Non Qualified Form 5329. Simple definition of Non Qualified Annuity. It was purchased when I was 75 and find no reference to RMD.

[bev61038]

Annuity purchased when I was 75, no withdrawal was made until age 77. Is there a RMD? Code on 1099-R is 7D. Either I answered the question wrong on Turbo Tax or it appears I owe a penalty for now withdrawing RMD first year. I am really confused. Purchase was paid in full from monies where tax had previously been paid. Not and IRA or a ROTH.

[dmertz · Accepted solution]

Non-qualified annuities are are not subject RMDs.  Despite the code D indicating that the distribution is from a non-qualified annuity or insurance policy, TurboTax needlessly asks if the distribution is an RMD.  Answer No, this is not an RMD.

Form 5329 is used for a distribution from a non-qualified annuity only if it is an early distribution (code 1D).  Make sure that you did not mistakenly mark the IRA/SEP/SIMPLE box on TurboTax's 1099-R form.  (TurboTax will flag this as a probable error if you do and will ignore the code D under the assumption that the box was mistakenly marked by the payer.)

[dmertz]

I've added to my answer.

[markuserid]

I have experienced the very same problem.  2018 Turbo Tax insists on treating a non-qualified annuity payment (with distribution code D: non-qualified annuity) as one that require a RMD.  Then TurboTax completed form 5329 and reported the amount paid as an early distribution (for a 92 year old woman) not subject to the extra tax on early distributions using exception code 12 (other).  This is the first year TurboTax has done this for the very same annuity.  After extensive online research, I am confident that for a non-qualified annuity held outside a qualified plan there are NO Required Minimum Distributions at all and NO early distribution penalties after age 59.5.  This looks like a programming error to me.  I have been very confident in TurboTax for many years so this is a bit disappointing.

[dmertz]

TurboTax only asks the RMD question to determine if any portion of the distribution is ineligible for rollover, but the code D already indicates that the distribution is ineligible for rollover, so it doesn't matter how you answer the RMD question.  TurboTax only asks this RMD question if the recipient was age 70½ or older in the year the distribution was received.  This behavior has been present in TurboTax at least since 2013 when the IRS introduced code D.