I have a question:
I have a variable insurance policy that I will be rolling over via 1035 exchange into a low cost variable annuity at Vanguard. The cost basis of the variable insurance policy is $50k. The cash value of the policy is $35k.
If I sell / cash out the variable annuity in hypothetical 10 years (before I'm 59 1/2) when the cash value of the annuity equals the cost basis - both are at $50k - will I have to pay the IRS a 10% penalty for cashing the annuity in before reaching the age of 59 1/2?
I've heard some conflicting advice on this matter and am interested in what others have to say.
Have a great day,
makingourway
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2 comments:
I believe it depends on if your VA is qualified of non-qualified. If it is a qualified annuity (Traditional IRA, 401k, etc) where it is pre-tax dollars, then regardless of the cost basis the 10% penalty applies on the actual dollar amount withdrawn.
If it is a non-qualified annuity, meaning after-tax contributions, then the penalty applies to the gains.
Thanks, Gen X.
It was non-qualified; i.e. a variable life policy.
regards,
m
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