What is the difference between qualified and non-qualified contracts?

What is a direct rollover?

What is an indirect rollover?

If I participate in a retirement plan at work, such as a 401(k), 403(b), SIMPLE IRA, pension plan or profit sharing plan, can I still contribute to my own IRA?

What are the IRA contribution limits for 2018?

What is a 1035 exchange?

Will I receive a tax form for a 1035 exchange?

What is the tax cost basis of my annuity contract?

Where can I find my contract's tax cost basis?

What should I do if my tax cost basis is wrong?

Are estate taxes changing in 2018?

 

 

What is the difference between qualified and non-qualified contracts?

  • Qualified annuity contracts are intended for use with tax-qualified retirement plans. They are generally funded with pre-tax dollars. Withdrawals from these contracts will often trigger a tax-reportable event.
  • Non-qualified annuity contracts are funded with after-tax dollars. Withdrawals from these contracts will usually trigger a tax-reportable event if the contract value exceeds the tax cost basis.

Please consult with a qualified tax professional if you have further questions about the tax treatment of your annuity contract.

 

What is a direct rollover?

A direct rollover is the movement of a plan funds from one tax-qualified retirement plan directly to another without passing through the taxpayer's hands.

Direct rollovers

  • are NOT taxable
  • ARE reportable
  • have no mandatory withholding

 

What is an indirect rollover?

An indirect rollover occurs when funds from a tax-qualified retirement plan are distributed to the taxpayer and the taxpayer subsequently deposits the funds to another tax-qualified retirement plan.

Indirect rollovers

  • are NOT taxable
  • ARE reportable
  • must be completed within 60 days (if the taxpayer does not complete the rollover within 60 days, the entire distribution will be taxable)
  • are subject to mandatory 20% withholding if paid from certain employer-sponsored retirement plans, such as 401(k)s, meaning that the tapayer actually receives only 80% of the taxable portion of the distribution. An indirect rollover cannot include any portion of the distribution that represent a return of after-tax contributions to the plan. If you want to roll over after-tax funds from an employer-sponsored retirement plan, you must do a direct rollover.

The taxpayer must deposit an amount equal to 100% of the taxable portion of the distribution from the original plan into the new plan; otherwise, the shortfall will be taxable. For example, if the amount deposited in the new plan equals 80% of the taxable portion of the total distribution, the other 20% will be taxable. Accordingly, when tax is withheld from a distribution, the taxpayer must use other funds to make up any shortfall in order to rollover 100% of the funds.

Please note that you may do only one indirect rollover from your IRAs during any 12-month period.

If you have further questions regarding the tax implications of or process for indirect rollovers, please consult your tax professional or financial representative.

 

If I participate in a retirement plan at work, such as a 401(k), 403(b), SIMPLE IRA, pension plan or profit sharing plan, can I still contribute to my own IRA?

According to federal tax law, anyone with earned income can contribute to an IRA, subject to the IRA contribution limits, although there are limits on who can take a tax deduction for an IRA contribution. Please note John Hancock policy restricts additional payments into certain annuity contracts. To find out if you are eligible to make an additional payment into your John Hancock annuity contract, please call our Customer Service line at 1-800-344-1029. Representatives are available Monday through Friday, 8 a.m. to 5 p.m. Eastern Time.

 

What are the IRA contribution limits for 2018?

Contribution limits for 2018 are:

  • An individual under age 50 at the end of 2018 may contribute 100% of earned income up to $5,500.
  • An individual over age 50 at the end of 2018 may contribute an additional $1,000 or a total of $6,500.

 

What is a 1035 exchange?

A 1035 exchange is an exchange of all or part of an existing non-qualified annuity contract for another non-qualified annuity contract. In a 1035 exchange, the funds must be paid directly from one insurance company to another. A 1035 exchange allows the taxpayer to defer income tax when replacing all or part of his or her current non-qualified annuity contract with another non-qualified annuity contract. If any funds are paid to the taxpayer, all or part of those funds may be taxed as income, depending on the gains in the original contract. Additionally, adverse tax consequences may apply if you take a withdrawal from either contract within 6 months following a partial 1035 exchange. The tax rules for 1035 exchanges are complex, so please consult your tax professional or financial representative if you are interested in completing a 1035 exchange.

 

Will I receive a tax form for a 1035 exchange?

You will receive a 1099-R if you complete a 1035 exchange to another insurance company. However, a 1035 exchange is not a taxable event. All such 1035 exchanges are reportable and the distribution code of '6' on the tax form indicates to the IRS that it was a tax-free 1035 exchange. If you received any distribution as part of the exchange, the distribution is taxable to the extent of gain accumulated in the exchanged contract and will be reported on a separate 1099-R.

 

What is the tax cost basis of my annuity contract?

The tax cost basis of your annuity is the amount categorized as the after-tax dollars in the contract. For annuity contracts issued after August 14, 1982, withdrawals are taken from earnings first and then tax cost basis. Withdrawals from tax cost basis are not reported as taxable on a 1099-R form.

 

Where can I find my contract's tax cost basis?

Your contract’s tax cost basis is available on the Contract Details page of your online account.

  • Register or log in to your account from the www.jhannuities.com homepage
  • Select “My Contract” on left menu
  • Scroll down to the Financial Summary section

 

What should I do if my tax cost basis is wrong?

If your contract was funded through a 1035 exchange, the tax cost basis on file was reported to us from your previous annuity company. Please call our Customer Service line at 1-800-344-1029. Representatives are available Monday through Friday, 8 a.m. to 5 p.m. Eastern Time.

 

Are estate taxes changing in 2018?

Yes, and the amounts increased below due to an adjustment in inflation.

  • The estate tax exemption amount for 2018 increased to $5,600,000.00 from $5,490,000.00 in 2017.
  • The maximum estate tax rate remains at 40% for 2018.
  • The annual exclusion for gifts for 2018 increased to $15,000.00 from $14,000.00 in 2017.

 



When considering an annuity for use in an IRA or other tax-qualified retirement plan (i.e., 401(k), 403(b), 457), it is important to note that there is no additional tax-deferral benefit, since these plans are already afforded tax-deferred status. Thus, an annuity should only be purchased in an IRA or qualified plan if some of the other features of the annuity are of value, such as access to specific portfolio choices, the ability to have guaranteed payments for life and other guaranteed benefits, and you are willing to incur any additional costs associated with the annuity to receive such benefits. See the prospectus for details.

This material does not constitute tax, legal or accounting advice and neither John Hancock nor any of its agents, employees or registered representatives are in the business of offering such advice. It was not intended or written for use and cannot be used by any taxpayer for the purpose of avoiding any IRS penalty. It was written to support the marketing of the transactions or topics it addresses. Comments on taxation are based on John Hancock’s understanding of current tax law, which is subject to change. Anyone interested in these transactions or topics should seek advice based on his or her particular circumstances from independent professional advisors.

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Request Tax Forms

Please click here to request that an IRS Form 1099-R or 5498 from a previous tax year be sent to your address of record.

Please note alternative delivery methods are not available via an online request for a duplicate tax form. IRS Form 1099-R is only provided if you took a withdrawal during the tax year.

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John Hancock Annuities are issued by John Hancock Life Insurance Company (U.S.A.), Lansing, MI 48906, which is not licensed in New York. In New York, John Hancock Annuities are issued by John Hancock Life Insurance Company of New York, Valhalla, NY 10595. John Hancock Variable Annuities are distributed by John Hancock Distributors LLC, member FINRA.