How is the monthly income from a fixed annuity taxed if the original contribution was $60,000 and the annuity value is now $100,000?

The monthly income from a fixed annuity is considered to be fully taxable as ordinary income because the contributions to the annuity were made with pre-tax dollars and have deferred tax treatment until distributions are made. When the annuity is cashed in or when income payments begin, the entire amount received is subject to income tax, except for the portion that represents a return of the original investment.

In this scenario, the individual made a contribution of $60,000 and now has an annuity value of $100,000. Since this increase reflects earnings that have accrued during the time the funds were invested in the annuity, all of the distributions made to the owner, including any interest earned, are taxed as ordinary income. Thus, the entirety of the income received from the annuity payments is included in the individual's taxable income.

Other options suggest different treatment of taxation, such as blending taxable and tax-free percentages or deferring tax until withdrawals, which do not accurately reflect the nature of fixed annuity income taxation in this context.