Question 4019 of 287 · Texas Life, Accident and Health Agent Exam

Under a non-MEC life policy, a withdrawal up to the owner's basis is

Exactly one answer is correct.

Afully taxable as ordinary income
Bsubject to a 10 percent penalty at all ages
Ctreated as a tax free return of premium
Dtaxed as a capital gain

Show solution

Correct answer to question 4019

C: treated as a tax free return of premium

Explanation

Non-MEC policies use first in, first out treatment, so withdrawals up to the premiums paid are tax free. Only gains above basis are taxable.