Paul invested $25,000 in a nonqualified deferred annuity at the age of 47. Five years later, the contract has grown to $38,000, and Paul surrenders his contract for its full value. The early withdrawal tax penalty is assessed on how much of Paul's surrender?

a. $0

b. $13,000

c. $25,000

d. $38,000

Question

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Jamari Russo

6 March, 02:37

Paul invested $25,000 in a nonqualified deferred annuity at the age of 47. Five years later, the contract has grown to $38,000, and Paul surrenders his contract for its full value. The early withdrawal tax penalty is assessed on how much of Paul's surrender?

a. $0

b. $13,000

c. $25,000

d. $38,000

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Answers (1)

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Dallas Lamb · Answer 1

b.$13,000

Explanation:

The investment is made using post-tax funds. Therefore, only the earnings made on the investment ($38,000-$25,000=$13,000) is subject to taxation. IRS applies the exclusion ratio to determine what portion of a non-qualified annuity withdrawal is taxable.

Paul invested $25,000 in a nonqualified deferred annuity at the age of 47. Five years later, the contract has grown to $38,000, and Paul surrenders his contract for its full value. The early withdrawal tax penalty is assessed on how much of Paul's surrender?a. $0b. $13,000c. $25,000d. $38,000