Ch 4 Taxes, Retirement, and Other Insurance Concepts

All of the following are requirements of eligibility for Social Security disability income benefits EXCEPT:

Being age 65

A life insurance policy used to fund an agreement that contractually establishes the intent of someone to purchase a business upon the insured business owner's death is a

Buy-sell agreement

Which of the following is NOT true regarding a non-qualified retirement plan?

It needs IRS approval

Which of the following is NOT true regarding policy loans?

Money borrowed from the cash value is taxable.

All of the following are examples of third-party ownership of a life insurance policy EXCEPT:

An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan.

SIMPLE Plans require all of the following EXCEPT

At least 1,000 employees.

Life insurance death proceeds are

Generally not taxed as income

All of the following would be different between qualified and non-qualified retirement plans EXCEPT:

Taxation on accumulation

A corporation is the owner and beneficiary of the key person life policy. If the corporation collects the policy benefit, then

The benefit is received tax free

A producer is helping a married couple determine the financial needs of their children in the event one or both should die prematurely. This is a personal use of life insurance known as

survivor protection

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 consequence

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 become income taxable?

$3,000

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

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

In the Executive Bonus Plan, who is the owner of the policy, and who pays the premium?

Executive is the owner, and the executive pays the premium

All of the following are business uses of life insurance EXCEPT:

Funding against company's general financial loss.

Two attorneys operate their practice as a partnership. They want to start a program through their practice that will provide retirement benefits for themselves and three employees. They would likely choose

HR-10 (Keogh Plan)

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 if he is younger than 59 1/2

If a retirement plan annuity is "qualified," this means

It is approved by the IRS

Traditional IRA contributions are tax deductible based on which of the following?

Owner's income

Which of the following is correct concerning the taxation of premiums in a key-person life insurance policy?

Premiums are not tax deductible as a business expense.

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?

The amount of the distribution is reduced by the amount of a 20% withholding tax.

Which of the following in INCORRECT concerning a noncontributory group plan?

The employees receive individual policies

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

In which of the following instances would the premium be tax deductible?

Premiums paid by an employer on a $30,000 group term life insurance plan for employees

Which of the following is an example of liquidity in a life insurance contract?

The cash value available to the policyowner

Which of the following describes the tax advantage of a qualified retirement plan?

The earnings in the plan accumulate tax deferred.

An employee is insured under her employer's group life plan. If she terminates her group coverage, which of the following statements is INCORRECT?

The insured may choose to convert to term or permanent individual coverage

All of the following are true of a key person insurance EXCEPT:

The plan is funded by permanent insurance only

Which of the following is NOT true of life settlements?

The seller must be terminally ill

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.

Who is a third-party owner?

A policyowner who is not the insured

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

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

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

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

All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT:

The policy is owned by the company

All of the following would be eligible to establish a Keogh retirement plan EXCEPT:

The president and employee of a family corporation

Which of the following statements regarding the taxation of Modified Endowment Contracts is FALSE?

Withdrawals are not taxable

When an employer offers to give an employee a wage increase in the amount of the premium on a new life insurance policy, this is called a(n):

Executive bonus

All of the following statements concerning an employer sponsored non-qualified retirement plan are true EXCEPT:

The employer can receive a current tax deduction for any contributions made to the plan

Which of the following statements concerning a Simplified Employee Pension plan (SEP) is INCORRECT?

SEPs are suitable for large companies