I Have A Qualified Variable Annuity. What Is That Exactly? 
Qualified funds are funds that get special tax treatment through some particular provisions of the IRS code . IRA 's , 401 -LRB- k -RRB- 's and 403 -LRB- b -RRB- 's are all examples of qualified plans . It sounds like you have been making these contributions directly -LRB- ie : not through payroll deduction -RRB- , so your Variable Annuity is most likely an IRA . If that is the case it could be either a traditional IRA or a Roth IRA . The tax ramifications of your withdrawal will be different depending which type of IRA it is . As always , you should consult with your tax adviser before making any decisions . If you have a traditional IRA you most likely took a deduction on your tax return each year for your $ 1,200 contribution . If that is the case , the full amount of any withdrawal will be taxable . In addition you will pay a 10 % early withdrawal penalty since you are not 59 1/2 . If you have a Roth IRA you did not get a deduction on your tax return for your contributions . With a Roth IRA you can withdraw the total of your contributions without taxes or penalty . Any earnings that you withdraw will be subject to taxes and a 10 % early withdrawal penalty . If it is a Roth IRA you may want to consider withdrawing your contributions only . You can then leave the earnings in the account until you are 59 1/2 at which time they can be withdrawn tax free . I would reinforce that some seemingly minor details can have a significant impact on the effect of the withdrawal on your taxes . Please talk with your tax adviser before finalizing your decision as to what to do . 