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

What type of retirement account is often annuitized to provide a series of distributions?

1. 401(k) plan

2. Traditional IRA

3. Roth IRA

4. Health Savings Account

The correct answer is: Traditional IRA

The correct choice is that a Traditional IRA is often annuitized to provide a series of distributions. Traditional IRAs are designed to accumulate funds for retirement and can be converted into an annuity, which provides a steady stream of income during retirement. By annuitizing a Traditional IRA, the account holder can take advantage of the tax-deferred growth that occurred during the accumulation phase and then receive regular payments, which can help with budgeting and ensuring a reliable income throughout retirement. In contrast, 401(k) plans are employer-sponsored retirement plans that can allow for a lump-sum payment or periodic distributions, but they are not typically set up as annuities directly unless the participant chooses to roll over the funds into an annuity option. Roth IRAs also allow for a variety of distributions but don't commonly involve annuitization; they are often tapped for tax-free withdrawals since contributions are made with after-tax dollars. Health Savings Accounts are intended for medical expenses rather than retirement income and do not fit within the context of annuitization for distribution purposes.