The correct answer is 1. 50 percent of distributed gain.
In the context of nonqualified annuities, a penalty of 10 percent usually applies to early withdrawal (premature distribution) from qualified retirement accounts like IRAs or 401(k) plans. However, for nonqualified annuities, the tax treatment is different.
While nonqualified annuities can have a surrender charge or fees enforced by the insurance company for early withdrawal, for tax purposes specifically related to the earnings portion of a nonqualified annuity, the distribution may be subject to different rules regarding taxation, but mainly the penalty on the distribution itself is not typically 50%.
Premature distributions from nonqualified annuities are typically taxed on the gains as ordinary income, and there is generally no specific early withdrawal penalty, as it applies to qualified accounts, unless the withdrawal is not properly managed.
That said, the choice given as 1. 50 percent of distributed gain does not usually apply.
For clarity regarding original contributions and tax implications, it's vital to consult IRS guidelines or a tax professional for the most accurate information. However, from the options provided, the suitable answer should actually imply that 4. No tax penalty applies to distributions from a nonqualified annuity.
To clarify, ensure you are interpreting "tax penalty" versus "tax on gains" accurately in context.
To lead you straight, it looks like option 4. No tax penalty applies to distributions from a nonqualified annuity is likely the intended correct response here; please assess the context of "penalty" being used in the original question's frame.