Tennessee Insurance Practice Exam 2026 – All-in-One Resource for Exam Success!

The statement that income derived from a Tax Sheltered Annuity (TSA) is received income tax-free is false. In reality, while contributions to a TSA can often be made with pre-tax dollars, which reduces the taxable income for the year, the income generated within the annuity is generally subject to income tax upon withdrawal or distribution.

When individuals eventually take distributions from a TSA, those funds are treated as ordinary income and must be reported on their tax return, leading to tax obligations at that time. This taxation upon distribution is a critical feature of TSAs and similar retirement accounts, designed to encourage saving for retirement while deferring tax liability until income is actually received. Thus, income derived from the TSA is not tax-free; instead, it is taxable when withdrawn.