Federal Tax COnsiderations for Life Insurance
When the owner of a $250,000 life insurance policy died, the beneficiary decided to leave the proceeds of the policy with the insurance company and selected the Interest Settlement Option. If at the time of withdrawal the interest paid was $11,000, the beneficiary would be required to pay income tax on
$11,000
If $100,00 of life insurance proceeds were used in a settlement option, which paid $13,000 per year for ten years, which of the following would be taxable annually
$3,000 - If $100,000 of life insurance proceeds were used in a settlement option paying $13,000 per year for 10 years, $10,000 per year would be income tax free (as principal) and $3,000 per year would be income taxable (as interest).
Who can make a fully deductible contribution to a traditional IRA?
An individual not covered by an employer-sponsored plan who has earned income
Employer contributions made to a qualified plan
Are subject to vesting requirements
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
When must an IRA be completely distributed when a beneficiary is not named?
December 31 of the year that contains the fifth anniversary of the owner's death.
If taken as a lump sum, life insurance proceeds to beneficiaries are passed
Free of federal income taxation
When a beneficiary receives payments consisting of both principal and interest portions, which parts are taxable as income?
Interest only
What is primary purpose of a 401(k) plan?
Retirement
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
A 403(b) plan, commonly referred to as a TSA, is available to be used by
Teachers and not-for-profit organizations
All of the following employees may use a 403(b) plan for their retirement EXCEPT
The CEO of a private corporation
Which of the following is true regarding taxation of accelerated benefits under a life insurance policy?
They are tax free to terminally ill insured
In a direct transfer, how is money transferred from one retirement plan to a traditional IRA?
from trustee to trustee
