Chapter 7: Life Insurance Tax Considerations

What is the penalty for IRA distributions that are below the required minimum for the year?

50%

Who would be the insured under a COLI policy?

All employees

Who can make a fully deductible contribution to a traditional IRA?

An individual not covered by an employer-sponsored plan who has earned income

Which concept is associated with "exclusion ratio"?

Annuities payments

An insured has a Modified Endowment Contract. He wants to withdraw some money in order to pay medical bills. Which of the following is true?

He will have to pay a penalty is he is younger than 59 1/2

Death benefits payable to a beneficiary under a life insurance policy are generally

Not subject to income taxation by the Federal Government

An insured had only paid part of her total number of IRA premiums before she died. What effect will this have on the insured's estate?

Only the premiums paid will be included in the estate

In life insurance policies, cash value increases

Grow tax deferred

All of the following are TRUE of the federal tax advantages of a qualified plan EXPECT

At distribution, all amounts received by the employee are tax free

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

When would life insurance policy proceeds be included in the insured's taxable estate?

When there are any incidents of ownership at the time of death

Which of the following describes the taxation of an annuity when money is withdrawn during the accumulation phase?

Withdrawn amounts are taxed on a last in, first out basis

An insured decides to surrender his $100,000 Whole Life policy. The premiums paid into the policy added up to $15,000. At policy surrender, the cash surrender value was $18,000. What part of the surrender value would be income taxable?

$3,000 The difference between the premiums paid and the cash value would be taxable. In this example, the difference between the premiums paid ($15,000) and the cash value ($18,000) is $3,000.

Languages: English Español Chapter: Federal Tax Considerations for Life Insurance and Annuities Question 8 of 15 An employee quits her job where she has a balance of $10,000 in her qualified plan. The balance was paid out directly to the employee in order for her to move the funds to a new account. If she decides to rollover her plan to a Traditional IRA, how much will she receive from the plan administrator and how long does she have to complete the tax-free rollover?

$8,000, 60 days

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