Annuities
Why might an annuity be used to accumulate funds for education?
Answer and explanation
Answer: B. The attraction is deferral: value compounds inside the contract without current taxation until it is withdrawn. Withdrawals are not automatically tax free for education, purchase payments to a non-qualified annuity are not deductible, and surrender charges apply according to the contract.Source: PSI — New York DFS Insurance Candidate Information Bulletin — Outline, education funds
More annuities questions
- What is the tax feature that makes annuities attractive for retirement saving?
- What risk does a life annuity protect the annuitant against?
- Where are the assets backing a fixed annuity held?
- Which payout option produces the largest periodic income for a given sum, and why?
- Who bears the investment risk in a variable annuity?
- Why do deferred annuities commonly carry surrender charges in the early years?
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