Employer-sponsored retirement plans, generally referred to in the aggregate as qualified employee plans, constitute one of the important “legs” of the retirement stool that individuals look to for their income in retirement. The other two legs of that stool are personal savings—through investment in securities, deferred annuities, savings accounts, etc.—and Social Security retirement benefits. This course will examine qualified employee plans, their limits and their tax treatment along with a discussion of annuities and their taxation.

Annuities offer their owners the opportunity to systematically liquidate a principal sum or save money for a long-term objective.  For many annuity buyers, that objective is to provide income during retirement.  As we will see in our examination of annuities, they provide owners with a number of advantages; principal among them is their tax treatment.  By purchasing and investing in an annuity, a contract owner can avoid current income taxation of earnings.  By avoiding current income taxation, earnings that might have been used to pay current income taxes can be invested to produce additional income.  

Annuities’ tax advantages aren’t limited to tax deferral, however; annuities offer additional tax advantages.  For example, an investor purchasing a variable annuity can change his or her investment allocation in the contract’s variable subaccounts whenever desired.  Typically, such changes are made in order to implement new objectives or to modify the level of risk assumed.  From a tax point of view, the important issue is that the contract owner can make these changes without being required to recognize income as would be required if, for example, the investor liquidated his or her stock portfolio in order to purchase bonds.  In addition to these tax benefits, a contract owner that elects to annuitize his annuity contract, i.e. to take a periodic income from it, will find that part of each periodic income payment may be tax free as a return of his or her investment in the annuity contract.

Course Publication Date: March 28, 2020

This course is available with NO ADDITIONAL FEE if you have an active self study membership or all access membership or can be purchased for $90.00!

Author:Paul Winn
Course No:TAX-ANNU-3190
Recommended CPE:9.00
Delivery Method:QAS Self Study
Level of Knowledge:Overview
Advanced Preparation:None
Recommended Field of Study:Taxes
Learning Objectives
  • Describe the profile of a typical annuity purchaser.
  • Identify the principal reasons why individuals purchase annuities.
  • Explain the traditional concept of an annuity.
  • Identify the parties to an annuity contract and discuss their roles.
  • Identify the methods by which annuity premium payments are made.
  • List the expenses generally associated with annuity contracts.
  • Explain when payout begins under deferred and immediate annuities.
  • Discuss how cash values are accumulated.
  • Describe annuity death benefits.
  • Discuss the various annuitization methods available to settle annuity proceeds.
  • Discuss how cash values are determined in a variable annuity.
  • Explain how the various variable annuity cash value management tools help contract owners manage the volatility of variable annuity cash values allocated to variable subaccounts.
  • Identify the various guaranteed living benefits available on variable annuity contracts.
  • Describe how variable annuitization may enable a contract owner to overcome the erosion of annuity income and keep pace with inflation.
  • Discuss the features and benefits of variable annuities.
  • List the factors that should be evaluated in determining the suitability of a variable annuity for a customer.
  • Discuss how the current crediting interest rate is determined in declared-rate annuities.
  • Distinguish bonus and multi-year guarantee annuities from other types of annuities.
  • Describe the factors that affect the effective crediting interest rate in indexed annuities.
  • Explain how index call options are used in the operation of indexed annuities.
  • Identify the various interest crediting methods used in indexed annuities.
  • Discuss the income tax treatment of nonqualified annuity premiums and cash values.
  • Explain how nonqualified annuity surrenders and withdrawals are taxed.
  • Describe the exclusion ratio and its impact on the tax-free recovery of basis from periodic annuity payments made under nonqualified annuity contracts.
  • Explain the income and estate tax treatment of death benefits received under a nonqualified annuity contract.
  • Define suitability in the context of an annuity transaction.
  • Describe the client information required to perform an appropriate annuity suitability analysis.
  • List the types of information that must be disclosed when making an annuity recommendation.
  • Identify those situations in which an insurance producer has no suitability obligation to the client.
  • Describe the suitability recordkeeping obligations to which insurance producers are subject in connection with recommended annuity transactions.

CPE Depot Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website:

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