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Your 65-year-old client owns a nonqualified variable annuity. He originally invested $29,000 four years ago, and it now has a value of $39,000. If your client, who is in the 28% tax bracket, makes a lump-sum withdrawal of $15,000, what tax liability results from the withdrawal

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gabrielcardoso

Answer:

Tax liability results from withdrawal = $2,800

Explanation:

The customer has paid with after-tax money and consequently has a basis equal to the initial investment of 29k USD. Since the client only pay taxes on the growth portion of the withdraw itself [tex](10k \times0.28 = 2.8k )[/tex] .

If the customer has 58 years old, a penalty tax of 10% of the 10k is charged summing already with the 2.8k income tax.

If the customer has  59.5 years old it is not necessary to pay the 10% premature distribution penalty.

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