1099-R for non-qualified joint annuity ownership change

Submitted by David Mitchell on Mon, 2016-02-15 20:29

We have two non-married people who own a non-qualified annuity together, Owner A and Joint Owner B. Contract State Pennsylvania. $10,000 contributed into Non-qualified annuity in circa 2000 by Owner A only. Owner A at a later time (say, 2004) adds Joint Owner B as a joint owner on said contract. Contract was worth $18,000 last year, and at that time, Joint Owner B signs an ownership change form gifting the ownership back to Owner A individually.

Joint Owner B (and Owner A) are both under 59.5.

Joint Owner B was sent a 1099-R from the insurance company indicating $9,000 in box 1, $4,000 in box 2a, $5,000 in box 5, and a distribution code 1D. We questioned the insurance company. The insurance company stated that even though the Joint Owner B didn’t take any of the money per se, she had “Constructive Receipt” of it, in order to have been able to give it back to Owner A, therefore (that half) is taxable to Joint Owner B. Incidentally, this means the cost basis for Owner A is updated now to $14,000 instead of $10,000.

Does this seem correct to everyone?

If, instead of giving the ownership back to Owner A last year, both owners decided to simply withdraw the account in full, would that be taxable half Owner A half Joint Owner B, or would it be taxable 100% to Owner A?

Thank you



Submitted by Alan - IRA critic on Tue, 2016-02-16 01:20

This is correct for non spouses. However, if the entire annuity were cashed in prior to an owneship change, the taxable gain would be split between the owners. There can also be gift tax ramifications here due to a 9,000 gift if B gifted more than 5,000 worth of other gifts during the year to A.



Submitted by David Mitchell on Fri, 2016-02-19 03:55

Thanks again!



Submitted by Ben Meyer on Sun, 2016-03-06 00:30

  • This doesn’t seem correct.  Normally when one party funds a joint financial account, a completed gift to a second party is made only when the second party withdraws an amount originally contributed by the first party, without any obligation to account to the first party.  See Revenue Ruling 69-148 and TR 25.2511-1(h)(4).  Gifts of other than financial accounts such as real estate would attain constructive receipt at the time of the gift.  This also assumes that both joint tenants remain living, to there would be no estate tax considerations.
  • Therefore, what would be the rationale for the form 1099-R issued by the insureance company?  Would there be a property consideration specific to Pennsylvania?  Or are insurance contracts treated differently from bank or brokerage accounts? 


Submitted by GAIL NIELSEN on Wed, 2016-03-09 00:06

 I am divorced and I sold my home about 7 years after the divorce.  I put $100,000 into an annuity at the advise of a relative so the monies would grow & I would also have an income each month to add to my monies I was getting  from social security & my former spouses retirement funds.  Well it seems that the big gains I was expecting to receive on my investment was not happening.  In fact, in 2008 my annuity statement showed that I had lost about $40,000 of the monies I had put in, and this was only a year after I had gotten the annuity.  After a few years it did show that my monies were replenished somewhat but to me it doesn’t seem to be what I had expected according to what was told to me by the advisor & insurance person when I signed into the contract & gave them the $100,000.  I think it is quite risky to have this annuity if it can lose so much principle whenever the investments that the insurance company has my monies in has losses.  Also I read in my information, after the fact, that I could possibly lose all of my monies if something went wrong in the markets because the FDIC does not insure the monies in the Insurance Co. Annuity.  Is this a safe investment to be in?  This is all the savings I have and it needs to last me.  I was thinking about taking the monies that remain out of the annuity which the company says is only about $60,000 left, but I don’t know what is best to do.  I had been getting $450 a month to supplement my income and they said I would be getting that much a month until I died unless for some reason the Insurance Company in the operation of the company lost the monies in my annuity.  I am very concerned that I have this small amount of monies left that it will be all gone & the small amount of monies I receive from social security & monies from my former spouse’s retirement will not be enough to live on.  I don’t want to lose the monies that I have in the annuity but I don’t know what would be the best step to take.  Please let me know what you would advise.  I will be 75 in a couple of months and I’ve been blessed with 5 children and 12 grandchildren and I want to make sure I have what I need to live on.  Thanks I appreciate your input in regard to my situation. 



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