This is similar to some other posts I've seen but not quite the same.
The wife inherited an annuity from her mother that was rolled over to her and a different company using a 1035 exchange. The money ended up in a Stretch Variable Annuity.
The base money in the inherited account was non qualified (already taxed) but the earnings from that inherited annuity account are taxable as are any earnings going forward after the rollover. Per IRS regs for the stretch annuity, the Annuity company calculates the RMDs at the begging and at the start of each successive year and pays them out monthly from the taxable portion (earnings) of the account first.
Here's the fun. I enter in the 1099-R as received (distribution code D4) and after entering in TT, the question pops up;
If the person had lived were they born before or after 1952.
Had they lived = wife's mom, so pre 1952
TT asks for the amount of the RMD due by Dec 31, 2024. Well, the whole distribution was an RMD to my understanding. I enter in the entire distribution amount and it gets taxed a 2nd time! I owe money! What the heck, it was already taxed as a distribution and the RMD amount matches the distribution so why doesn't it balance out?.
TT's next question: Was, None Some or All (entire) of the distribution applied to the Dec 31st, 2024 RMD
If I say All (entire). Again, you would think it would balance out, RMD amount = Distribution amount, So no additional taxable money. It seems like the refund would go back to the original value it was before the "RMD due by 2024 question" came up. Nope. a totally different much lower refund.
Well, it's still a refund if I answer yes to the the next question of "was all of the distribution applied during "the correction window", if I say no, it wasn't during the correction window, I'm back to owing. What Correction Window?! The distributions were taken out month by month on schedule as required!
Eventually the taxable money runs out and what's left will not be taxable.
My guess is the Non Qualified 1035 Exchange Stretch Annuity "RMD" distributions don't fit the classic definition of an RMD and I should just tell TT that there were no RMD's due by Dec 2024. A distribution was made and tax paid, end of story but a person needs to be sure.
Thanks in advance for any insights,
