Taxation of Non Qualified Annuities

***Premature Distribution and Penalty Tax***

***In addition to ordinary income tax that may be due, a 10% PENALTY IS IMPOSED ON THE ANNUITY TAX BASE FOR EARLY WITHDRAWALS PRIOR TO AGE 59 1/2***

One-Sum Cash Surrenders

Cash surrender of an annuity results in immediate taxation of the interest earned

Corporate-Owned Annuities

growth in the annuity is not tax deferred; interest income is taxed annually unless the corporation owns a group annuity for its employees and each employee receives a certificate of participation

Tax-Deferred Accumulation

The cost base represents the premium dollars that have already been taxed and will not be taxed again when withdrawn from the contract. The interest accumulated in an annuity is the tax base, but the TAXES ARE DEFERRED DURING THE ACCUMULATION PERIOD

Accumulation Phase

The period after an annuity has been purchased but before distributions begin.

Withdrawal of Interest and Principal

When money is withdrawn from the annuity during the accumulation phase, the amounts are taxed on a Last In, First Out basis (LIFO)

Individually-owned

a portion of each annuity benefit payment is taxable and a portion is not