Frequently Asked Questions (Tax related)

Frequently Asked Questions (Tax related)

1099-R Frequently Asked Questions:

Frequently Asked Questions (Tax related)

Are there any limitations to the number of IRA rollovers in a 12 month period?

Please be advised that effective for distributions on or after January 1, 2015, the limit of one 60-day IRA to IRA rollover per 12 month period, outlined in IRC Section 408(d)(3)(B), applies on an aggregate basis to all IRAs owned by an individual, regardless of institution. This is based on a Tax Court ruling in Bobrow v. Commissioner, detailed in Announcement 2014-15 by the IRS. This 12 month limit does not apply to IRA to IRA transfers. Please consult your tax advisor.

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What tax forms are most frequently produced by Prudential Annuities, and what do they report?
FORM 5498
FORM 1099-R
FORM 1099-INT
Reports IRA, SEP, SIMPLE IRA, and ROTH IRA contributions, rollovers, and Fair Market Value as of December 31 (most commonly used for the purpose of calculating Required Minimum Distribution.) For IRAs, it also indicates if the individual is subject to RMD in the following year.
Reports gross distribution amount, taxable amount of distribution, distribution code, federal and state tax withholding.
Reports taxable interest earned.
Included in end-of-year statements
(Mailed by May 31 if a prior year contribution is made between January 1 and the tax filing due date.)
Mailed to contract owners by January 31
Mailed to contract owners by January 31

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Will I receive a 1099-R Form from Prudential for this tax year?
1099-R FORMS ARE ISSUED FOR: 1099-R FORMS ARE NOT ISSUED FOR:
  • Distributions from IRA, NQ, and 403(b) contracts that result in taxable income.
  • 1035 Exchanges, Direct-Rollovers, and Roth Conversions (taxable amount may be zero, such as for 1035 exchange or indicate that the taxable amount is undetermined.)
  • Non-spousal ownership change.
  • Earnings on contracts subject to 72(u).
  • TPIA fees from NQ accounts
  • Distributions from a NQ contract that do not result in taxable income.*
  • Qualified transfers (i.e. IRA to IRA.)
  • Spousal ownership change.
  • Distributions from Custodial or Qualified Funding Vehicles (i.e. Trustee Pension Plan, 401(k), Profit Sharing Plan.)
  • TPIA fees from IRA accounts.

*effective with 2010 tax reporting

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Example of 1099-R Form

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What does the distribution code on the 1099-R Form mean?
 1 
  • 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.
 2 
  • Premature Distribution with an exception applies under 72 (q),(t), or (v)
  • The individual is not subject to the additional 10% penalty
 3 
  • Disability
  • 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.
 4 
  • Death
  • Use this code regardless of the age of the participant.
 6 
  • Section 1035 Exchange
 7 
  • Normal Distribution
  • The individual has attained age 59½ at the time of the distribution.
  • The distribution is not subject to an additional 10% penalty.
 8 
  • Excess Contributions plus Earnings/Excess Deferrals Taxable in 2012.
 9 
  • PS 58 Costs or Table 2001 Costs (Premiums paid by a trustee or custodian for current insurance protection, taxable to customer in 2010.)
 A 
  • May be eligible for 10 year tax option
 D 
  • Net Investment Income
 E 
  • Excess annual additions under section 415.
  • Certain Excess Amounts under Section 403(b) Plans.
 F 
  • Charitable Gift Annuity
 G 
  • Direct Rollover to an IRA, 403(b), 457, or Qualified Plan
 J 
  • Early Distribution from a Roth IRA, no known exception.
 N 
  • Recharacterized IRA contribution made in current year, and recharacterized in current year.
 P 
  • Excess contribution plus earnings/excess deferrals taxable in the prior year.
 Q 
  • 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.
 R 
  • Recharacterized IRA contribution made in prior year, recharacterized in current year.
 S 
  • Early Distribution from a Simple IRA in first 2 years, no known exception.
 T 
  • Roth IRA Distribution
  • The individual has attained age 59½ at the time of the distribution

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What are the contribution limits for Traditional IRAs and Roth IRAs for Tax Years 2014 and 2015?
 
Under age 50
Age 50 or Over

2014

Lesser of $5,500 or 100% of Taxable Income

Lesser of $6,500 or 100% of Taxable Income

2015

Lesser of $5,500 or 100% of Taxable Income

Lesser of $6,500 or 100% of Taxable Income

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What is the contribution deadline for Tax Year 2014?
Traditional IRA and Roth IRA contributions received between January 1 and the tax filing deadline may be attributed to tax year 2014. 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 2014 is April 15, 2015.

IRA checks that are received after April 15, 2015, but on or before April 22, 2015 must be accompanied with proof that the check was post-marked to the Agent/Financial Professional on or before April 15, 2015. 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, 2015 will be coded with the 2015 Tax Year.

New contracts must be issued on or before April 15, 2015 for a contribution to be attributed to the 2014 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.

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1099-R Frequently Asked Questions:

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.

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Why wasn't my Form 1099-R coded as a disability payment?
The withdrawal form did not indicate disability. You can file IRS Form 5329 and would have to prove to the IRS on your own that the disability exception applies.

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Why is my entire distribution taxable?
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.

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Why is box 2b "Taxable amount not determined" checked on my 1099-R?
  • For non-qualified contracts, it is because the cost basis is undetermined. For contracts that had an incoming 1035 exchange, the resigning custodian would have needed to supply us with the cost basis information. We make several attempts to obtain the cost basis from the other carrier. If we are unsuccessful in obtaining the cost basis, we mark the taxable amount as undetermined as indicated in box 2b on the form.
  • For Roth IRA contracts we report all distributions as taxable amount not determined

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Why does my Form 1099-R show such a high taxable amount compared to my cost basis?
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

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Why did I receive tax Form 1099-R if I converted my IRA into a Roth IRA?
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.

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Why did I receive tax Form 1099-R when I received these funds as a Death Claim?
Death claim disbursements from an annuity are taxable events. 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.

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