During the payout period, what is the tax treatment of distributions from a qualified variable annuity that has grown from $30,000 to $50,000?

In the context of a qualified variable annuity, the tax treatment during the payout period is based on how the distributions are characterized. For qualified accounts, all contributions are typically made with pre-tax dollars, meaning that taxes are deferred until funds are withdrawn.

When distributions begin, the entire amount that is withdrawn from the qualified variable annuity—whether it is the original investment or the earnings accrued during the time—will be taxed as ordinary income. This is because qualified annuities are designed to provide tax-deferred growth, and any distributions during the payout phase will be subject to taxation in accordance with ordinary income tax rates.

Therefore, if the value of the qualified variable annuity has grown from $30,000 to $50,000, withdrawing any amount during the payout period will result in the entire distribution being taxed as ordinary income, not just the portion exceeding the original investment or distributed tax-free.