Tax Treatment of Life Insurance and Annuities

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

A. Interest only

What part of the Internal Revenue Code allows an owner of a life insurance policy or annuity to exchange or replace their current contract with another contract without creating adverse tax consequences? A. Section 1035 Policy Exchange B. Modified Endowment C. 401(k) Plan D. Section 457 Deferred Compensation Plan

A. Section 1035 Policy Exchange

When must an IRA be completely distributed when a beneficiary is not named? A. Due date of the deceased owners final tax return including extensions B. December 31st of the year that contains the fifth anniversary of the owners death C. Due date of beneficiary's tax return including extensions D. December 31st of the year following the year of the owners death

B. December 31st of the year that contains the fifth anniversary of the owners death

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

B. From trustee to trustee

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

B. Tax-deductible contributions

J transferred his life insurance policy to his son two years before his death. Which of the following is true? A. Because the policy has been transferred, it will not be included in Js taxable estate B. The entire face value of the policy will be included in Js taxable estate C. The interest portion of the policy will be included in Js taxable estate D. The unpaid premiums on the policy will be deducted from Js taxable estate

B. The entire face value of the policy will be included in Js taxable estate

A policy owner cancels his life policy but instructs the insurance company to transfer the cash value of his policy to an annuity. This non taxable transaction is called A. Premature distribution B. Rollover C. 1035 exchange D. Qualified distribution

C. 1035 exchange

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

C. Dividends are not taxable

What stipulates that if an employee receives property or other benefits in lieu of income, such property or benefits would have been taxable income had they been received in cash; therefore, an economic benefit has been received and will be taxed accordingly? A. Doctrine of cash benefit B. Benefits rule C. Doctrine of economic benefit D. Cash vs. economic rule

C. Doctrine of economic benefit

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

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