A self-directed IRA plan holds various investments including an annuity. The client takes distribution of the annuity changing it from one under the umbrella of the IRA custodian to a non-qualified Annuity owned directly by the Individual. The annuity is not being annuitized at this point. Without discussing the approprietness of holding an Annuity within a custodial/trusteed self directed IRA, how does one report that transaction.

I'm aware of the paragraph in publication 590 that discusses the IRA custodian or trustee purchasing an annuity for an IRA account owner and it not being taxable until the annuity company distributes it to the owner. I'm not questioning taxability but the actual reporting on form 1099-R of the removal of the annuity from the IRA and the change of ownership to a non-qualified annuity.

Is it reported? If so is there any special code for box 7. ( i can't locate one) This is not a 1035 exchange in my opinion. Does checking the "taxable amount not determined" box place the issue in the hands of the individual.

Or is the answer to treat it as a trustee/custodial transfer and not report it at all?

I've put this questions privately to other colleagues in the industry, some of who may participate on this board and I appreciate their opinions. I'd just like to get a broader view of this type of transaction.

Thank You.

To be honest I don't know, but if you're looking for gut opinions I'd say don't report it at all.

I'll also comment that I didn't know you could do this, and researched it a bit, and for the benefit of anyone else reading this, note that the annuity contract must have provisions to begin payments by 70 1/2 (to avoid an end run around RMDs).

Thanks Bird.

Any other opinions or cites? I'm leaning towards no reporting and treating as a transfer but still looking for something to back me up other than the short paragraph in Pub 590.

Sounds like a "qualified plan distributed annuity" under 1.402(c)-2 QA-10. Of course, an IRA is not a "qualified plan," so it's not directly relevant.

I am not an expert on this topic either... I check with a firm that holds annuities in self directed IRAs and they confirmed that it is reported as a distribution on Form 1099-R. However, according to their operations, the annuity company approves the distibution and performs the tax reporting.

Not sure if TD 9418 (available here http://www.irs.gov/irb/2008-38_IRB/ar07.html) would apply in this case; it addresses the valuation of an annuity when it is converted to a Roth IRA. But, since a Roth conversion is –technically- a distribution and a rollover, I figured we could apply the valuation premise to distributions from IRAS to non-qualified annuities. The valuation process is summarized in the first paragraph under “Explanation of Provisions”