Is an Annuity a "Qualified Plan"

Question

MY MIL who recently died had purchased a Value Plus Fixed Annuity many years ago investing --$15,000. As executor, I liquidated it at its current value-- $70,000 and am looking at being taxed on the $55,000 gain.

Since she (the participant) was born prior to 1/2/36 and I took a total distribution of the funds, Form 4972-- Lump-Sum Distribution allows this gain to be taxed at a much lower rate IF the annuity is a "qualified plan" -- whatever that means.

I have the 1099-R and called the insurance company that the annuity was purchased from-- but I can't get anyone who speaks understandable English, much less can tell me if the annuity is a qualified plan!

So how can I tell?

Gene E. Utterback, EA, RFC, AB · Accepted Answer

Based only on what you've said here, it is likely that this NOT a qualified plan.

Did she fund this privately? If so, the answer is likely no.

Was this funded through a company sponsored retirement plan? If so, the answer is likely yes.

Gene E. Utterback, EA, RFC, ABA

Paul Thomas, CPA · Answer

"Gene Bleuler"  wroteAs Gene said, it's probably not a qualified plan.  Some clue might be in how the annuity is titled.  Often there is an indication of the investment being "qualified" with "IRA", or similar, in the name on the statements.   Like "MIL Name SEP-IRA".  Anything like that to hint that it's a qualified plan?

Steve Pope · Answer

This may not be much of a datapoint, but I have heard that if you buy a plain-vanilla after-tax annuity, outside of any qualified plan, you start to get information returns that look like those from qualified plans. Why this is, I am not sure. Simplest would be if only qualified plans issued 1099-R's but apparently this is not the case.

Steve

Gene Bleuler · Answer

Thanks, it was privately funded-- so that wasn't the answer I was hoping for....

Is an Annuity a "Qualified Plan"

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