<human>: Back story - my wife has an annuity from money she got due to a car accident settlement. Her father at the time had her put it into an indexed annuity, 100,000 dollars. She was young and trusted his judgement, but fast forward to now, we would definitely prefer that money be in a Vanguard fund (or a few funds). When I say fund, I mean in a Vanguard account invested in some of their many CHEAP index funds. We are both 26. In the amount of time between now and 59.5, that money will grow much more with Vanguard. The annuity growth is capped and it sucks, I don't think any more explanation on that is necessary. 

Anyway, here's what I don't understand: The taxes. If we withdraw early (before 59.5) I understand the annuity company will first hit us with a surrender charge, which is about 11 grand. It will bring us down to about 115k. At that point, do we only pay tax on the GAIN, which would be 15k (initial investment put in was 100k)?? Or do we pay tax on the whole amount, 115k? If so, is it a 10 percent penalty PLUS income tax? 

If I left out any needed details let me know and I will fill you in! We're young and we still have a lot of time left for growth.

Can you provide a brief overview of the text?
<bot>: want to withdraw from indexed annuity. after surrender penalty, do I pay tax on just the gains? if not, do I pay income tax + 10% penalty on everything? I don't understand the tax implications