Question, Purchasing an MYGA by wiring funds to the institution.

[retireIn2020]

Hi All, I'm looking at purchasing a qualified MYGA using funds in my tIRA account. The insurance company providing the MYGA provided instructions to wire the funds directly to them from my tIRA custodian. My tIRA custodian has no issue with the wire transfer to the insurance company account, however they claim it will be coded as a "Normal Distribution". They said it would be offset by the insurance companies 5498.
Does this sound correct?

I'm just trying to think ahead and avoid a future tax headache.
Thanks

[retireIn2020]

In the words of the teacher in the movie "Ferris Bueller's Day Off"

Anyone? Anyone? Anyone?

For those that didn't laugh or haven't seen Ferris Bueller's Day off watch the clip of the teacher!
https://www.youtube.com/watch?v=uhiCFdWeQfA

[Stinky]

Hi All, I'm looking at purchasing a qualified MYGA using funds in my tIRA account. The insurance company providing the MYGA provided instructions to wire the funds directly to them from my tIRA custodian. My tIRA custodian has no issue with the wire transfer to the insurance company account, however they claim it will be coded as a "Normal Distribution". They said it would be offset by the insurance companies 5498.
Does this sound correct?

I'm just trying to think ahead and avoid a future tax headache.
Thanks

I’m not a tax pro.

But I have purchased MYGAs using funds from my Vanguard IRA.

The 1099-R issued to me by Vanguard shows an amount in box 1 (gross distribution) of the amount rolled over. It shows zero in box 2a (taxable amount). And it shows code “G” (direct rollover of a distribution to a qualified plan, a section 403b plan, a governmental section 457b plan, or an IRA) in box 7 (distribution code).

I don’t think that any of this creates a future tax headache. It’s just a normal rollover.

[HueyLD]

Hi All, I'm looking at purchasing a qualified MYGA using funds in my tIRA account. The insurance company providing the MYGA provided instructions to wire the funds directly to them from my tIRA custodian. My tIRA custodian has no issue with the wire transfer to the insurance company account, however they claim it will be coded as a "Normal Distribution". They said it would be offset by the insurance companies 5498.
Does this sound correct?

That sounds like a bad answer from your current IRA custodian. You need to call back and speak to someone who handles IRAs, not just anyone who happens to answer the phone.

What you are trying to do is a “direct rollover” meaning that the money goes from the current custodian to the new custodian without being made payable to you first. And the custodian that transfers money out should issue 1099-R with correct codes as Stinky stated upthread.

If you are under 59 1/2, be very careful with the transfer via wire. If they take wire fees out of the proceed, you will owe taxes and penalties. In addition, if they withhold taxes from the proceed, you will also owe taxes on the withheld amount.

[Stinky]

Hi All, I'm looking at purchasing a qualified MYGA using funds in my tIRA account. The insurance company providing the MYGA provided instructions to wire the funds directly to them from my tIRA custodian. My tIRA custodian has no issue with the wire transfer to the insurance company account, however they claim it will be coded as a "Normal Distribution". They said it would be offset by the insurance companies 5498.
Does this sound correct?

That sounds like a bad answer from your current IRA custodian. You need to call back and speak to someone who handles IRAs, not just anyone who happens to answer the phone.

What you are trying to do is a “direct rollover” meaning that the money goes from the current custodian to the new custodian without being made payable to you first. And the custodian that transfers money out should issue 1099-R with correct codes as Stinky stated upthread.

If you are under 59 1/2, be very careful with the transfer via wire. If they take wire fees out of the proceed, you will owe taxes and penalties. In addition, if they withhold taxes from the proceed, you will also owe taxes on the withheld amount.

I believe that Vanguard sent paper checks via snail mail to the insurance companies. I agree with Huey that there would be a problem if wire fees were deducted from the amount transferred.

With Vanguard, the issue of tax withholding never came up, since it was a direct rollover of IRA funds. Hopefully OPs IRA custodian is competent enough to recognize the same thing.

