Any suggestion where I should enter the original investment portion of the lump distribution? The example below from publication 575 describes my exact scenario. I'm using the 2023 TurboTax CD version.
After entering the 1099-R, the interview steps asked about all the potential tax exceptions but didn't cover the scenario where part of the distribution is a return of my original investment.
My 1099-R from the commercial annuity has
- 2a - Taxable amount = 100% of the distribution
- 2b - Taxable amount not determined is checked
- 7 - 1st code = 1 & IRA/SEP/Simple is checked
So, 2 questions:
- Does TurboTax 2023 Mac Deluxe CD allow me to enter the interest portion of this distribution?
- Does TurboTax calculate a 10% early withdrawal penalty based on the entire withdrawal or just the taxable portion?
If you receive a nonperiodic distribution before the annuity starting date from a plan other than a qualified retirement plan (nonqualified plan), it is allocated first to earnings (the taxable part) and then to the cost of the contract (the tax-free part). This allocation rule applies, for example, to a commercial annuity contract you bought directly from the issuer. You include in your gross income the smaller of:
The nonperiodic distribution, or
The amount by which the cash value of the contract (figured without considering any surrender charge) immediately before you receive the distribution exceeds your investment in the contract at that time.
Example.
You bought an annuity from an insurance company. Before the annuity starting date under your annuity contract, you received a $7,000 distribution. At the time of the distribution, the annuity had a cash value of $16,000 and your investment in the contract was $10,000. The distribution is allocated first to earnings, so you must include $6,000 ($16,000 − $10,000) in your gross income. The remaining $1,000 ($7,000 − $6,000) is a tax-free return of part of your investment.
