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Non-Qualified Annuity Taxation

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Question 1 of 18

1. Question

During the accumulation phase, the money that was put into the non-qualified annuity grows tax-deferred. What does that mean?

The annuity owner must pay income tax on any interest or investment earnings that accumulate.

The annuity owner must pay estate tax (but not income tax) on any interest or investment earnings that accumulate.

The annuity owner does NOT have to pay income tax on any interest or investment earnings that accumulate.

The annuity owner must pay property tax (but not income tax) on any interest or investment earnings that accumulate.

Correct

Incorrect
Question 2 of 18

2. Question

Which of the following is FALSE about money withdrawn from a non-qualified annuity during the accumulation phase?

The money received is subject to last-in-first-out (LIFO) tax rules.

The last money put into the annuity (the earnings) will be taxed first.

The money that was put in first (the principal) will be taxed last.

The money will not be taxed.

Correct

Incorrect
Question 3 of 18

3. Question

Which of the following is FALSE about money received from a non-qualified annuity by the annuitant during the annuity phase?

A portion of the money received will be considered a return of principal (the money that was put in to purchase the annuity).

A portion of the money received will be considered profit (the interest or investment earnings).

The principal portion that is received will be taxable.

The profit portion that is received will be taxable.

Correct

Incorrect
Question 4 of 18

4. Question

Based on IRS rules, the insurance company calculates how much of the non-qualified annuity income is considered principal (NOT taxable) and how much is considered profit (taxable). What is this calculation called?

The exclusion ratio

The deductible ratio

The distribution ration

The non-qualified ratio

Correct

Incorrect
Question 5 of 18

5. Question

Upon death of the annuitant, which of the following statements is FALSE about how non-qualified annuities are taxed?

The deferred earnings will be taxable as ordinary income if the death benefit is paid to a non-spousal beneficiary.

Most carriers will allow the annuitant’s spouse to continue the annuity upon the annuitant’s death.

An annuity is included in the annuitant’s estate for estate tax purposes.

Like life insurance, annuity death benefits are never taxed.

Correct

Incorrect
Question 6 of 18

6. Question

A qualified annuity is one that is purchased with what?

Pre-tax dollars

After-tax dollars

A life insurance death benefit

Money that was inherited from a relative

Correct

Incorrect
Question 7 of 18

7. Question

If a nonhuman entity (corporation or trust) is the annuity owner, how is the growth (interest or investment earnings) taxed?

It is taxed only when the money is received.

It is taxable income each year.

The money grows tax deferred.

It is never taxed.

Correct

Incorrect
Question 8 of 18

8. Question

A qualified annuity is one that is purchased with what?

Pre-tax dollars

After-tax dollars

A life insurance death benefit

Money that was inherited from a relative

Correct

Incorrect
Question 9 of 18

9. Question

The Internal Revenue Code allows the owner of an annuity contract or life insurance policy to exchange one product for another without being taxed. What is this called?

Section 125 interchange

Section 457 transfer

Section 1035 exchange

Section 403(b) product change

Correct

Incorrect
Question 10 of 18

10. Question

A non-qualified annuity is one that is purchased with what?

Pre-tax dollars

After-tax dollars

A life insurance death benefit

Money that was inherited from a relative

Correct

Incorrect
Question 11 of 18

11. Question

During the accumulation phase, the money that was put into the non-qualified annuity grows tax-deferred. What does that mean?

The annuity owner must pay income tax on any interest or investment earnings that accumulate.

The annuity owner must pay estate tax (but not income tax) on any interest or investment earnings that accumulate.

The annuity owner does NOT have to pay income tax on any interest or investment earnings that accumulate.

The annuity owner must pay property tax (but not income tax) on any interest or investment earnings that accumulate.

Correct

Incorrect
Question 12 of 18

12. Question

Which of the following is FALSE about money withdrawn from a non-qualified annuity during the accumulation phase?

The money received is subject to last-in-first-out (LIFO) tax rules.

The last money put into the annuity (the earnings) will be taxed first.

The money that was put in first (the principal) will be taxed last.

The money will not be taxed.

Correct

Incorrect
Question 13 of 18

13. Question

Which of the following is FALSE about money received from a non-qualified annuity by the annuitant during the annuity phase?

A portion of the money received will be considered a return of principal (the money that was put in to purchase the annuity).

A portion of the money received will be considered profit (the interest or investment earnings).

The principal portion that is received will be taxable.

The profit portion that is received will be taxable.

Correct

Incorrect
Question 14 of 18

14. Question

Based on IRS rules, the insurance company calculates how much of the non-qualified annuity income is considered principal (NOT taxable) and how much is considered profit (taxable). What is this calculation called?

The exclusion ratio

The deductible ratio

The distribution ration

The non-qualified ratio

Correct

Incorrect
Question 15 of 18

15. Question

Upon death of the annuitant, which of the following statements is FALSE about how non-qualified annuities are taxed?

The deferred earnings will be taxable as ordinary income if the death benefit is paid to a non-spousal beneficiary.

Most carriers will allow the annuitant’s spouse to continue the annuity upon the annuitant’s death.

An annuity is included in the annuitant’s estate for estate tax purposes.

Like life insurance, annuity death benefits are never taxed.

Correct

Incorrect
Question 16 of 18

16. Question

If a nonhuman entity (corporation or trust) is the annuity owner, how is the growth (interest or investment earnings) taxed?

It is taxed only when the money is received.

It is taxable income each year.

The money grows tax deferred.

It is never taxed.

Correct

Incorrect
Question 17 of 18

17. Question

The Internal Revenue Code allows the owner of an annuity contract or life insurance policy to exchange one product for another without being taxed. What is this called?

Section 125 interchange

Section 457 transfer

Section 1035 exchange

Section 403(b) product change

Correct

Incorrect
Question 18 of 18

18. Question

A non-qualified annuity is one that is purchased with what?

Pre-tax dollars

After-tax dollars

A life insurance death benefit

Money that was inherited from a relative

Correct

Incorrect

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