1099R variable Universal Life Policy cash out

[tpepowell]

box 2a is blank and box 2b is checked for taxable amount not determined.  The policy was purchased with "after tax" funds.  The cash out distribution should be non taxable.  How do I enter this in Turbo Tax?

[KarenM90]

Can you clarify?  What is the code in Box 7?

Generally, if you put a 0 in the taxable amount TurboTax will not calculate tax on the distribution but that could change depending on what code is in Box 7.

[tpepowell]

Sorry it took so long to get back to you, its my first time using this service.  Box 7 is "7D".  I have experimented with typing a zero in box 2a, I like the result but will it be an audit flag?

[Carl]

The policy was purchased with "after tax" funds.

That does not mean none of the payout is taxable. If any portion of your past premium payments added "cash value" to the policy for example, then the earnings on that portion invested for cash value "are" taxable income to you when you cash out the policy. But still, unless you only requested to cash out the earnings, I'm confident the entire cash out amount was not included in box 1 of the 1099-R. Only the taxable earnings were reported in box 1, since box 2 is checked for "taxable amount not determined".

The 7D in box 7 is actually two codes. "7" indicates a normal distribution and "D" indicates the distribution is from a "non" qualified annuity - meaning most likely the entire amount reported in box 1 is taxable.

[tpepowell]

I actually lost money on the transaction.  I spent $65K (after tax) dollars to purchase the policy and just took a full cash out for $38K.  None of the $38K should be taxable as there were no earnings.

[tpepowell]

I have done some research into my universal life policy which I have owned since 1998.  Here is how I see it, please review and advise on how to manage the 1099R entry in TT.

Policy funded with $61,487 after-tax dollars.

Total Premiums paid for insurance $46,106

Initial funding remaining after premiums, $15,381

Cash-out of policy on 3/1/19, $38,173 (entered on box 1 of 1099R). Taxable gain $22,792.