Reviving an old thread here to seek ideas, but also to rant a little.
TL;DR
It turns out that we'll owe tax on $205k rather than $110k, as I first reported. That means that we'll need to pay a lot more tax than we had withheld (pushed us into the 33% bracket), and our 2017 taxes will be much higher than expected. The reason: though the only statement that we saw showed $110k in taxable gains, at some point (this is a guess) DW's uncle rolled tax-deferred money into the annuity. But, MetLife won't show us any evidence that this is the case.
I'm looking for input on a few things:
1) Ideas for minimizing the taxes we pay for 2017.
2) Since the taxable amount is $95k higher than we expected, the amount we had withheld was too low and we're wondering if we need to make estimated payments to avoid being penalized.
(
https://www.irs.gov/taxtopics/tc306.html)
3)
I'm unclear on what "taxable amount" means. Will this all be taxed as regular income? Much of the gains should be long-term. Will the 1099-R that we get in Jan 2018 parse out long-term vs short-term capital gains? Or is this moot since the money has been inherited?(sorry about the dumb question .. it's all tax-deferred, so long-/short-term is irrelevant)
4) Is there any recourse for MetLife's general d-baggery in handling this?
Our 2017 tax forecast:
DINKs, married filing jointly
AGI: ???? (not sure now considering annuity switcharoo)
taxable income: $77,500 + $205,000
me 457b + 403b: $36,000
DW 457b + 403b: $36,000
Once we learned of the taxable $110k from the annuity we decided to max our tax-deferred saving. We're fortunate that we both have access to 403b and 457b, but now we'll be taxed on $95k more income.
BTW, even with the taxes and MetLife's misinformation, we realize how fortunate we are to have this "problem" and are very appreciative to DW's late uncle. I think he would have wanted us to stir up some shit on this considering how MetLife has handled it.
Any feedback is appreciated.
Thanks!
Here's the story the long backstory:
Back in Dec 2016 we talked with the MetLife insurance agent in NY who handled DW's uncle's insurance-related affairs, including the annuity that DW inherited. At that time, and several times since then, he told us that the taxable portion of the annuity was $110k. He sent a quarterly statement from Jun 2016 that said as much (i.e. it has column labeled "Net Gain or Loss or Interest Earnings"). The agent maintained that the number in this column -- $110k -- was the only part that was taxable.
DW tried to get it in writing, or get an updated account statement, but the agent wouldn't provide it. He told us he couldn't because the account was not in DW's name, she is just the beneficiary. The account belongs to the estate of the uncle. Catch 22.
Eventually, after dealing with the agent's old-school way of doing business (asking us to fax documents, terrible email correspondence, scanning and emailing forms that are readily available as PDFs online) we shifted to dealing with MetLife "HQ" in IA.
DW called the MetLife 800 number and spoke with a customer service rep a few times. Talking to the CSR got us the necessary paperwork to request the lumpsum payout. They had answers for all our questions, but wouldn't provide us with a statement that showed the taxable amount for the same Catch-22 reason that the old-school MetLife agent gave: account isn't in DW's name.
So, we completed the paperwork and checked the box for MetLife to withhold federal and state tax at 25% and 4%, respectively (realizing this was probably an over estimate on the federal).
The money was direct deposited into our bank account today and the total was less than we had calculated.
DW called MetLife HQ and asked why the discrepancy? The CSR laid out the amount of the lumpsum, taxable portion, and the dollar-equivalent of the % withholding we specified. The CSR then emails DW a statement that shows all this, and the taxable portion is $205k.
DW asks CSR: "I was told all along that taxable portion was $110k. The MetLife agent in NY told me this repeatedly, and sent me several emails stating this. If I would have known I'd be taxed on $205k rather than $100k then I would have considered other options .. like deferring until my husband quits his job ... "
CSR: "Well, you're responsible for the taxes. We can't advise on that".
DW: "But the numbers the agent gave me were wrong, and neither you nor he would provide me with a statement".
CSR: "The agent isn't employed by MetLife; he doesn't work for MetLife"
DW: "WTF? So why does the agent's name and address appear under "copy to:" in the statement you just emailed to me?"
CSR: "Uh ..."
DW: "So where did the additional taxable $95k come from?"
CSR: "I bet it was a 1035 transfer from another tax-deferred annuity"
DW: "Can you send me a statement that shows this?"
CSR: "No, because it is not your account. You are the beneficiary of the annuity, not the owner."
DW: "Seriously?"
