L&HPennsylvaniamedium
A 55-year-old PA resident takes a non-qualified distribution from a deferred annuity. Which statement most accurately describes the tax exposure?
A10% federal penalty plus a 5% PA additional surtax
BNo federal early-withdrawal penalty applies to non-qualified annuity distributions, regardless of the owner's age at the time of withdrawal
C25% federal penalty for non-qualified annuities
10% federal early-withdrawal penalty on the taxable gain; PA imposes no additional state surtax
Why this is the answer
Under IRC § 72(q) a distribution from a non-qualified annuity before age 59-1/2 is subject to a 10% federal penalty on the taxable portion (gain). Pennsylvania does not impose any state-level early-distribution penalty on annuity withdrawals beyond ordinary income treatment, distinguishing PA from some neighboring jurisdictions.
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