"A customer contributed $20,000 to a variable annuity contract. The account value has grown over the years and the NAV is now $3

Question

3 years ago

14

"A customer contributed $20,000 to a variable annuity contract. The account value has grown over the years and the NAV is now $3

5,000. The customer is now age 60, and takes a lump-sum distribution of $20,000 to pay for expenses. Which statement is TRUE?"

Business

1 answer:

Aleonysh [2.5K] · Answer 1 · 2022-06-26T13:06:59+03:00

Answer: C. $15,000 of the distribution is taxable and $5,000 is not taxable

Explanation:

The options to the question are:

A The entire $20,000 distribution is not taxable

B $5,000 of the distribution is taxable and $15,000 is not taxable

C $15,000 of the distribution is taxable and $5,000 is not taxable

D The entire $20,000 distribution is taxable

It should be noted that variable annuity contributions are typically not tax-deductible. Since the customer contributed $20,000 to a variable annuity contract and the account value has grown over the years and the NAV is now $35,000; when the customer takes a lump-sum distribution of $20,000. From the $20,000, $15,000 of the distribution is taxable and $5,000 is not taxable.