Practice Quiz

FINRA Series 6

Category - Series 6

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Which of the following statements regarding the tax treatment of variable annuity contracts is false?
  1. Earnings on the contributions to a variable annuity are not taxed during the accumulation phase.
  2. If an investor opts to make a random, partial, lump sum withdrawal, the entire amount of the withdrawal will be taxed as ordinary income to the investor.
  3. If an investor opts to receive regular payments of a specific amount-i.e., annuities-part of each payment will be considered repayment of principal and will not be subject to taxation.
  4. An investor who makes a withdrawal prior to having reached the age of 62 ½ will be subject to a 10% penalty on the withdrawal.
Explanation
Answer: D - The false statement is that an investor who makes a withdrawal prior to having reached the age of 62 ½ will be subject to a 10% penalty. As long as the investor has reached the age of 59 ½, no penalty will be assessed.
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