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18 April, 13:56

Retired public school teacher, age 65, has deposited a total of $10,000 into a nonqualified variable annuity, and her account's current value is $16,000. if she wishes to take a lump-sum withdrawal of the full amount, how much of this withdrawal is taxed at the ordinary income tax r

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  1. 18 April, 17:15
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    The answer is - $6,000.00

    Explanation:

    Contributions to a nonqualified annuity represent cost-base dollars. When the contributions are paid out, cost base represents a return of capital and is not subject to tax. The growth in an annuity is taxdeferred

    and is taxable upon receipt. In this case, of the total distribution of $16,000, the return of contributions was $10,000, leaving $6,000 taxable as ordinary income.

    Reference: 3.8.1 in the License Exam Manual.
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