st if a prior year contribution is made between January 1st and the tax filing due date.
1099-INT - Reports Interest income i.e. delayed claim interest and delayed legal interest mainly. There is a Contractual interest $10 threshold and a Non-Contractual $600 threshold. This form is mailed to contract owners by January 31st.
1099-B - reports the proceeds resulting from the sale redemption or liquidation of shares of mutual funds.
1099-DIV - reports distributions such as dividends, capital gain distributions, or nontaxable distributions that were paid on stock (including mutual funds).
1042-S - reports US taxable income and the corresponding withholding relating to the income received by nonresident aliens (NRAs). This includes Interest accumulated in this account. Distributions to a Foreign Entity are also reported on this form in accordance with FATCA.
You will receive a 1099-R if a reportable tax event from a Pension, Annuity, Retirement/Profit Sharing Plan, IRA or Insurance Contract occurred.
What does the distribution code on the 1099-R Form mean?
Premature Distribution, no known exception
The individual had not attained age 59½ at the time of distribution.
The distribution is subject to an additional 10% penalty tax unless the individual meets an exception to the penalty or had completed a qualified rollover.
Premature Distribution with an exception applies under 72 (q),(t), or (v)
The individual is not subject to the additional 10% penalty
In order for Code 3 to apply, the individual must be determined to be disabled under the definition of IRC Section 72(m)(7), and indicate disability status on the withdrawal request form at the time of the withdrawal.
The IRS requirements differ from the requirements to waive CDSC.
Use this code regardless of the age of the participant.
Section 1035 Exchange
The individual has attained age 59½ at the time of the distribution.
The distribution is not subject to an additional 10% penalty.
Excess Contributions plus Earnings/Excess Deferrals Taxable in 2012.
PS 58 Costs or Table 2001 Costs (Premiums paid by a trustee or custodian for current insurance protection, taxable to customer in 2010.)
May be eligible for 10-year tax option
Net Investment Income
Excess annual additions under section 415.
Certain Excess Amounts under Section 403(b) Plans.
Charitable Gift Annuity
Direct Rollover to an IRA, 403(b), 457, or Qualified Plan
Early Distribution from a Roth IRA, no known exception.
Recharacterized IRA contribution made in current year, and recharacterized in current year.
Excess contribution plus earnings/excess deferrals taxable in the prior year.
Distribution from a Roth IRA and it IS KNOWN that:
The participant meets the 5-year holding period AND:
The participant has reached age 59½, or
The participant died, or
The participant is disabled.
Recharacterized IRA contribution made in prior year, recharacterized in current year.
Early Distribution from a Simple IRA in first 2 years, no known exception.
Roth IRA Distribution
The individual has attained age 59½ at the time of the distribution
What is the contribution deadline for Tax Year 2016?
Traditional IRA and Roth IRA contributions received between January 1 and the tax filing deadline may be attributed to tax year 2016. Written instructions indicating attribution to the previous tax year must accompany the contribution, or else the contribution will be attributed to the current tax year. The federal tax filing deadline for Tax Year 2016 is April 18, 2017.
IRA checks that are received after April 18, 2017, but on or before April 22, 2017 must be accompanied with proof that the check was post-marked to the Agent/Financial Professional on or before April 18, 2017. Proof should be a copy or fax of the envelope with the post-mark, or statement of proof of delivery by the USPS or courier service (i.e. UPS or Federal Express); not the actual envelope. Otherwise the contribution will be attributed to the current tax year.
All Tax Year Contributions received after April 22, 2017 will be coded with the 2017 Tax Year.
New contracts must be issued on or before April 18, 2017 for a contribution to be attributed to the 2016 tax year, even if a contribution is made with accompanying attribution instructions prior to the tax filing deadline.
All SEP IRA contributions are coded for the current calendar year, no exceptions.
If my contract is owned by a trust and is not subject to 72(u), why was the Form 1099-R coded with a 1 in box 7 when I'm over 59 ½?
Entity owned contracts, i.e. Trusts, are not subject to 72(u) will always use Distribution code 1, as there is no date of birth for an entity, except in the case of a Grantor Trust. Distributions from a Grantor Trust are reported based on the Grantor's date of birth (DOB), and it will be coded as a 1 for an early distribution or as a 7 for normal distribution based on the Grantor's DOB.
For Non-Qualified contracts there are 2 possible reasons:
The distribution was all earnings; it did not contain any return of cost basis.
The contract is aggregated.
