About 15 years ago I inherited a little bit of money, and not knowing what to do with it I listened to my helpful Fidelity advisor and deposited it into a variable annuity. Then 10 years ago I moved it to Vanguard. I am now considering cashing it out to buy rental property with. I think I will be calling the IRS on Monday, but I wondered if anyone on here knew much about this.
It was bought with already taxed money. I know there is a 10% tax penalty, but I have read 2 different articles, one saying the 10% applies to profit but not the original cash basis, and one saying it applies to the whole withdrawal. Also, I have read there is income tax on the whole withdrawal, and another article that says the income tax is just on the profit. Also, there could be a penalty from Vanguard on withdrawing early - I'll have to call them on Monday, also.
I have also read the IRS website, but do not really inderstand it!
If the 10% penalty plus income tax is just on the profit, it may still be worth it. This is not a very big account, but it could cover a downpayment on 1 or 2 inexpensive rental houses. I don't know any accountants to call, so I am not positive what to do.
Heidi
