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Retirement Planning > Retirement Investing > Annuity Investing

A Cautionary Tale

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Morris Armstrong, of Armstrong Financial Strategies in Danbury, Connecticut, is guiding a client through another problem that is becoming more common as insurance companies are split up, sold, or acquired. While the client has not lost the value of his Conseco variable annuity, which he cashed out in 2007, he is now having difficulty proving to the IRS what the cost basis of the annuity was, since, as Armstrong relates, Conseco had sold its annuity business to “another company and I believe that company sold it to Jefferson National.”

The client had purchased the VA in 1999, and had put in about $200,000 of nonqualified funds. In 2001, says Armstrong, he and his client verified the basis.

When the client cashed out the annuity, Armstrong says it was worth about $165,000. And that year, he says, Jefferson National sent a 1099 stating that the client contribution was about $100,000 and that $65,000 was taxable. When Armstrong contacted the company, asking for a new 1099, the company “admitted that their records were incorrect and incomplete and furthermore that they are not responsible for tracking basis.” In the meantime, he says, the client had moved and some of the original paperwork was lost.

Armstrong and his client are now in talks with the IRS concerning the true value of the VA, and says, “The point is that it is imperative that original basis information be retained, and if a company is at all suspect, advisors or policyholders should verify that information now, in the event that the company is acquired and records lost.”


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