Derek Brooks invested $30,000 in a variable annuity 12 years ago when he was 43 years old.
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Question:
Derek Brooks invested $30,000 in a variable annuity 12 years ago when he was 43 years old. The annuity grew in value to $40,000, and this year Derek withdrew $15,000. What are the tax consequences of the withdrawal?
A. Derek will report $10,000 of ordinary income.
B. Derek will report $15,000 of ordinary income.
C. Derek will report $10,000 of ordinary income and pay a $1,000 penalty tax.
D. Derek will report $10,000 of ordinary income and pay a $1,500 penalty tax.
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