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Question
Relevant to the Series 6, Series 7, Series 65, and Series 66.
Bill is in a serious pinch and would like to take a loan against the value of his annuity. He is still in the accumulation period. Which of the following is true?
A. It is strictly prohibited by the IRS.
B. Many insurance companies allow it, but he will be subject to a 10% early withdrawal penalty.
C. Many insurance companies allow it, but it will be considered a distribution and therefore is taxable. A penalty may also apply.
D. Many insurance companies, allow it and there will be no tax or penalty implications provided it is repaid during the accumulation period.
Answer: C. Unlike a loan against a life insurance policy, a loan against an annuity is considered a distribution and will therefore be taxable. Interest charges are generally handled by reducing the number of accumulation units and if the owner pays back the loan, the number of units will increase. In cases where the customer is under 59 1/2, a 10% federal tax penalty may also apply.
C
Answer D.
D
C. Many insurance companies allow it, but it will be considered a distribution and therefore is taxable. A penalty may also apply.
B
D Annuities allow you to borrow money during the accumulation phase
D As long as you pay it back during accumulation
C
C
C
C
D