"buckeye1" <osu1andym[at]yahoo.com> wrote in message
news:1f3d202a154e781c0681f3b795c3ed67[at]localhost.talkaboutinvestments.com...
- quote -

There is a penalty, but the penalty only applies to the taxable amount. If
there is no taxable amount, then there is no penalty.

If money is put into a qualified plan, then no tax is paid when it is put
in. Tax is paid when it comes out. If it comes out early, then tax and
penalty apply.

If money is put into a NONqualifed plan, then tax is paid before the money
is put in. Tax is paid ONLY when more comes out than what went it in. If
the nonqualified plan is terminated early and there is less money available
than what was originally put in then there is NO tax and no penalty.

That should answer your question. However, as I do a lot of work with
annuities, both qualified and nonqualified, I am compelled to caution you
that there may be other items you should consider before you surrender the
annuity.

Many of today's annuities offer guaranteed benefits, both living benefits
and death benefits, that cannot be obtained elsewhere. If this contract
includes any of these, and even if it doesn't, you should carefully review
the contract before surrendering it. I know of several companies that offer
guaranteed returns, net of fees, in the 5% to 7% range for purposes of
providing income later in life, regardless of the actual contract value.
For example, if you invested $50K in a contract with a 7% living benefit
provision, after 10 years you could have the right to receive payments on a
base amount of $100K regardless of the actual value of the contract.

Death benefits for annuities are frequently similar - again, assume in 1984
you put $50K in an annuity with a 7% increasing minimum death benefit and a
highwatermark guarantee. Now assume you die from stress related to a market
decline similar to the one we had in the late 90s. The decline was so bad
that your $50K investment from 20 years ago, which had hit a high of $300K
in the dotcom boom, is now worth $43K. The shock from this is so bad that
your heart can't take it and you arrest. Your beneficiary could be entitled
to $300K even thought the contract is only worth $43K.

Annuities, like all investments, will fluctuate from time to time depending
on market conditions. However, only annuities offer the ability to insure
the portfolio. I won't get into fees and costs, they are some and they can
be higher than other investments - but for some, the costs are worth it.

Just be sure you know what you are dealing with before you make any
decisions.

Good luck,
Gene E. Utterback, EA, RFC

A Federal Income Tax on Gain if any, PLUS a Penalty on the Gain
Cal Lester CLU


"buckeye1" <osu1andym[at]yahoo.com> wrote in message
news:1f3d202a154e781c0681f3b795c3ed67[at]localhost.talkaboutinvestments.com...
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Say someone invested 50k into a NON-qaulified annuity. After being in the
product 5 years the balance is now 43k. If the person is under 59 1/2,
but
wants to pull the money, will the 10% federal penalty be on the entire
amount? Or would there only be a penalty on the gains, if there were any?


There seems to be this misconception that there is not a 10% penalty for
pulling a NonQ annuity before the age of 59 1/2. I know that there is a
penalty, I am just not sure if it is on the entire amount invested, or
just on the gains.