I'm wondering exactly how to handle this 1099-R which is an annuity distribution that has been rolled over. The taxable amount is $0. It is flagged "total distribution". Distribution code "6" appears in Box 7. There is an amount in box 8 employee contributions which is less than box 1. I understand it is not taxable but it is asking for a distribution code type and separately under "gains and losses" it appears again, asking for a cost basis.
Is the distribution code type "I 13" I'm eligible - plan is eligible?
In the prompt "distributions from life insurance, annuities..." do I leave the default value from box 1 or change it to $0?
Under gains, do I just flag it as This sale is Not taxable in PA?
Finally, What about the cost basis field?
An annuity distribution rollover is considered a Section 1035 exchange, which is a financial transaction in which a life insurance or annuity policy is replaced for a new one without any taxable event. It is not taxable income on your federal or state taxes.
Your cost basis is your total gross premiums paid less any dividends or distributions. Your gain is the difference between the cash value of the annuity and its basis.
Your rollover is eligible and the distribution amount would be the amount rolled over, which you would get from Box 1 of your 1099-R.
Lastly, the correct information should flow from your federal information to your state return as nontaxable.