Washington Life Producer Practice Exam

Kathy's annuity is currently experiencing tax-deferred growth until she retires. Which phase is this annuity in?

1. Distribution period

2. Accumulation period

3. Deferral period

4. Maturity phase

The correct answer is: Accumulation period

The correct phase in which Kathy's annuity is currently experiencing tax-deferred growth is the accumulation period. During this phase, the annuity allows the investment to grow without immediate tax liabilities. This means that any earnings gained from the investments made within the annuity are not taxed until funds are withdrawn. The accumulation period is characterized by contributions to the annuity and the growth of those funds over time. This phase usually lasts until the owner decides to start withdrawing funds, which could occur at retirement or another designated time. The growth is thus tax-deferred, motivating many individuals to invest in annuities as part of their retirement planning strategies, as they can accumulate savings without triggering tax consequences until they start withdrawing. The other phases mentioned do not apply to this scenario. The distribution period begins when the annuity starts making payout withdrawals, while the maturity phase marks the completion of the accumulation phase before the payouts begin. The deferral period is often considered synonymous with the accumulation phase, but in this context, it is more specific to delaying taxes rather than the general growth phase itself, making "accumulation period" the more accurate choice.