For income tax purposes, when is interest credited to a nonqualified annuity recognized by the contract owner?

Question

1. When interest is credited to the contract
2. Never
3. When credited interest is distributed under the contract
4. When a premium deposit is made

Answer 1

For income tax purposes, the correct answer is:

1. When interest is credited to the contract.

In a nonqualified annuity, interest is typically recognized as taxable income when it is credited to the account, even though the owner may not actually withdraw that amount.