Common use of Taxation of Distributions Clause in Contracts

Taxation of Distributions. Except to the extent attributable to nondeductible XXX contributions, distributions from your XXX (that are not rolled over) are taxed as ordinary income and are not eligible for capital gains treatment. If you make nondeductible XXX contributions, a portion of your distributions from the XXX will be nontaxable (as return of your nondeductible contributions) and a portion will be taxable (as a return of deductible contributions, if any, and account earnings). The following formula is used to determine the nontaxable portion of your distribution for a taxable year. Aggregate nondeductible contributions ÷ Year-end account balance x Distribution amount = Nontaxable portion of the distribution To figure the year-end total XXX balance, you treat all of your IRAs as a single XXX. This includes all Traditional IRAs, as well as SEP and Rollover IRAs. You must also add back the distributions taken during the year in calculating your year-end total XXX balance.