Thank you for explaining. There was some confusion which had caused concern as I read and misunderstood some IRS publications.
I had basically been concerned about any amount that might be taxable which doesn't represent the portion of the investment in the contract.
The issue of 'taxable earnings' that the IRS publications mention led to some confusion where you have the money invested in the annuity with after tax dollars. I never received a payment under the Rider, but if I would have, a portion of any payment I had received would have been taxable. However, with the entire amount of the contract withdrawn, there was some difficulty piecing together what portion is treated as principal and what is taxable for tax purposes. I was trying to measure paying out more in tax on payments spread out over a period of a lifetime than I would pay in tax by taking one withdrawal. That amount of tax which they would not receive from a surrender is what I had a concern about that the IRS would want to access in a possible penalty/tax.
Then there was a cause for alarm that had to do with an issue of a surrender charge where you cash in the annuity before you start to receive annuity payments which drew some alarm. Of course, the surrender charge is a charge imposed by the insurer, not the IRS. That's why I didn't mention anything about it for that reason and because I was not charged by the insurance company during the time of the withdrawal.
So the entire withdrawal from the qualified annuity contract was used for retirement only and not anything else. So according to the program, there was tax paid on the income. I just didn't allow enough withholding last year for that distribution.
