Question

If your 60-year-old customer purchases a nonqualified variable annuity and withdraws some of her funds before the contract is annuitized, what are the consequences of this action?

Answer 1

Answer: Ordinary income tax on earnings exceeding basis.

Explanation:

From the question, we are informed that a 60-year-old customer purchases a nonqualified variable annuity and withdraws some of her funds before the contract is annuitized.

The consequences of this action is that Ordinary income tax on earnings exceeding basis. It should be note that the distributions from a nonqualified plan had to do with return on original investment and income from the investment. Since there's defer of the income, it'll be taxable as an ordinary income.