A 45-year-old investor purchases a non-qualified deferred variable annuity contract funded with after-tax dollars. Ten years later, at age 55, the investor surrenders the contract for cash when the total contract value exceeds cumulative premium payments. Which of the following statements regarding the tax implications and legal protections of this withdrawal are correct?
- Withdrawals are taxed on a last-in, first-out (LIFO) basis, meaning earnings are distributed and taxed as ordinary income before principal is returned tax-free.Cevap
- Taxable earnings withdrawn before age 59½ are subject to an additional 10% IRS tax penalty, unless a specific statutory exemption applies.Cevap
- CInvestment growth within the subaccounts qualifies for long-term capital gains treatment upon surrender because the contract was held for more than one year.
- DSubaccount assets held in the separate account are subject to claims from general creditors of the issuing insurance company in the event of insolvency.
Cevap
Withdrawals from non-qualified variable annuities are taxed on a LIFO basis as ordinary income, and taxable distributions prior to age 59½ incur an additional 10% IRS early withdrawal penalty.
Non-qualified deferred variable annuities are funded with after-tax dollars. When withdrawals are taken prior to annuitization, the IRS applies last-in, first-out (LIFO) tax rules, causing earnings to be withdrawn and taxed as ordinary income first before cost basis is returned. Additionally, because the contract owner is 55 years old (under 59½), any taxable earnings distributed are subject to a 10% IRS penalty tax.
Adım Adım Çözüm
Anahtar Kavram
Taxation of Non-Qualified Variable Annuity Withdrawals and Separate Account Asset Segregation
Tahmini Süre:1m 30s