Florida 2-15 Life, Health and Variable Annuity AgentFlorida Laws and Regulations Specific to Life Insurance and AnnuitiesMedium
A Florida resident owns a variable annuity and is considering transferring funds between the sub-accounts offered within the separate account. Which of the following statements regarding such transfers is most accurate?
- ATransfers between sub-accounts within the same variable annuity are generally not subject to current taxation.
- BA sales load is typically charged for each transfer between sub-accounts.
- CTransfers are only permitted during the annuitization phase, not the accumulation phase.
- DTransfers between sub-accounts are always subject to federal capital gains tax.
Show answer & explanationAnswer & explanation
Correct answer: A. Transfers between sub-accounts within the same variable annuity are generally not subject to current taxation.
One of the key benefits of variable annuities is the ability to transfer funds between sub-accounts within the separate account without triggering a taxable event. Taxation is deferred until withdrawal or annuitization.
Why the other options are wrong
- B. While some annuities may have transfer fees, a sales load is usually applied at purchase, not for internal transfers.
- C. Transfers are common during the accumulation phase to adjust investment strategies.
- D. This is incorrect; internal transfers are tax-deferred.
Variable Annuity Internal Transfers
Transfers of funds between sub-accounts within the separate account of a variable annuity during the accumulation phase are generally not considered taxable events.
- Applies to variable annuities
- During accumulation phase
- No current taxation on transfers
- Allows for portfolio rebalancing tax-free
Memory trick: Switching your variable annuity's investments doesn't trigger the tax man's bell!