Which statement describes the accumulation phase of an annuity?

Which statement describes the accumulation phase of an annuity?

• A. The payout phase where distributions begin
• B. The period during which the contract owner pays in
• C. The phase when a beneficiary receives payments during death
• D. The time to withdraw all funds tax-free

Answer: (B)

The accumulation phase is the funding period of an annuity when you make premium payments and the account value grows as those funds are invested. This phase is typically tax-deferred inside the contract, until you start taking distributions. The statement that best describes this phase is that it is the period during which the contract owner pays in. Once you begin receiving payments, you move into the payout phase. The idea of payments to a beneficiary after death describes a death benefit during the payout/redistribution period, not the accumulation phase. And the notion of withdrawing all funds tax-free isn’t accurate for annuities, since earnings are taxed as ordinary income when withdrawals are taken (with any tax-free return limited to the return of your principal).

The accumulation phase is the funding period of an annuity when you make premium payments and the account value grows as those funds are invested. This phase is typically tax-deferred inside the contract, until you start taking distributions. The statement that best describes this phase is that it is the period during which the contract owner pays in. Once you begin receiving payments, you move into the payout phase. The idea of payments to a beneficiary after death describes a death benefit during the payout/redistribution period, not the accumulation phase. And the notion of withdrawing all funds tax-free isn’t accurate for annuities, since earnings are taxed as ordinary income when withdrawals are taken (with any tax-free return limited to the return of your principal).