The phase during which an annuity's contributions grow on a tax-deferred basis is called what?

The correct answer, accumulation phase, refers to the period during which contributions to an annuity are made and grow without being subject to income tax. During this phase, the investor can make regular premium payments or a lump sum contribution, and the earnings on the invested amounts accumulate on a tax-deferred basis. This means that taxes on any investment gains are postponed until the funds are withdrawn, allowing the investment to potentially grow more significantly over time.

In contrast, the other phases mentioned are distinct stages of an annuity's life cycle. The annuitization phase occurs when the accumulated funds are converted into a stream of income payments, marking a transition from growth to payout. The payout phase follows, during which the annuity holder receives regular payments based on their initial investment and the terms of the annuity contract. Lastly, the distribution phase often refers to the time frame in which benefits are distributed from a retirement plan or savings vehicle, similar to the payout phase but not necessarily limited to annuities. Thus, understanding the accumulation phase is crucial for recognizing how tax advantages can enhance the growth of investments within an annuity before money is withdrawn.