Technical topics regarding tax preparation.
19-Feb-2018 3:32pm
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Have a client who took a distribution and rec'd a 1099-r
Dist was 45k
taxable was 25k
employee contr was 20k
the code is 7
it is a premature dist
but where lists recipient...says "insured/annuitant"
i know code 1 is often left off...
but is there any special rule with annuities that there is no premature dist penalty?
19-Feb-2018 6:14pm
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If there is it would be in the Pub for annuities.
19-Feb-2018 6:31pm
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Was this a retirement plan or a private annuity?
19-Feb-2018 6:45pm
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i think it was a pension plan
20-Feb-2018 5:02pm
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client cashed in his whole life insurance policy.....is that just ordinary income and no premature distribution 10% penalty?
21-Feb-2018 7:31am
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If it's a straight whole life policy, there should be no penalty.
Steve Kassel, EA
21-Feb-2018 7:55am
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If it is old fashioned Whole Life policy then the proceeds are Cash Surrender value and if this policy was NOT a modified endowment then 100% of the proceeds are income tax free and generally a 1099-R would NOT be issued.
However if this policy turned out to be a modified endowment a portion of the cash surrender value may be taxable as ordinary income. No 10% premature penalty. Taxpayer needs to contact insurance company to get the documentation.
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