New York State Life Insurance Exam Questions Practice Question
Which of the following CORRECTLY identifies the favorable income tax treatment afforded to annuities?
Correct Answer: C
Rationale: Annuities offer favorable tax treatment where gains are taxed only upon distribution, allowing the investment to grow tax-deferred until withdrawal.
Option A is incorrect; annual earnings from annuities are not tax-deductible. Option B misrepresents the tax status, as earnings are not exempt but rather deferred until distribution. Option D is misleading; while distributions are taxed at the owner's rate, only the gains are taxed upon withdrawal, not the total distribution. Thus, option C accurately reflects the tax treatment of annuities, emphasizing the benefit of tax deferral on earnings until they are accessed.
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