Income Beginner: Introduction to Annuities

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1.
There are no tax consequences associated with surrendering an annuity.
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False. Federal and state income taxes on all earnings will be due and payable in full in the year of the surrender, in addition to a 10 percent penalty tax if surrendered before age 59.
2.
With a flexible premium annuity, an annuitant should never miss a premium payment, as this will likely void his or her contract.
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False. With a flexible premium annuity, generally, a scheduled payment can be missed without fear of losing any of the preceding payments into the plan.
3.
Annuities can provide tax deferral after annuitization.
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True. Only the annuity payments are taxable, not the account value.
4.
An annuitant is _______.
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A person on whose life an annuity is based.
5.
Fixed annuity premiums must be placed into the insurance companys _______.
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General account. Fixed annuity premiums are placed into the insurance companys general account. This money is then reinvested very conservatively.
6.
An annuity should never be used for a childs future education expenses, because the child will be less than age 59 and thus subject to the 10 percent penalty tax.
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False. If the annuitant or contract owner is a parent or grandparent who will be older than age 59 at the time the education funds are needed, then an annuity can be a viable option.
7.
If an annuitant receives a guaranteed monthly check for life, with payments ceasing at death, which payout option has he or she selected?
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A life annuity.