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We have been having a discussion over on the Insurance board. When I looked at the SEC / NASD site they stated

" However, variable annuity earnings are subject to ordinary income taxes, not capital gains rates (which may be lower) when they are paid out."

So here is my question.

If I start a variable annuity at age 35 and contribute every year until I am 65. At age 65 I begin to withdraw money. The amount that I put in originally will not be taxed. The increase in money will be taxed as ordinary income.

For example. I put in $10,000 every year for 30 years. Cost basis - $300,000. The first $300,000 will be tax free (return of my payments) all payments will be taxed as ordinary income. Is that correct?

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