Under which of the following financial products does the owner need to recognize NO income until it is distributed to him or her?

Question

1. A deferred annuity
2. A certificate of deposit
3. A mutual fund
4. A passbook savings account

Answer 1

The correct answer is 1. A deferred annuity.

In a deferred annuity, the owner does not recognize any income for tax purposes until the funds are distributed, allowing the investment to grow tax-deferred. In contrast, income from certificates of deposit (CDs), mutual funds, and passbook savings accounts is generally recognized in the year it is earned or realized.