Tax TreatmentQuestion 226 of 315
How is a non-annuitized withdrawal from a non-qualified deferred annuity issued after August 13, 1982 taxed?
a.Pro-rata between basis and gain
b.Entirely as tax-free return of basis until basis is exhausted
c.Entirely as ordinary income until all gain is withdrawn, then as tax-free basis
d.Entirely as long-term capital gain
Explanation
IRC §72(e)(2) applies LIFO treatment to post-1982 deferred annuity withdrawals: gain comes out first as ordinary income, and only after the gain is exhausted does the owner recover basis tax-free. Annuitized payments use the §72(b) exclusion ratio instead.
Law Reference: IRC §72(e)(2)Practice all 315 questions free — no signup required.
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