I inherited my mother's annuity upon her death. It will continue to pay a set amount monthly for two more years. I received a 1099-R for 2019 (for 6 mo.). Box 1 is $1552.20, box 2a is 0.00, and box 7 is 4D.
Is this a taxable income? TurboTax keeps questioning the box 2a amount of zero.
Also, for box 7 do I put 4 (death) AND D (annuity payments from nonqualified annuities that may be subject to tax under section 1411)?
Since this will come up again next year, I need to know I'm doing this right.
Thank you!
That depends. Since your box 7 code is 4D, that indicates a non-qualified annuity. A portion of each distribution may be taxable.
The way a non-qualified annuity works for taxes, is that the original amount put into the account is non-taxable, but the earnings are taxable when they are distributed. In addition, by law, the earnings must be distributed first.
For example:
Original contribution - $50,000
Earnings - $8,000
In this case, if your distribution was less than $8000, it would all be taxable. If your distribution was $10,000, $8000 would be taxable and $2000 would be non-taxable.
Since most of these annuity continue to accrue earnings, the calculation for each year will be a little different.
Unless you have records that show the original contributions in the account, you will need to contact the annuity company or the financial institution that sold her the annuity to get more information.