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ordinary income and subject to the early withdrawal penalty.

Perry, who is 50 years old, was building a new home for his family. However, he was running out of money and could not afford the pool they fell in love with. Since his family was upset, he decided to take a withdrawal from his annuity. He had contributed $100,000 to the annuity, and the value of the annuity today is $300,000. He decided to take a withdrawal of $60,000 from the annuity. Which of the following is correct?

  • $40,000 is taxable as ordinary income.
  • $40,000 is taxable as ordinary income and subject to the early withdrawal penalty.
  • $60,000 is taxable as ordinary income.
  • $60,000 is taxable as ordinary income and subject to the early withdrawal penalty.
 
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