Life insurance

[Rodstaxes1]

My wife stopped her life insurance and took all the money in it. I am guessing it was an annuity, anyway we have been paying into it for a long time so we got the check and the money was taking out for Fed tax .  the amount was 51,000.00 TAXABLE was 9,000.00 but turbo tax is calling it retirement money and has added it to our income. I filled out the 1099-R information

Should just not worry about how turbo tax is calling it??

[SharonD007]

TurboTax is calling it retirement income because the withdrawal was reported on a 1099-R.  1099-Rs are used to report annuities, pensions, IRA's, and other retirement income.

For more information, refer to the TurboTax Help article When to Use Tax Form 1099-R: Distributions From Pensions, Annuities, Retirement, etc.

[Rodstaxes1]

This was life insurance isn't  there a difference between an annuity and life insurance??? I don't know if it was an annuity. The company is call accordia Life AND annuity. Is there a different form I should fill out for life insurance withdrawal  

[ThomasM125]

Since you had a surrender value benefit, it is treated like a pension plan withdrawal. The life insurance policy with a surrender value is life insurance unless you cash it out before the death of the policy holder.

The $9,000 taxable amount is the earnings on the money put into the plan, if that is paid out as a death benefit, it is not taxable. If you take it out before then, it becomes taxable.

[Rodstaxes1]

I am not sure how we have paid $300.00 a month for over 30 years and now they want us to claim the $300.00 a month that I already paid taxes on, they want us to claim it as INCOME?? that's not right.

Am I misunderstand this?

[Rodstaxes1]

I understand I have to pay on the interest, and that ok but if I am claiming the other as retirement income that money I have already paid tax on is going to get taxed again.  I t was more like a saving account in my opinion.

turbo tax as put that money as retirement income.

[RobertB4444]

No, TurboTax put the money that your money earned as retirement income.

The form you received says that over the years you deposited a total of $42,000 into your life insurance account.  That's what the company has tracked.  

You already paid tax on that 42 grand.  You don't have to pay tax again.

While it was in the life insurance account (which is NOT a savings account) the 42 grand that you had there EARNED 9 grand in interest.  You have never paid taxes on that 9 grand.  It was just sitting in the account, growing.

Since you took the money out now it is time to pay taxes on the money that was earned, that you did not pay taxes on before.

So 9 grand is getting added to your income.  The 42 grand that you and your wife put in is not getting added to your income because you already paid taxes on it and you do not have to pay taxes on it again.

As @ThomasM125 says above, if you had waited til after your wife died to take the money out it would not have been taxed at all.  That's what makes this different than a savings account.

@Rodstaxes1 

[jmkurt1975]

So when you complete the details of the 1099-R for the surrender of a Life Insurance policy (cashout) - TurboTax has a page "Identify the Plan" and you have to check one of the boxes (Qualified retirement plan, nonqualified annuity or modified endowment contract).

Which of these do we need to select for a 1099-R related to surrender/cashout of a Life Insurance Policy?

[SusanY1]

Select nonqualified annuity here.  Even though it doesn't fit exactly, it will cause the program to treat the income properly.