Question

Amir, a 49-year-old single taxpayer, contributed $25,000 to a commercial annuity in 2018. the annuity is a nonqualified plan. in 2022, before the annuity start date, amir took a nonperiodic distribution of $2,500 and used the money to pay off his credit card debt. if the value of the annuity at the time of the distribution was $30,000, how much of the distribution is taxable?

O $0
O $417
O $2,083
O $2,500

Answer 1

The entire $2,500 nonperiodic distribution Amir took from his nonqualified commercial annuity is taxable, as it comes from the gains in the annuity. Therefore correct option is D

Step-by-step explanation:

When Amir, a 49-year-old single taxpayer, took a $2,500 nonperiodic distribution from his nonqualified commercial annuity, the taxability of this distribution depends on the gains in the annuity at the time of the distribution. Since the annuity grew from $25,000 to $30,000, there is a gain of $5,000. Distributions from a nonqualified annuity are taxed on a last-in-first-out (LIFO) basis, meaning the gains are taxed first.

Therefore, the entire distribution of $2,500 is considered to be from the gains and is fully taxable income for Amir.