What is the amount of the penalty tax imposed on premature payments under annuity contracts?
A. 10%
B. 20%
C. 25%
D. 50%
Answer (2)
The penalty tax imposed on premature payments under annuity contracts is 10% of the amount withdrawn. This tax is intended to discourage early access to retirement savings. Therefore, the correct answer to the question is option A. 10% .
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The problem asks for the penalty tax on premature annuity payments.
The penalty tax is a fixed percentage.
Recalling the tax law, the penalty is 10%.
Therefore, the answer is 10% .
Explanation
Understanding the Problem The question asks about the penalty tax imposed on premature payments under annuity contracts. The possible answers are 10%, 20%, 25%, and 50%.
Solution Strategy The problem is a straightforward question of fact. The solution is to recall the penalty tax percentage.
Determining the Penalty Tax The penalty tax for early withdrawal from an annuity is 10%.
Examples
Imagine you have invested in an annuity to save for retirement. If you withdraw funds before a certain age, the government imposes a penalty tax. Knowing this tax rate helps you make informed decisions about when to access your funds, balancing immediate needs with long-term financial goals. For example, if you withdraw $10,000 early, you'll owe $1,000 in penalty taxes, in addition to any regular income tax. This knowledge is crucial for effective financial planning.
