It sounds like this distribution is from a nonqualified plan or some kind of life insurance contract. Without knowing exactly what type of account this is and how it was set up, it is difficult to determine the taxability.
I would discuss this with the 1099-R issuer again, or possibly a financial advisor, if you can not get definitive answers from the issuer of the Form 1099-R.
Here is some basic information:
Code D1 indicates a distribution from a nonqualified annuity or life insurance contract and the taxable amount of the distribution is subject to an early-distribution penalty.
Codes D and 1 together are correct if the contract is considered to be a modified endowment contract.
If the distribution code entered is "4B" or "4D", the distribution carries to Form 1040, line 16 as a taxable pension distribution.
For an inherited retirement account, a Form 1099-R will typically report a "4," in box 7.
Click here for a description of the distribution codes in Box 7 of Form 1099-R.
People inheriting an annuity owe income tax on the difference between the principal paid into the annuity and the value of the annuity at the annuitant’s death. How taxes are paid on an inherited annuity will depend on the payout structure selected and the status of the beneficiary.
Some basic rules of taxability if you believe this account was an IRA:
Distributions from an inherited traditional IRA are taxable.
Withdrawals of contributions from an inherited Roth are tax free. Most withdrawals of earnings from an inherited Roth IRA account are also tax-free. However, withdrawals of earnings may be subject to income tax if the Roth account is less than 5-years old at the time of the withdrawal.
Click here for more detailed information regarding Pension and annuity income.
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