California Insurance License Exam Practice Test Practice Question
Which tax advantage is available for individual nonqualified annuities?
Correct Answer: D
Rationale: Individual nonqualified annuities allow for tax-deferred accumulation of earnings, meaning that the investment grows without being taxed until withdrawals are made. This feature encourages long-term savings.
Option A is incorrect; distributions from nonqualified annuities are partially taxable, not fully taxable, as only the earnings are taxed upon withdrawal.
Option B is not applicable; contributions to nonqualified annuities are made with after-tax dollars and are not deductible.
Option C is misleading; while there may be some exceptions, early withdrawals typically incur penalties unless specific conditions are met.
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