Which of the following statements regarding the tax treatment of distributions from an individually owned, nonqualified, deferred annuity is NOT correct?
A) An owner of a deferred annuity who annuitizes the contract will receive the basis tax-free.
B) If the contract owner makes a partial surrender, the amount withdrawn is treated first as a taxable distribution of gain (LIFO).
C) If the contract owner is younger than age 59½, a partial surrender may be subject to a 10% penalty in addition to ordinary income taxation.
D) If the distribution is the result of the annuity contract owner's death, the cash value payable to the beneficiary is income tax-free.
Ans: D) If the distribution is the result of the annuity contract owner's death, the cash value payable to the beneficiary is income tax-free.
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