Group Life & AnnuitiesQuestion 701 of 716
In a QUALIFIED annuity funded entirely with pre-tax dollars, distributions are:
a.Fully taxable as ordinary income, because there is no after-tax cost basis
b.Entirely tax-free, because the contributions to the plan were originally made with after-tax dollars
c.Partly excluded from tax by the exclusion ratio
d.Taxed as long-term capital gains
Explanation
Since a fully pre-tax qualified annuity has no after-tax basis, the entire distribution is taxable as ordinary income. The exclusion ratio applies only when there is after-tax basis, as in a nonqualified annuity.
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Related questions on this topic
- A withdrawal of taxable gain from a nonqualified annuity before age 59 1/2 is generally subject to:
- When determining the suitability of an annuity recommendation, a producer should consider the client's:
- Recommending a deferred annuity with a long surrender period to an elderly client who needs access to funds soon is a suitability concern because:
- A nonqualified annuity is funded with after-tax dollars, so at payout:
- Choosing a 'life with 10-year period certain' payout means the annuitant receives income for life, but if they die early, payments continue to a beneficiary:
- In a fixed indexed annuity, a participation rate of 80% means the contract credits:
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PrepPass team · Verified against California Life & Health Insurance License Exam · How we review
Reviewed by John Zihao Zhang — California-Licensed Life Insurance Agent (CA Dept. of Insurance License #4396095 — verify)