Greetings, Lingo, and welcome. You asked:

<<Now, my understanding of the above is this; say the value of the
annuity is $84000. I believe that only the first paragraph applies to my
situation since any other sales charge would be greater than the 8.5%
on the only purchase payment of $50000. IOW, I will pay only $4250 in
total sales charges.

What do you guys think?>>

Check with the issuer. Personally, I think the charge will be levied against the accumulated value of $84K, but I could be and often am dead wrong.

<<One other question is: will state and federal taxes be deducted at the time of redemption or will they be due by April 15 in the year following the redemption?>>

You are responsible for the proper withholding on the net gain at the time you redeem the contract. If you fail to make that estimated payment on time, then when you file your income taxes for the year you may discover you owe a penalty for under-withholding during the year. As an example, say your gain is $15K after you pay all redemption fees. You must withhold an estimated amount for income taxes on that sum and send it to the federal and state tax agencies at that time.

Regards..Pixy