Investment Company and Variable Contracts Products Representative (Series 6)Practice Exam

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Which type of annuity is typically funded with after-tax dollars?

Qualified annuity
Non-Qualified annuity
Both types of annuities
Neither type of annuity

The correct answer is: Non-Qualified annuity

A non-qualified annuity is typically funded with after-tax dollars, meaning that the contributions to the annuity come from income that has already been taxed. This type of annuity does not have the same set of regulatory requirements as qualified annuities, including contribution limits and sources of funding, which are often tied to retirement accounts like IRAs or 401(k) plans that involve pre-tax dollars. In contrast, qualified annuities are funded with pre-tax dollars, allowing investors to defer taxes until withdrawals are made, which can provide tax advantages during the accumulation phase. Therefore, the correct identification of non-qualified annuities being funded with after-tax dollars reinforces the understanding of how different types of annuities operate within the framework of personal finance and taxation.