A client has purchased a nonqualified variable annuity from a commercial insurance company. Before the contract is annuitized, your client, currently age 60, withdraws some funds for personal purposes. What is the taxable consequence of this withdrawal to your client?

Question

Keyon Coleman

Business

31 October, 04:22

A client has purchased a nonqualified variable annuity from a commercial insurance company. Before the contract is annuitized, your client, currently age 60, withdraws some funds for personal purposes. What is the taxable consequence of this withdrawal to your client?

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Answers (1)

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Emily Walter · Answer 1

Ordinary income taxation on the earnings withdrawn until reaching the owner's cost basis.

Explanation:

Ordinary income refers to income that is taxed according to the regular U. S. tax brackets and includes many types of income. This includes wages, salaries, tips, and commissions, but excludes long-term capital gains and qualified dividends, both of which are taxed at more favorable rates