Federal Tax Considerations for Life Insurance

For a retirement plan to be qualified, it must be designed for the benefit of A Key employee. B Employer. C IRS. D Employees.

D

Which of the following is true regarding taxation of dividends in participating policies? A Dividends are taxable only after a certain amount is accumulated annually. B Dividends are taxable in some life insurance policies and nontaxable in others. C Dividends are considered income for tax purposes. D Dividends are not taxable.

D

A 60-year-old participant in a 401(k) plan takes a distribution and rolls it over to an IRA within 60 days. Which of the following is true? A The amount of the distribution is reduced by the amount of a 20% withholding tax. B No taxes are due since the plan participant is over age 59 1/2. C There is a 10% early withdrawal penalty. D The amount distributed is subject to ordinary income tax.

A

If an immediate annuity is purchased with the face amount at death or with the cash value at surrender, this would be considered a A Nonforfeiture option. B Rollover. C Settlement option. D Nontaxable exchange.

C

If a life insurance policy develops cash value faster than a seven-pay whole life contract, it becomes a/an A Nonqualified annuity. B Modified endowment contract. C Accelerated benefit policy. D Endowment.

B

All of the following would be different between qualified and nonqualified retirement plans EXCEPT A Taxation of withdrawals B Taxation of contributions C IRS approval requirements D Taxation on accumulation

D

If taken as a lump sum, life insurance proceeds to beneficiaries are passed A Without interest. B Free of federal income taxation. C Tax-deductible. D Part tax-free and part taxable.

B

All of the following employees may use a 403(b) plan for their retirement EXCEPT A A part-time classroom aide. B The vice president of a charitable organization. C The CEO of a private corporation. D A school bus driver.

C

A 403(b) plan, commonly referred to as a TSA, is available to be used by A Teachers and not-for-profit organizations. B Government workers. C Postal employees. D Self-employed persons.

A

Who can make a fully deductible contribution to a traditional IRA? A Someone making contributions to an educational IRA B A person whose contributions are funded by a return on investment C An individual not covered by an employer-sponsored plan who has earned income D Anybody: all IRA contributions are fully deductible regardless of income level

C

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 and selected the Interest Settlement Option. If at the time of withdrawal the interest paid was $11,000, the beneficiary would be required to pay income tax on A $239,000. B $11,000. C None, because the beneficiary has not received the death benefit. D $261,000.

B

Which type of retirement account allows contributions to continue beyond age 70½ and does not force distributions to start at age 70½? A Traditional IRA B Roth IRA C Flexible IRA D Standard IRA

B/

In life insurance policies, cash value increases A Grow tax deferred. B Are income taxable immediately. C Are taxed annually. D Are only taxed when the owner reaches age 65.

A

Which of the following terms is used to name the nontaxed return of unused premiums? A Dividend B Premium return C Interest D Surrender

A

All of the following statements are true regarding tax-qualified annuities EXCEPT A Withdrawals are taxed. B Employer contributions are not tax deductible. C Annuity earnings are tax deferred. D They must be approved by the IRS.

B

A tax-sheltered annuity is a special tax-favored retirement plan available to A Certain age groups only. B Certain groups depending on factors such as race, gender, and age. C Certain groups of employees only. D Anyone.

C

All of the following are TRUE of the federal tax advantages of a qualified plan EXCEPT A Funds accumulate on a tax-deferred basis. B Employee and employer contributions are not counted as income to the employee for income tax purposes. C At distribution, all amounts received by the employee are tax free. D Employer contributions are tax deductible as ordinary business expense.

C

The advantage of qualified plans to employers is A No lump-sum payments. B Taxable contributions. C Tax-deductible contributions. D Tax-free earnings.

C

Which of the following is TRUE of a qualified plan? A It has a tax benefit for both employer and employee. B It does not need to have a vesting schedule. C It may discriminate in favor of highly paid employees. D It may allow unlimited contributions.

A

In a direct rollover, how is the money transferred from one plan to the new one? A From trustee to the participant B From the participant to the new plan C From the original plan to the original custodian D From trustee to trustee

D

Life insurance death proceeds are A Taxable to the extent that they exceed 7.5% of the beneficiary's adjusted gross income. B Taxed as a capital gain. C Taxed as ordinary income. D Generally not taxed as income.

D

Death benefits payable to a beneficiary under a life insurance policy are generally A Exempt from income taxation if under $7,000. B Exempt from income taxation if over $7,000. C Not subject to income taxation by the Federal Government. D Subject to income taxation by the Federal Government.

C

If a retirement plan or annuity is "qualified," this means A It has a penalty for early withdrawal. B It accepts after-tax contributions. C It is noncancellable. D It is approved by the IRS.

D

Under the 401(k) bonus or thrift plan, the employer will contribute A All of the money to the plan. B 30% of what the employee contributes. C 75% of what the employee contributes. D An undetermined percentage for each dollar contributed by the employee.

D

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 A portion of the benefit up to a limit is tax free; the rest is taxable income. B Principal is tax free, but interest is taxed. C The entire benefit will be received tax free. D The entire living benefit is considered taxable income.

A

Traditional IRA contributions are A Never tax deductible. B Partially tax deductible depending on the income level. C Tax deductible. D Deducted based on the income level.

C

An Internal Revenue Code provision that specifically provides for an individual retirement plan for public school teachers is a(n) A 403(b) Plan (TSA). B Keogh Plan. C Roth IRA. D SEP.

A

An individual has been contributing to a retirement account after taxes are taken out of his paycheck. His financial advisor told him that he will be allowed to make contributions after age 70½. The account owner does not have to pay taxes on the growth of his account. What type of retirement account is it? A Roth IRA B 403(b) plan C Simplified Employee Pension Plan D Traditional IRA

A

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? A $10,000, 60 days B $10,000, 30 days C $8,000, 60 days D $8,000, 30 days

C

What is the primary purpose of a 401(k) plan? A To receive dividends over a certain period B Life insurance distribution C Retirement D Education funds

C

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? A Capital gains tax on distributions and no penalty. B Capital gains tax on distributions plus 10% penalty. C Income tax on distributions and no penalty. D Income tax on distributions plus 10% penalty.

C

When a beneficiary receives payments consisting of both principal and interest portions, which parts are taxable as income? A Neither principal nor interest B Principal only C Interest only D Both principal and interest

C

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? A $8,000, no tax consequence B $8,000, tax on growth only C $10,000, tax on growth only D $10,000, no tax consequence

D

Which of the following describes the tax advantage of a qualified retirement plan? A Distributions prior to age 59½ are tax deductible. B Employer contributions are deductible as a business expense when the employee receives benefits. C Employer contributions are not taxed when paid out to the employee. D The earnings in the plan accumulate tax deferred.

D

Which of the following is NOT true regarding a nonqualified retirement plan? A Contributions are not currently tax deductible. B It can discriminate in benefits and selecting participants. C Earnings grow tax deferred. D It needs IRS approval.

D

How are contributions to a tax-sheltered annuity treated with regards to taxation? A . They are taxed as income for the employee, but are tax free upon withdrawal. B They are not included as income for the employee, but are taxable upon distribution. C They are never taxed. D They are taxed as income for the employee.

B

Employer contributions made to a qualified plan A May discriminate in favor of highly paid employees. B Are after-tax contributions. C Are taxed annually as salary. D Are subject to vesting requirements.

D