Is my entire 1099-R from nonqualified annuity taxable if only box 1 is filled with code 4D?

You're absolutely right to question this. With a nonqualified annuity (code 4D), you shouldn't have to pay taxes on your principal - only on the earnings portion. It sounds like your 1099-R wasn't properly completed by the issuer. For nonqualified annuities, box 2a (taxable amount) should show just the earnings portion, while box 5 should show your investment in the contract (the principal). If these boxes are blank, the issuer may have incorrectly completed the form, which is causing your tax software to assume the entire distribution is taxable. You have a couple options here. First, contact the company that issued the 1099-R and ask them to send a corrected form that properly shows your cost basis in box 5. Second, you can calculate your own cost basis if you have records of all your contributions to the annuity, and report that properly on your tax return despite what the 1099-R shows.

I went through exactly this same headache last year with my nonqualified annuity distribution. The insurance company totally messed up my 1099-R and I ended up using taxr.ai to help sort it out. I uploaded my annuity contract and statements showing my contributions, and it correctly calculated my cost basis and explained exactly how to report it on my tax return despite the faulty 1099-R. Check it out at https://taxr.ai - they specifically handle these complicated cases where forms aren't filled out right. Saved me thousands in taxes I didn't actually owe on my principal!

Just wanted to update that I tried taxr.ai after seeing this thread and it was super helpful for my annuity situation! I uploaded 8 years of statements plus my contract and current 1099-R. It identified exactly which portions were my contributions vs. earnings and gave me step-by-step instructions for reporting it correctly despite my messed-up 1099-R. I was able to file confidently knowing I wasn't overpaying taxes on my principal amounts. They even provided a detailed worksheet I can keep with my tax records in case of questions from the IRS. Definitely worth it for peace of mind and not overpaying thousands in taxes!

If you're getting nowhere with the company that issued your annuity, you might want to try Claimyr to get someone at the IRS on the phone. I spent THREE DAYS trying to get through to an IRS agent about a similar 1099-R issue last month, then found https://claimyr.com and got connected in about 20 minutes. They have this system that navigates all the IRS phone menus and waits on hold for you, then calls you when an actual human picks up. You can see how it works here: https://youtu.be/_kiP6q8DX5c. The IRS agent I talked to confirmed I could file with my own calculated cost basis and explained exactly what documentation I needed to keep.

I owe everyone here an apology and wanted to post a follow-up. After being super skeptical about Claimyr, I got desperate when my annuity provider said it would take 8-10 weeks to issue a corrected 1099-R (which would put me past the filing deadline). So I tried the service and honestly... it worked exactly as advertised. Got a call back in about 35 minutes with an actual IRS agent on the line. The agent confirmed I could file using my own calculated cost basis for my nonqualified annuity and explained exactly what documentation I needed in case of an audit. I've been trying to reach the IRS for WEEKS on my own with no success. This saved me so much time and frustration. Sometimes it's worth admitting when you're wrong!

Here's what I learned after dealing with this exact situation: if your distribution was partially a return of principal from a nonqualified annuity, the insurance company SHOULD have completed box 5 on the 1099-R with your investment in the contract (cost basis). Their failure to do so doesn't mean you have to pay tax on the entire amount. Look at your annuity statements to determine how much you originally invested. The taxable portion is only the amount that exceeds your total investment. You'll need to do Form 8606 to properly report this.

Has anyone worked with their tax software to manually override what the 1099-R shows? I'm using TurboTax and cant figure out how to tell it that only part of my distribution is taxable when the 1099R has nothing in box 2a or 5.

I'm dealing with this exact same issue right now! Got my 1099-R yesterday and it's showing the full distribution amount in box 1 with code 4D, but boxes 2a and 5 are completely blank. I've been contributing to this nonqualified annuity for about 6 years and know I shouldn't owe taxes on all of it. Reading through everyone's responses here has been super helpful. I think I'm going to try contacting the insurance company first to see if they'll issue a corrected form, but if that takes too long I'll calculate my own cost basis from my records. I've kept all my statements showing contributions over the years, so I should be able to figure out exactly how much I put in versus earnings. Thanks for posting this question - it's reassuring to know I'm not the only one dealing with this frustrating situation!

This is such a common and frustrating issue with nonqualified annuities! I dealt with something very similar last year and can offer some perspective from someone who's been through the whole process. First, you're absolutely correct that you shouldn't pay taxes on your principal - only on the earnings portion. The insurance company definitely dropped the ball by not filling in boxes 2a and 5 properly. Box 5 should show your total investment (cost basis) and box 2a should show only the taxable earnings portion. Here's what I'd recommend based on my experience: Start by gathering all your annuity statements and contribution records to calculate your total cost basis. Then contact the insurance company and firmly request a corrected 1099-R - don't take "no" for an answer initially. However, don't let their timeline dictate your filing deadline. If they can't get you a corrected form quickly enough, you can absolutely file using your own calculated cost basis. Most tax software will allow you to override the 1099-R when you indicate that the taxable amount wasn't calculated correctly. Just make sure to keep excellent documentation showing how you arrived at your cost basis calculation. I ended up having to file with my own calculations because my insurance company took forever, and I had no issues with the IRS. The key is having solid records to back up your numbers if ever questioned.