[retireIn2020]

Hi All, I'm looking at purchasing a qualified MYGA using funds in my tIRA account. The insurance company providing the MYGA provided instructions to wire the funds directly to them from my tIRA custodian. My tIRA custodian has no issue with the wire transfer to the insurance company account, however they claim it will be coded as a "Normal Distribution". They said it would be offset by the insurance companies 5498.
Does this sound correct?

I'm just trying to think ahead and avoid a future tax headache.
Thanks

I’m not a tax pro.

But I have purchased MYGAs using funds from my Vanguard IRA.

The 1099-R issued to me by Vanguard shows an amount in box 1 (gross distribution) of the amount rolled over. It shows zero in box 2a (taxable amount). And it shows code “G” (direct rollover of a distribution to a qualified plan, a section 403b plan, a governmental section 457b plan, or an IRA) in box 7 (distribution code).

I don’t think that any of this creates a future tax headache. It’s just a normal rollover.

Thanks, I removed "tax pro" from the subject line.

The issue per Fidelity (who is performing the wire transfer out) is that I'm initiating the transfer on my own behalf. and as such it must be coded "Normal Distribution".
If I were to let the insurance co. make the request it would take weeks for them to send in the paperwork and request a check. vs a couple days for the wire transfer.
I believe the 1099R will be coded "7" in box 7 and I'll just have to code it as a rollover at tax time, both Fidelity and Ins co. agreed shouldn't be an issue.

I just thought I'd check with the Bogleheads to see if anyone has purchased annuities in this manner, and if they had any tax time issues.

[retireIn2020]

Hi All, I'm looking at purchasing a qualified MYGA using funds in my tIRA account. The insurance company providing the MYGA provided instructions to wire the funds directly to them from my tIRA custodian. My tIRA custodian has no issue with the wire transfer to the insurance company account, however they claim it will be coded as a "Normal Distribution". They said it would be offset by the insurance companies 5498.
Does this sound correct?

That sounds like a bad answer from your current IRA custodian. You need to call back and speak to someone who handles IRAs, not just anyone who happens to answer the phone.

What you are trying to do is a “direct rollover” meaning that the money goes from the current custodian to the new custodian without being made payable to you first. And the custodian that transfers money out should issue 1099-R with correct codes as Stinky stated upthread.

If you are under 59 1/2, be very careful with the transfer via wire. If they take wire fees out of the proceed, you will owe taxes and penalties. In addition, if they withhold taxes from the proceed, you will also owe taxes on the withheld amount.

Thanks,
I'm retired and over 60, Fidelity never mentioned any fees and the wire was the exact amount.

[retireIn2020]

Hi All, I'm looking at purchasing a qualified MYGA using funds in my tIRA account. The insurance company providing the MYGA provided instructions to wire the funds directly to them from my tIRA custodian. My tIRA custodian has no issue with the wire transfer to the insurance company account, however they claim it will be coded as a "Normal Distribution". They said it would be offset by the insurance companies 5498.
Does this sound correct?

That sounds like a bad answer from your current IRA custodian. You need to call back and speak to someone who handles IRAs, not just anyone who happens to answer the phone.

What you are trying to do is a “direct rollover” meaning that the money goes from the current custodian to the new custodian without being made payable to you first. And the custodian that transfers money out should issue 1099-R with correct codes as Stinky stated upthread.

If you are under 59 1/2, be very careful with the transfer via wire. If they take wire fees out of the proceed, you will owe taxes and penalties. In addition, if they withhold taxes from the proceed, you will also owe taxes on the withheld amount.

I believe that Vanguard sent paper checks via snail mail to the insurance companies. I agree with Huey that there would be a problem if wire fees were deducted from the amount transferred.

With Vanguard, the issue of tax withholding never came up, since it was a direct rollover of IRA funds. Hopefully OPs IRA custodian is competent enough to recognize the same thing.

Fidelity also never mentioned tax withholding.

[Stinky]

Hi All, I'm looking at purchasing a qualified MYGA using funds in my tIRA account. The insurance company providing the MYGA provided instructions to wire the funds directly to them from my tIRA custodian. My tIRA custodian has no issue with the wire transfer to the insurance company account, however they claim it will be coded as a "Normal Distribution". They said it would be offset by the insurance companies 5498.
Does this sound correct?

