ch 7 federal tax considerations quiz

In life insurance policies cash values increases a.are income taxable immediately b.are taxed annually c.are only taxed when the owner reaches age 65 d.grow tax deferred

d.grow tax deferred

which of the following is not an allowable 1035 exchange a.a life insurance is exchanged for an annuity b.a whole life insurance policy is exchanged for a term policy c.a whole life insurance policy is exchanged for a Universal Life insurance policy d.an annuity is exchanged for another annuity

b.a whole life insurance policy is exchanged for a term policy

In a direct rollover how is the money transferred from one plan to the new one ? a.from the original plan to the original custodian b.from trustee to trustee c.from trustee to participant d.from the participant to the new plan

b.from trustee to trustee

an insured decides to surrender his 100,000 whole life policy. the premium 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 a.50,000 b.18,000 c.15,000 d.3,000

d.3,000

Life Insurance proceeds are a.taxed as ordinary income b.generally not taxed as income c.taxable to the extent that they exceed 7.5% of the beneficiaries adjusted gross income d.taxed a capital gain

b.generally not taxed as income

A policy owner cancels his life policy but instructs the insurance company to transfer the cash value of his policy to an annuity .This nontaxable transaction is called a.premature distribution b.rollover c.1035 exchange d.qualified distribution

c.1035 exchange

death benefits payable to a beneficiary under a life insurance policy are generally a.exempt from income taxation b.not subject to income taxation by the federal government c.subject to income taxation by the federal government d.exempt from income taxation if under $7000

b.not subject to income taxation by the federal government

when a beneficary recieves payments consisting of both principle and interest portions which parts are taxable as income ? a.interest only b.both prinipal and interest c.neither principal nor interest 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 exchange c.401(k)plan d.section 457 deferred compensation plan

a.section 1035 policy exchange

what method is used to determine the taxable portion of each annuity payment ? a.the exclusion ratio b.the excise ratio c.the annuity to age ratio d.the marginal tax formula

a.the exclusion ratio

which of the following is not true regarding policy loans ? a.a policy loan maybe repaid after the policy is surrendered b.money borrowed from the cash value is taxable c.policy loans can be repaid at death d.an insurer can charge interest on outstanding policy loans

b.money borrowed from the cash value is taxable

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.8,000 30 days b.10,000 60 days c.10,000 30 days d.8,000 60 days

d.8,000 60 days

who can make a fully deductible contribution to a traditional IRA ? a.anybody all IRA contributions are fully deductible regardless of income level b.someone making contributions to an educational IRA c.a person whose contributions are funded by a return on investment d.an individual not covered by an employer sponsored plan who has earned income

d.an individual not covered by an employer sponsored plan who has earned income

which of the following is incorrect regarding whole life insurance ? a.cash value exceeding the premium paid is taxable b.premiums are not tax deductible c. dividend interest is taxable d.policy loans are tax deductible

d.policy loans are tax deductible

A 60 year old participant in a 401k plan takes a distribution and rolls it over to an IRA within 60 days. Which of the following is true ? a.no taxes are due since the plan participant is over age 59 1/2 b.there is 10 percent early withdrawal penalty c.the amount distributed is subject to ordinary income tax d.the amount of distributions is reduced by the amount of a 20% witholding tax

d.the amount of distributions is reduced by the amount of a 20% witholding tax