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Portfolios 401: Deferred, Fixed, and Variable Annuities

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1.
You must pay taxes on investment earnings that build in your annuity account.
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False. Your earnings in a deferred annuity build on a tax-deferred basis. You pay no tax on them until you receive them as a payout.
2.
An annuity's exclusion ratio keeps your contributions from being taxed twice.
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True. The exclusion ratio determines what part of your annual payments is made up of earnings (which are taxed) and what part is your basis (the money you contributed to your annuity, which was already taxed).
3.
Equity-indexed annuities typically promise what kind of return?
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A guaranteed rate of return. A guaranteed rate of return is promised, and there is usually some participation in stock market returns as well.
4.
What is taxed during the accumulation period of a non-qualified annuity?
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Annuity contributions. The income you contribute to a non-qualified annuity is subject to taxation during the accumulation period. A non-qualified annuity is one that is outside of a retirement plan.
5.
When you annuitize, you are paying into your annuity account.
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False. When you annuitize, you begin receiving income from your annuity.
6.
Which of the following is a benefit of variable annuities?
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Better potential return. Variable annuities feature neither guaranteed returns nor fixed payments.
7.
When you invest in a variable annuity, your funds go into the insurance company's general account.
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False. In contrast to a fixed annuity, in which your funds are limited to the general account of the insurance company, variable annuities make available separate account investments in the stock, bond, and/or money markets.
8.
The better your investment choices pay off, the more your fixed annuity will pay.
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False. Fixed annuities earn a fixed income rate and pay a fixed income, regardless of the performance of the underlying investments. You do not make investment choices in a fixed annuitypremiums go into the general account of the company.