Which statement best describes how deferred annuity earnings accumulate for tax purposes?

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Multiple Choice

Which statement best describes how deferred annuity earnings accumulate for tax purposes?

Explanation:
Deferred annuity earnings accumulate on a tax-deferred basis, meaning you don’t pay taxes on the earnings as they grow inside the contract. Taxes are due when you withdraw or start receiving payments, with the earnings portion taxed as ordinary income (and the return of any after-tax principal may be tax-free). This is why the correct description is a tax-deferred basis.

Deferred annuity earnings accumulate on a tax-deferred basis, meaning you don’t pay taxes on the earnings as they grow inside the contract. Taxes are due when you withdraw or start receiving payments, with the earnings portion taxed as ordinary income (and the return of any after-tax principal may be tax-free). This is why the correct description is a tax-deferred basis.

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