7. Federal Tax Considerations For Life Insurance and Annuities
The 10% early withdrawal penalty from an IRA can be waived for
A. Catastrophic medical expenses
A policy owner cancels his life policy but instructs the insurance company to transfer the cash value of the policy to an annuity. This nontaxable transaction is called a
B. 1035 exchange
Excess contributions to a Roth IRA are subject to what tax penalty
B. 6%
Which of the following is true regarding taxation of policy dividends
B. Dividends are not taxable
When a beneficiary in life insurance policy receives payments consisting of both principal and interest portions, what will be taxed as income
B. Interest only
If $100,000 of life insurance proceeds were used in a settlement option which paid $13,000 per year for 10 years, which of the following amounts would be taxable annually
A. $3,000
Which of the following is NOT true regarding policy loans
A. Money borrowed from the cash value is taxable
For personal life insurance, the lump-sum death benefit is received
A. Tax free
Avoiding tax consequences when transferring assets from one IRA to another can be accomplished by which of the following
B. Partial distribution of funds
In life insurance policies, cash value increases are
B. Tax deferred
Which of the following taxation principles applies to annities
B. Tax-deferred accumulation
Which method is used to determine the taxable portion of each annuity payment
A. The exclusion ratio
If a life policy does not pass the 7-pay test, that policy
C. Becomes a Modified Endowment Contract
Generally, the premium paid for personal life insurance is
C. Not tax deductible
The cash value under MEC accumulates
C. On tax-deferred basis