Income Intermediate: Deferred Annuities

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1.
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.
2.
An annuity that makes payments at a guaranteed level is a(n) _______.
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Fixed annuity. A fixed annuity is an annuity that makes payments at a guaranteed level.
3.
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).
4.
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.
5.
A non-qualified annuity can be a good way to avoid all of the following except _______.
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Early withdrawal penalties. Unlike the other choices, early withdrawal penalties can't be avoided with deferred annuities (except, of course, by not withdrawing your funds prematurely!).