What is the purpose of the date of annuitization in relation to penalties?

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Multiple Choice

What is the purpose of the date of annuitization in relation to penalties?

The date of annuitization is the moment the contract changes from the accumulation phase to the payout phase. This shift matters for penalties because the 10% early-withdrawal penalty applies to withdrawals taken before age 59½ from qualified accounts during the accumulation period. Once you annuitize, you’re converting the saved value into a stream of regular payments that are part of the contract’s payout, not simply withdrawals from the accumulation. Therefore, choosing an annuitization date at or after age 59½ helps you avoid triggering that 10% penalty on those payments.

The date of annuitization is the moment the contract changes from the accumulation phase to the payout phase. This shift matters for penalties because the 10% early-withdrawal penalty applies to withdrawals taken before age 59½ from qualified accounts during the accumulation period. Once you annuitize, you’re converting the saved value into a stream of regular payments that are part of the contract’s payout, not simply withdrawals from the accumulation. Therefore, choosing an annuitization date at or after age 59½ helps you avoid triggering that 10% penalty on those payments.

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