Chapter 6: federal tax considerations for life insurance
All of the following are true of the federal tax advantages of qualified plan except
At distribution, all amounts received by the employee are free of taxes.
Which of the following statements regarding the taxation of modified endowment contracts is FALSE?
Withdrawals are not taxable
In life insurance policies, cash value increases
Grow tax deferred.
When the owner of a 250,000 Life insurance policy died the beneficiary decided to leave the proceeds of the policy with the insurance company in selected the interest settlement option if at the time of withdraw the interest paid was $11,000 the beneficiary would be required to pay income tax on
11,000
Employer contributions made to a qualified plan
Are subject to vesting requirements
All of the following statements are true regarding tax-qualified annuities EXCEPT
employer contributions are not tax deductible
What is the tax consequence of amounts received from a traditional IRA after the money was left in the tax deferred account by the beneficiary?
income tax on distributions and no penalty
Which of following is NOT true regarding a non qualified retirement plan?
It needs IRS approval
Which of the following is NOT true regarding a non qualified retirement plan?
It needs IRS approval
Which of the following statements is TRUE concerning whole life insurance?
Lump-sum death benefits are not taxable
Which type of retirement account does not require the owner to start taking distributions at age 72?
Roth IRA
If a life insurance policy develops cash value faster than a seven-pay whole life contract, it becomes a/an
Modified endowment contract
Death benefit payable to a beneficiary under a life insurance policy are generally
Not subject to income taxation by the federal government
An Internal Revenue Code provision that specifically provides for an individual retirement plan for public school teachers is a(n)
403(b) Plan (TSA)
A 403(b) plan, commonly referred to as a TSA, is available to be used by
teachers and not-for-profit organizations
How are contributions to a tax-sheltered annuity treated with regards to taxation?
They are not included as income for the employee, but are taxable upon distribution.
What is the primary purpose of a 401(k) plan?
retirement
Under the 401(k) bonus or thrift plan, the employer will contribute
An undetermined percentage for each dollar contributed by the employee.
All of the following employees may use a 403 (b) plan for their retirement EXCEPT
CEO of private corporation.
All of the following are general requirements of a qualified plan EXCEPT
The plan must provide an offset for social security benefits.
Which of the following is TRUE of a qualified plan?
It has a tax benefit for both employer and employee.
An employer has sponsored a qualified retirement plan for its employees where the employer will contribute money whenever a profit is realized. What is this called?
Profit sharing plan
What is the main purpose of the seven-pay test?
It determines if the insurance policy is an MEC.
An individual has been diagnosed with Alzheimer's disease. He is insured under a life insurance policy with the accelerated benefits rider. Which of the following is true regarding taxation of the accelerated benefits?
A portion of the benefit up to a limit is tax free; the rest is taxable income
Traditional IRA contributions are tax deductible based on which of the following?
Owner's income
Which of the following is true regarding taxation of dividends in participating policies?
Dividends are not taxable.
If taken as a lump sum, life insurance proceeds to beneficiaries are passed
Free of federal income taxation.
If an immediate annuity is purchased with the face amount at death or with the cash value at surrender, this would be considered a
Settlement option
All of the following would be different between qualified and non qualified retirement plans EXCEPT
Taxation on accumulation
An employee quits her job where she has a balance of $10,000 in her qualified plan. If she decides to do a direct transfer from her plan to a Traditional IRA, how much will be transferred from one plan administrator to another and what is the tax consequence of a direct transfer?
10,000, no tax consequences
In a direct rollover, how is the money transferred from one plan to the new one?
From trustee to trustee
Which of the following is true regarding taxation of accelerated benefits under a life insurance policy?
They are tax free to terminally ill insured
All of the following statements are true regarding tax- qualified annuities EXCEPT
employer contributions are not tax deductible
Which of the following describes the tax advantage of a qualified retirement plan?
The earnings in the plan accumulate tax deferred.
If a retirement plan or annuity is "qualified", this means
It is approved by the IRS
Who can make a fully deductible contribution to a traditional IRA?
An individual not covered by an employer-sponsored plan who has earned income
