In a deferred annuity, earnings accumulate on what basis?

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Multiple Choice

In a deferred annuity, earnings accumulate on what basis?

Explanation:
Earnings inside a deferred annuity grow without current taxation. This means you don’t pay taxes on interest or gains as they accumulate; taxes are postponed until you withdraw the funds. When you take money out, the portion that represents earnings is taxed as ordinary income, while the portion that represents your original principal may be returned tax-free depending on how the contract was funded. This is why the earnings are described as growing on a tax-deferred basis.

Earnings inside a deferred annuity grow without current taxation. This means you don’t pay taxes on interest or gains as they accumulate; taxes are postponed until you withdraw the funds. When you take money out, the portion that represents earnings is taxed as ordinary income, while the portion that represents your original principal may be returned tax-free depending on how the contract was funded. This is why the earnings are described as growing on a tax-deferred basis.

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