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Annuities and Retirement Planning Flashcards

6 cards from real CLU practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

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  1. What is the penalty for withdrawals from a tax-deferred annuity before age 59½, in addition to ordinary income tax?

    Answer: 10% federal early withdrawal penalty

    Like other tax-deferred retirement vehicles, nonqualified annuity withdrawals of gain before age 59½ are subject to a 10% federal penalty tax under IRC Section 72(q).

  2. In a variable annuity, how is the account value determined during the accumulation phase?

    Answer: By the performance of the underlying investment subaccounts chosen by the owner

    Variable annuity values fluctuate based on the investment performance of the owner-selected subaccounts, which function similarly to mutual funds, bearing all market risk.

  3. What is a 'joint and survivor' annuity payout option?

    Answer: Payments continue over the lifetimes of two named individuals

    A joint and survivor annuity provides income for as long as either of two annuitants is alive, with payments often reducing (e.g., 50% or 66⅔%) after the first annuitant dies.

  4. What is the required minimum distribution (RMD) starting age for qualified annuities and IRAs under current federal law (SECURE 2.0)?

    Answer: Age 73

    SECURE 2.0 Act raised the RMD beginning age to 73 for individuals who reach age 72 after December 31, 2022, with a further increase to 75 scheduled for 2033.

  5. Which type of annuity begins income payments immediately — typically within one month of a single lump-sum premium payment?

    Answer: Single premium immediate annuity (SPIA)

    A single premium immediate annuity (SPIA) converts a lump-sum premium into a stream of income payments beginning almost immediately, making it ideal for retirees needing current income.

  6. What is the '1035 exchange' and what tax benefit does it provide to annuity owners?

    Answer: A tax-free transfer of a life insurance policy to another life policy or to an annuity

    IRC Section 1035 permits a tax-free exchange of a life insurance policy for another life policy, endowment, or annuity — or one annuity for another — without triggering income tax on any accumulated gain.