For Qualified contracts (except for Qualified Trustee Owned Pension Plans and 457 Plans):
Since some or all of the distribution may be taxable as ordinary income for the tax year in which the distribution is made. We report all distributions as fully taxable on IRS Form 1099-R. If a portion of the distribution is not taxable, you would indicate that on your own return.
Qualified contracts are funded with pretax dollars and Prudential doesn't track Cost Basis. Non-Qualified are funded with after tax dollars, and earnings are taxable and generally come out first.
Why does my Form 1099-R show such a high taxable amount compared to my cost basis?
If the taxable amount seems high this contract is most likely a non-qualified annuity that is part of an aggregated group.
Section 72(e) (12) of the Internal Revenue Code requires that all annuities entered into after October 21, 1988 be aggregated and treated as a single deferred annuity contract for the purpose of determining the amount of taxable gain includible in gross income. Aggregation applies to all contracts:
Purchased by the same contract owner
From the same insurance company and its affiliates
During the same calendar year
All non-qualified annuity contracts issued to the same contract owner, by the same insurance company or affiliate, in the same calendar year they are treated as a single contract for tax gain purposes. Aggregated groups are determined by the TIN of the owner.
Aggregation rules do not apply to: Qualified Contracts, Immediate Annuities, contracts subject to 72(u) of the Internal Revenue Code and contracts issued prior to October 21, 1988.
Why did I receive tax Form 1099-R if I converted my IRA into a Roth IRA?
An IRA to Roth conversion is generally fully taxable. Taxable amounts are included in income in the year of conversion subject to ordinary income tax. 10% withholding applies unless election out. RMD if applicable should be removed before the conversion.
Amounts converted from an eligible IRA to a Roth IRA are required to be included in the customer's taxable income in the year of conversion. Generally, this includes deductible contributions made to the IRA and any earnings on those contributions and the present value of the actuarial benefit if applicable. A Form 1099-R will be issued reflecting the conversion from the traditional to the Roth IRA. The Form 1099-R will reflect a distribution code of either a 2 (under 59 ½ with an exception) or 7 (over 59 ½). In addition, a Form 5498 will be generated to reflect the amounts converted to the Roth IRA.
Why did I receive tax Form 1099-R when I received these funds as a Death Claim?
Death proceeds from an annuity contract are taxable to the extent that there is gain. Under normal circumstances a beneficiary is responsible for the income tax on the death benefit they receive. However, there are exceptions to this general rule as indicated below.
On an annuitant driven contract the death proceeds are payable at the death of the annuitant and are payable to the beneficiary. If the annuitant is the owner, tax reporting is to the beneficiary. If the annuitant and owner are different, tax reporting is to the owner.
On an owner driven contract the proceeds become payable upon death of the owner. For single owned contracts, the proceeds are paid to and reportable to the beneficiary. For Jointly owned contracts, if the surviving owner is not the beneficiary, the surviving owner will receive the tax reporting, however, the beneficiary will receive the proceeds.
On an Entity owned contract the death proceeds are payable at the death of the annuitant and are paid to the beneficiary. The tax reporting is to the owner.
Please note that Prudential does not provide tax or legal advice which clients should obtain from an accountant or attorney. If you have any other questions, please call the Annuity Service Center at 1-888-778-2888. The Service Center is open Monday through Thursday between 8:00 a.m. to 7:00 p.m. and Friday 8:00 a.m. through 6:00 p.m., Eastern Time. Thank you for your loyalty.
Investors should consider the features of the contract and the underlying portfolios’ investment objectives, policies, management, risks, charges and expenses carefully before investing. This and other important information is contained in the prospectus, which can be obtained on the prospectus page or from your financial professional. Please read the prospectus carefully before investing.
Annuity contracts contain exclusions, limitations, reductions of benefits and terms for keeping them in force. Your licensed financial professional can provide you with complete details.
Annuities are issued by Pruco Life Insurance Company (in New York, by Pruco Life Insurance Company of New Jersey), Newark, NJ (main office) and distributed by Prudential Annuities Distributors, Inc., Shelton, CT. All are Prudential Financial companies and each is solely responsible for its own financial condition and contractual obligations. Prudential Annuities is a business of Prudential Financial, Inc.
These materials are for informational or educational purposes only. The information is not intended as investment advice and is not a recommendation about managing or investing your retirement savings. In providing these materials, the issuing companies and distributor listed above are not acting as your fiduciary as defined by any applicable laws and regulations.