Massachusetts Life Producer Practice Exam

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Study for the Massachusetts Life Producer Exam. Use flashcards and multiple-choice questions with detailed hints and explanations. Prepare effectively for your exam with confidence!

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What is the taxable amount if a teacher surrenders a tax sheltered annuity currently worth $200,000?

$100,000
$120,000
$200,000
$80,000

The correct answer is: $200,000

When a teacher surrenders a tax sheltered annuity, the entire amount received at surrender is generally treated as taxable income. This includes all the investment gain as well as the principal. In this case, since the annuity is currently worth $200,000, the entire amount is subject to income taxation, hence the taxable amount is $200,000. Tax sheltered annuities are designed to provide retirement income with tax advantages while funds are accumulating. However, upon surrendering the annuity, the tax deferral aspect is lost, and the individual must report the full value as income during the tax year in which the surrender occurs. Therefore, the total value of the annuity at the time of surrender directly reflects the taxable income amount.