I read and reread this yesterday, and it made no sense to me, either. This is commingling.

This: "On the 1099R she received from the insurance company for the new annuity it has the IRA box checked."

That's not what this was. A 1099-R is issued for money Out. The IRA brokerage or other entity holding her Trad IRA account would issue this because there was a distribution or disbursement or transfer from them. This is either a taxable event, or it went to a "like kind" tax deferred qualified account (say, to another Trad IRA) and that avoids being a taxable event.

The new annuity, if it also paid out, has its own reporting.

Or, the annuity is inside of the IRA? In which case, you still can't commingle.

Sales people get it wrong, often, but they legally need to unwind something that is disallowed.

Someone needs to lose their insurance sales license, as well.