Series 7 practice questioneasyPackaged Products — Variable Annuities
During the accumulation phase of a variable annuity, earnings grow:
- ATax-free permanently
- BSubject to ordinary income tax each year
- CSubject to annual capital gains tax
- DTax-deferred until withdrawal✓ Correct answer
Explanation
Why D — Tax-deferred until withdrawal
Variable annuities provide tax-deferred growth during the accumulation phase, meaning no taxes are owed on investment gains, dividends, or interest until withdrawals are made. When distributions are taken, earnings are taxed as ordinary income (not capital gains), and withdrawals before age 59 1/2 are generally subject to a 10% early withdrawal penalty.
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