RAA RAA Tax Planning & Tax-Advantaged Strategies

Question 1

How are earnings inside a non-qualified deferred annuity taxed during the accumulation phase?

Accepted Answer

Tax-deferred until withdrawal

Answer

Earnings inside a non-qualified deferred annuity grow tax-deferred, meaning taxes are owed only upon withdrawal.

Question 2

Which IRS rule determines the taxable portion of non-qualified annuity withdrawals?

Accepted Answer

LIFO rule

Answer

The IRS applies the LIFO (last-in, first-out) rule to non-qualified annuity withdrawals, so earnings come out first and are fully taxable.

Question 3

A client receives annuity payments from a qualified annuity funded with pre-tax dollars. How are those payments taxed?

Accepted Answer

Payments are 100% taxable as ordinary income

Answer

Because the original contributions were made with pre-tax dollars, all distributions from a qualified annuity are fully taxable as ordinary income.

Question 4

What is the federal tax penalty for withdrawing annuity earnings before age 59½?

Accepted Answer

10%

Answer

The IRS imposes a 10% early withdrawal penalty on taxable annuity earnings taken before age 59½, in addition to ordinary income tax.

Question 5

Which annuity payout option provides the highest exclusion ratio for a non-qualified annuity?

Accepted Answer

Life only annuity with a long life expectancy

Answer

A life-only annuity spreads the return of cost basis evenly over the annuitant's life expectancy, producing the highest exclusion ratio when life expectancy is long.

(RAA) Registered Annuity Advisor Practice Test

(RAA) Registered Annuity Advisor Practice Test

RAA RAA Tax Planning & Tax-Advantaged Strategies