Federal Tax Considerations

transfer life insurance cash value to annuity

1035 exchange

an ira uses immediate annuities to pay out benefits the ira owner is nearly 75

50% tax on the amount not distributed as required.

if a life insurance policy develops cash value faster than a seven pay whole life contract

Modified Endowment Contract.

direct rollover how is money transferred

from trustee to trustee

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?

income tax on distributions and no penalty

An annuitant dies before the effective date of a purchased annuity. Assuming that the annuitant's wife is the beneficiary, what will occur? AThe interest will continue to accumulate tax deferred. BThe interest will become immediately taxable. CThe premiums will increase. DThe premiums will decrease.

AThe interest will continue to accumulate tax deferred.

not true regarding policy loans

money borrowed from the cash value is taxable

if an immediate annuity is purchased with the face amount

settlement option

policyowner transfers or gives away a life insurance policy with 3 years prior to his/her death,

the entire face amount of the policy will be included in his/her taxable estate

taxation of annuity withdrawals during accumulation period

the money will be taxed as income if you purchased the annuity with pre-tax funds

J transferred his life insurance policy to his son two years before his death. Which of the following is true? AThe unpaid premiums on the policy will be deducted from J's taxable estate. BBecause the policy has been transferred, it will not be included in J's taxable estate. CThe entire face value of the policy will be included in J's taxable estate. DThe interest portion of the policy will be included in J's taxable estate.

CThe entire face value of the policy will be included in J's taxable estate. If a policyowner transfers or gives away a life insurance policy within 3 years prior to his/her death, the entire face amount of the policy will be included in his or her taxable estate.

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? AIncome tax on distributions plus 10% penalty. BCapital gains tax on distributions and no penalty. CCapital gains tax on distributions plus 10% penalty. DIncome tax on distributions and no penalty.

DIncome tax on distributions and no penalty.

withdrawal nonqualified annuity

LIFO, taxable interest + 10% penalty under 59 1/2

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

Withdrawals are not taxable

taxation of annuity during accumulation period

There is no capital gains tax

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

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

life insurance death proceeds are

aren't includable in gross income and you don't have to report them. However, any interest you receive is taxable and you should report it as interest received

when contributions to an immediate annuity are made

contributions to this fund are fully taxable. Distributions must begin no later than age 70½ in order for the annuitant to avoid penalties

purpose of seven pay test

determines if the insurance policy is a MEC

When must an IRA be completely distributed when a beneficiary is not named? ADecember 31 of the year following the year of the owner's death. BDue date of the deceased owner's final tax return including extensions. CDecember 31 of the year that contains the fifth anniversary of the owner's death. DDue date of beneficiary's tax return including extensions.

CDecember 31 of the year that contains the fifth anniversary of the owner's death.

when must an ira be completely distributed when a beneficiary is not named

before December 31 of the calendar year that contains the fifth anniversary of the owner's death, unless the owner named a beneficiary.

When contributions to an immediate annuity are made with before-tax dollars, which of the following is true of the distributions? ADistributions are taxable. BDistributions are nontaxable. CDistributions cannot begin prior to age 70½. DThere are no distributions.

ADistributions are taxable.

Which of the following statements regarding the taxation of Modified Endowment Contracts is FALSE? APolicy loans are taxable distributions. BAccumulations are tax deferred. CWithdrawals are not taxable. DDistributions before age 59 1/2 incur a 10% penalty on policy gains.

CWithdrawals are not taxable.

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? AThe amount of the distribution is reduced by the amount of a 20% withholding tax. BNo taxes are due since the plan participant is over age 59 1/2. CThere is a 10% early withdrawal penalty. DThe amount distributed is subject to ordinary income tax.

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

A policyowner 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 AQualified distribution. BPremature distribution. CRollover. D1035 exchange.

D1035 exchange.

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$10,000, no tax consequence

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? AHe will have to pay a penalty regardless of his age. BHe will not have to pay a penalty, regardless of his age. CHe cannot withdraw money from his MEC before age 59½. DHe will have to pay a penalty if he is younger than 59½.

DHe will have to pay a penalty if he is younger than 59½.

Taxation of dividends

not taxable