CRLLS
Thinks s/he gets paid by the post
I hope this is my last post. I feel the need to report my latest, and hopefully last update.
I was still trying to get someone to tell me how the taxable dividends WILL be reported to the IRS, since the letter I received said simply, they would be reported as taxable income in 2018. HOW it is reported will affect other planned finance decisions in this year such as Roth conversions. Further, if the transfer was handled incorrectly, then it is easier to correct it now rather than next year IMO. I have 2 days left on the "free look" period of the annuity. I was looking for someone to tell me "it will be reported but in Box 7 it would be coded "6" (1035 exchange)" or something to that effect. In spite of calls initiated by both me and my agent on a daily basis, I could not get any answers just we'll look into it. A call last Thursday said we should contact their tax dept but it was too late in the day to contact them/ Call back tomorrow. Then Friday they said we couldn't talk to the tax dept at all. She would take my questions and send them to the tax group.
Monday we were told that they had 2 business days to respond. I asked to talk to a supervisor. They said that no suervisor was availabe since MOnday was such a high volume call day. If she put me thru to a supervisor, I would just get another service representative. Nothing to do but wait another day.
Today, without me having to call ML, I received a call that went to my voicemail. She said that my 1099 would go out in Jan of 2019 since the settlement was done in 2018. WTF? That was not my question. She left a direct number to call back if I had any further questions, which I did within 15 minutes. I explained that I need to know exactly HOW it would show on the 1099-R. She said of course she can tell me that, and went on to tell me the numbers, that will be on the form. In the box for taxable amount it will show "0". I asked what type of exchange it would be. She said 7 (normal distribution). I asked shouldn't the total distribution - my cost basis = the taxable amount? Wouldn't the IRS question this? Should the 1099 show a "type 6" (1035 exchange)? She said that was a very good question. She will have to look into it.
She called back within 1/2 hour. She confirmed that the conversion to an annuity was done internally, not done as a 1035 exchange. If their computer sees "0" for taxable gain, then no 1099-R actually gets issued and nothing gets reported to the IRS. I'm thinking that this is some sort of workaround in their computer system.She went on to explain, the letter that I received earlier showing the taxable event was generic and causes more confusion than it clears up. I'm thinking, "No $hit!" She said that the taxable gains have been transferred to the annuity. She will be sending me a letter confirming all of this today.
The transfer of taxable gains to the annuity have not been in question. Saturday I went thru IRS PUB 939 and verified to the penny, what the annuity group says.
Assuming that the letter repeats what she told me on the phone, I think all of this is done now.
I still have questions, but I am worn down now and need to just let the questions die. The biggest question I have left is: if it is treated as an annuity issued after Jun 1986, then the cost basis is only carried tax free until my actuarial age of death, ~85 years of age. After that, the full monthly income is taxable. If treated as being issued at the time of the LI policy was written, that cost basis continues tax free monthly until my death. I guess I'll worry about that in 20 years. Then again, maybe I won't have the mental acuity at that age to be concerned at all.
pb4uski, I think you said that you have a similar whole life policy. I hope this diatribe may help you and/or or others if/when you decide to settle your policy.
I was still trying to get someone to tell me how the taxable dividends WILL be reported to the IRS, since the letter I received said simply, they would be reported as taxable income in 2018. HOW it is reported will affect other planned finance decisions in this year such as Roth conversions. Further, if the transfer was handled incorrectly, then it is easier to correct it now rather than next year IMO. I have 2 days left on the "free look" period of the annuity. I was looking for someone to tell me "it will be reported but in Box 7 it would be coded "6" (1035 exchange)" or something to that effect. In spite of calls initiated by both me and my agent on a daily basis, I could not get any answers just we'll look into it. A call last Thursday said we should contact their tax dept but it was too late in the day to contact them/ Call back tomorrow. Then Friday they said we couldn't talk to the tax dept at all. She would take my questions and send them to the tax group.
Monday we were told that they had 2 business days to respond. I asked to talk to a supervisor. They said that no suervisor was availabe since MOnday was such a high volume call day. If she put me thru to a supervisor, I would just get another service representative. Nothing to do but wait another day.
Today, without me having to call ML, I received a call that went to my voicemail. She said that my 1099 would go out in Jan of 2019 since the settlement was done in 2018. WTF? That was not my question. She left a direct number to call back if I had any further questions, which I did within 15 minutes. I explained that I need to know exactly HOW it would show on the 1099-R. She said of course she can tell me that, and went on to tell me the numbers, that will be on the form. In the box for taxable amount it will show "0". I asked what type of exchange it would be. She said 7 (normal distribution). I asked shouldn't the total distribution - my cost basis = the taxable amount? Wouldn't the IRS question this? Should the 1099 show a "type 6" (1035 exchange)? She said that was a very good question. She will have to look into it.
She called back within 1/2 hour. She confirmed that the conversion to an annuity was done internally, not done as a 1035 exchange. If their computer sees "0" for taxable gain, then no 1099-R actually gets issued and nothing gets reported to the IRS. I'm thinking that this is some sort of workaround in their computer system.She went on to explain, the letter that I received earlier showing the taxable event was generic and causes more confusion than it clears up. I'm thinking, "No $hit!" She said that the taxable gains have been transferred to the annuity. She will be sending me a letter confirming all of this today.
The transfer of taxable gains to the annuity have not been in question. Saturday I went thru IRS PUB 939 and verified to the penny, what the annuity group says.
Assuming that the letter repeats what she told me on the phone, I think all of this is done now.
I still have questions, but I am worn down now and need to just let the questions die. The biggest question I have left is: if it is treated as an annuity issued after Jun 1986, then the cost basis is only carried tax free until my actuarial age of death, ~85 years of age. After that, the full monthly income is taxable. If treated as being issued at the time of the LI policy was written, that cost basis continues tax free monthly until my death. I guess I'll worry about that in 20 years. Then again, maybe I won't have the mental acuity at that age to be concerned at all.
pb4uski, I think you said that you have a similar whole life policy. I hope this diatribe may help you and/or or others if/when you decide to settle your policy.
