Question

When the annuitant dies during the accumulation phase of the annuity, the beneficiary receiving the death benefit:

A. Pays income tax on any gains using the deceased's income tax bracket
B. Pays income tax on any gains at his or her own income tax rate
C. Pays no income tax on any portion of the proceeds
D. Pays taxes based on the estate tax rate of the deceased

Answer 1

The beneficiary pays income tax on any gains at his or her own income tax rate.

Step-by-step explanation:

When the annuitant dies during the accumulation phase of the annuity, the beneficiary receiving the death benefit:

1. Pays income tax on any gains using the deceased's income tax bracket
2. Pays income tax on any gains at his or her own income tax rate
3. Pays no income tax on any portion of the proceeds
4. Pays taxes based on the estate tax rate of the deceased

The correct answer is B. The beneficiary pays income tax on any gains at his or her own income tax rate. This means that the beneficiary's tax rate will be based on their individual income and tax bracket, rather than the deceased annuitant's tax bracket.