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Is there any tax penalty associated with receiving income from an immediate annuity purchased with non-qualified funds prior to the age of 59 1/2?


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The BIDaWIZ Team's Answer:

The short answer is yes as referenced in the Internal Revenue Code Section 72(q)(2)(I). Pre-59½ distributions from a non-qualified immediate annuity contract are excluded from an early withdrawal penalty. IRC Section 72(u)(4)(C) states that an "immediate annuity" means an annuity "which provides for a series of substantially equal periodic payments during the annuity period." This means that non-qualified immediate annuities should qualify for the 10 percent exception rule.

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