Group Life & AnnuitiesQuestion 118 of 315
During the accumulation phase of a non-qualified deferred annuity, how is the interest credited inside the contract treated for federal income tax purposes?
a.Taxed each year as ordinary income whether withdrawn or not
b.Tax-deferred; not taxed until withdrawn
c.Taxed each year at long-term capital gain rates
d.Permanently exempt from federal income tax
Explanation
An annuity's accumulation phase enjoys tax deferral: interest, dividends, and gains credited to the contract are not taxed each year. They are taxed only when withdrawn, generally as ordinary income on the gain portion.
Law Reference: 26 U.S.C. §72Practice all 315 questions free — no signup required.
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