Group Life & AnnuitiesQuestion 702 of 716
A nonqualified annuity is funded with after-tax dollars, so at payout:
a.Only the earnings portion is taxable; the return of basis is tax-free
b.The entire payment is taxable
c.Nothing is ever taxable
d.The full payment is taxed as a gift to the annuitant in the calendar year that it is received
Explanation
Because the principal was already taxed, only the earnings are taxed when a nonqualified annuity pays out, with the exclusion ratio spreading the tax-free return of basis. It is not fully taxable or gift-taxed.
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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:
- In a QUALIFIED annuity funded entirely with pre-tax dollars, distributions are:
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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)