Question

An annuitant is deferring their income payments until a later date. What are the tax considerations during the accumulation period?

Answer 1

During the accumulation period of an annuity, contributions are usually tax-deferred. The income payments received later on will be subject to income taxes at that time.

Step-by-step explanation:

During the accumulation period of an annuity, there are certain tax considerations to keep in mind. First, any contributions made to the annuity are typically tax-deferred, meaning they are not subject to income taxes in the year they are made. This allows the annuitant to potentially take advantage of tax-free growth on their investment. However, it's important to note that once the annuitant starts receiving income payments, those payments will be subject to income taxes at that time. The tax rate applied to the payments will depend on the annuitant's income tax bracket during the distribution period.