Annuities (Course Id 174)

Taxes - Taxes for Course Id 174

Annuities examines the annuity concept and explains what an annuity is and how it works. The mechanics of the accumulation and payout phases of an annuity are examined and sample calculations are discussed. An explanation of settlement options and their appropriate uses are covered. 

The course also discusses annuity taxation. Federal income tax treatment of premature withdrawals, lump-sum distributions and periodic payments is considered. Annuities discusses the different annuity contracts available and compares them with respect to client suitability, with particular emphasis on variable and fixed annuities. Both product types are discussed in terms of single vs. periodic premium, immediate vs. deferred, qualified vs. non-qualified, and settlement options. 

NASBA QAS - NASBA Registry - IRS Enrolled Agents - 174

Annuity Taxation CPE Course Learning Objectives

1. Describe a typical annuity buyer and the principal reasons individuals buy annuity contracts
2. List the characteristics of annuities and the benefits of tax deferral
3. Explain how variable annuities work
4. Identify the cash value management tools available to a variable annuity contract owner
5. List the factors to be considered in determining variable annuity suitability
6. Calculate interest to be credited under various fixed annuity contracts
7. Explain the operation of indexed annuities
8. Describe how annuities are taxed

Chapter 1
Introduction to Annuities and Annuity Buyers

• Describe the profile of a typical annuity purchaser;
  
• Identify the principal reasons why individuals purchase annuities;
  
• Explain the traditional concept of an annuity; and
  
• Identify the parties to an annuity contract and discuss their roles.

Chapter 2
Characteristics of Annuities

• 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; and
  
• Discuss the various annuitization methods available to settle annuity proceeds.

Chapter 3
Variable Annuities

• 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; and
  
• List the factors that should be evaluated in determining the suitability of a variable annuity for a customer.

Chapter 4
Types of Fixed Annuity Contracts

• 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; and
  
• Identify the various interest crediting methods used in indexed annuities.

Chapter 5
Annuity Taxation

• 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; and
  
• Explain the income and estate tax treatment of death benefits received under a nonqualified annuity contract.

Chapter 6
Annuity Sales Practices, Replacement and Disclosure Requirements

• 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; and
  
• Describe the suitability recordkeeping obligations to which insurance producers are subject in connection with recommended annuity transactions.

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