During the ACCUMULATION phase of a deferred annuity, which of the following best describes the contract's status?
Explanation
A deferred annuity has two distinct phases: ACCUMULATION (or 'pay-in' phase) — premiums earn interest tax-deferred under IRC §72, with no scheduled distributions; and ANNUITIZATION (or 'pay-out' phase) — the contract converts the accumulated value into a stream of income payments. During accumulation the owner may surrender the contract for cash (less any applicable surrender charges and possible 10% IRS penalty if under 59½). Option B describes the annuitization (payout) phase. Option C invents a non-existent payout rule. Option D is wrong — annuity inside-buildup is tax-DEFERRED, not currently taxed, which is the very purpose of the annuity tax shelter.
Law Reference: IRC §72 and Cal. Ins. Code §10168 et seq.Practice all 315 questions free — no signup required.
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