Variable Annuities
A 52-year-old withdraws $20,000 from a non-qualified variable annuity with $50,000 cost basis and $80,000 value. The withdrawal is subject to:
Non-qualified annuities follow LIFO taxation: earnings come out first. The entire $20,000 is taxable, and since the investor is under 59 1/2, a 10% penalty also applies.
Complete Analysis & Legal Rationale
Non-qualified annuities follow LIFO taxation: earnings come out first. The entire $20,000 is taxable, and since the investor is under 59 1/2, a 10% penalty also applies.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Does not match the governing securities rule described in the explanation.
Does not match the governing securities rule described in the explanation.
Does not match the governing securities rule described in the explanation.
Matches the verified teaching point in the explanation.
Official Standard: Outline-level citation: item maps to Series 7 topic coverage. Prefer a specific FINRA/SEC/MSRB rule citation in a later author pass.