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How are non-qualified annuity payouts taxed? My reading of an article at suggests that everything is taxed like ordinary income, assuming the recipient is over 59 1/2. Is this true? Any exception for the principal originally put in?

I believe that "non-qualified annuity" means that you are using "after-tax dollars" to invest in the annuity. If this is correct, then I also believe during distrubtion you are taxed, at ordinary rates, on the income earned and not taxed on the principle.

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