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Portfolios 401: Deferred, Fixed, and Variable Annuities

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1.
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.
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.
The period during which you receive payments from an annuity contract is called the _______.
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Payout period. In the payout period you surrender the value of the annuity contract in exchange for guaranteed monthly payments of benefits.
4.
With annuities, mortality risk benefits _______.
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Both. Annuitants trade the risk of dying before collecting full value for higher payments and possibly collecting more than full value if they live long.
5.
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.
6.
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.
7.
How do equity-indexed annuities let you share in equity market returns?
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They offer a percentage of the return of a stock market index. This is an extra perk of these annuities.
8.
An annuity that allows you to shelter some of your current income from taxes is called a _______.
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Qualified annuity. A qualified annuity, based on the assets of a qualified retirement plan such as a 401(k) or 403(b), allows you to shelter some of your current income from taxes.