I'm just trying to think ahead and avoid a future tax headache.
Thanks

I’m not a tax pro.

But I have purchased MYGAs using funds from my Vanguard IRA.

The 1099-R issued to me by Vanguard shows an amount in box 1 (gross distribution) of the amount rolled over. It shows zero in box 2a (taxable amount). And it shows code “G” (direct rollover of a distribution to a qualified plan, a section 403b plan, a governmental section 457b plan, or an IRA) in box 7 (distribution code).

I don’t think that any of this creates a future tax headache. It’s just a normal rollover.

Thanks, I removed "tax pro" from the subject line.

The issue per Fidelity (who is performing the wire transfer out) is that I'm initiating the transfer on my own behalf. and as such it must be coded "Normal Distribution".
If I were to let the insurance co. make the request it would take weeks for them to send in the paperwork and request a check. vs a couple days for the wire transfer.
I believe the 1099R will be coded "7" in box 7 and I'll just have to code it as a rollover at tax time, both Fidelity and Ins co. agreed shouldn't be an issue.

I just thought I'd check with the Bogleheads to see if anyone has purchased annuities in this manner, and if they had any tax time issues.

I’ve never “pushed” funds from Vanguard to an insurance company.

I’ve always had the insurance company “pull” funds from Vanguard.

I agree that the method that I’ve used is pretty clunky, and takes some elapsed/mail time to complete. But I’ve never tried what you’re trying to do.

[Oicuryy]

It sounds like Fidelity is going to treat this as a distribution to you rather than a trustee to trustee transfer. They have nothing official from the new custodian indicating the money is going to an IRA.

I believe you can report it as a rollover as long as it has been a year since your last rollover and you wait a year before doing another rollover. See the section "Waiting period between rollovers. " in Pub 590-A.
https://www.irs.gov/publications/p590a# ... 1000230592

Ron

[retireIn2020]

It sounds like Fidelity is going to treat this as a distribution to you rather than a trustee to trustee transfer. They have nothing official from the new custodian indicating the money is going to an IRA.

I believe you can report it as a rollover as long as it has been a year since your last rollover and you wait a year before doing another rollover. See the section "Waiting period between rollovers. " in Pub 590-A.
https://www.irs.gov/publications/p590a# ... 1000230592

Ron

Thank you, I'll have to keep this in mind and check all my other rollovers, I believe they were all direct rollovers, I did a couple from 401k to tIRA and tIRA to Roth but those were all inhouse at Fidelity.

[retireIn2020]

It sounds like Fidelity is going to treat this as a distribution to you rather than a trustee to trustee transfer. They have nothing official from the new custodian indicating the money is going to an IRA.

I believe you can report it as a rollover as long as it has been a year since your last rollover and you wait a year before doing another rollover. See the section "Waiting period between rollovers. " in Pub 590-A.
https://www.irs.gov/publications/p590a# ... 1000230592

Ron

Thank you, I'll have to keep this in mind and check all my other rollovers, I believe they were all direct rollovers, I did a couple from 401k to tIRA and tIRA to Roth but those were all inhouse at Fidelity.

Also,
Researching the IRS documentation, I found this exception to the one-year rule, and since it was most definitely an IRA-to-plan rollover (1099R and 5498) and I never received the funds, all the documentation (if ever needed) is available should there be an audit, had I done more than one transfer.

The one-per year limit does not apply to:
rollovers from traditional IRAs to Roth IRAs (conversions)
trustee-to-trustee transfers to another IRA
IRA-to-plan rollovers
plan-to-IRA rollovers
plan-to-plan rollovers
https://www.irs.gov/retirement-plans/pl ... tributions scroll to "IRA one-rollover-per-year rule "

[retireIn2020]

Just as an FYI,
I did the paperwork on Friday (8/5) with the Insurance company for the 7 year MYGA (4.25%) and wired the funds from my tIRA that same day. Today Monday (8/8), the Funds are at the insurance company and started earning interest. I also got an email this morning to open my online account at Nationwide and can see the funds and the annuity.
That was very fast!
Thanks for everyone's input!