A client surrenders a variable annuity contract 5 years after purchase because of poor performance. Any surrender fee imposed:. a. increases cost basis.
b. reduces cost basis.
c. is deductible.
d. is not deductible.

d. is not deductible.

Explanation: Annuity cancellation is possible before the specified term of the contract which may occur due to poor performance or other needs best known to the holder of the contract. However, when cancellation clause of an annuity is triggered, the holder may have to bear with losses arising from the cancellation in the form of Fall in the net asset value at the time, that is if the net asset value is lower than the cost basis, this is classed as ordinary and is deductible. However, the insurer also charges a non-deductible surrender charge upon cancellation.

the answer is risk management planning