FIN307-Ch. 14

Which of the following statements about the withdrawal of funds from a traditional IRA is true?

) Withdrawals must begin no later than April 1 of the year following the calendar year in which an individual attains age 70.5.

Annuity payments are made up of all of the following EXCEPT

) unliquidated principal of annuitants who live too long.

During the funding period, the premiums paid for a variable annuity are used to purchase

D) accumulation units.

Donna is single and earns $30,000 annually. She is covered under her employerʹs retirement plan. Donna would like to start a traditional IRA and contribute $3,000 this year. Which of the following describes her ability to establish a traditional IRA and the tax treatment of her contribution?

A) Her contribution is fully tax deductible.

An immediate life annuity offers all of the following benefits EXCEPT

A) Interest income can be earned during the long deferral period until annuity payments begin.

12) Insurers offering variable annuities charge a number of expenses. One category of expenses is to pay the fund manager and to pay brokerage fees. This expense is the

A) investment management charge.

8) Brad funded a life annuity through installment payments. At age 60, he decided to elect an annuity settlement option and to begin to receive payments. Which of the following life income options will provide Brad with the highest monthly income?

A) life annuity (no refund)

29) Which of the following persons can establish a traditional IRA?

Employed persons under age 70.5 who are not active participants in an employer -sponsored retirement plan.

Which of the following statements is (are) true with regard to Roth IRAs

B) II only

A) deferred annuity.

B) life annuity with guaranteed payments.

With an equity-indexed annuity, what name is given to the method of crediting excess interest to the annuity?

B) the indexing method

Cheryl, age 42, quit her job. Her employer offered a defined contribution pension plan, and the balance in the account was $30,000 when Cheryl quit. She can avoid immediate taxation of these funds by

B) using an IRA rollover account.

One category of fees and expenses is to cover the cost of record keeping, paperwork, and periodic reports to annuity owners. This expense is the

C) administrative charge

Which of the following statements is (are) true with regard to IRAs

Contribution limits are higher for workers aged 50 and older. II. A spouse who does not work outside of the home may make a fully deductible contribution to a traditional IRA even if his or her spouse is covered by a retirement plan at work.

All of the following statements about variable annuities are true EXCEPT

D) Although the value of annuity units fluctuates, accumulation units have a fixed value.

Rita is 66 years old. She earned $20,000 this year working part-time at a store and her modified adjusted gross income was $28,000. Rita is considering making a $3,000 contribution to her traditional IRA. Which of the following statements is true regarding this contribution?

D) Rita can make a $3,000 contribution to her traditional IRA, and it is fully tax deductible.

All of the following statements about traditional and Roth IRAs are true EXCEPT

D) Traditional IRAs are exempt from the penalty tax on premature distributions.

1) Which of the following statements is (are) true with respect to annuities?

I. Annuities are the opposite of life insurance.

6) Which of the following statements is (are) true with respect to a joint-and-survivor annuity?

I. Some joint-and-survivor annuities reduce the income payment after the first annuitant dies.

Which of the following statements is (are) true with respect to an equity-indexed annuity?

I. The maximum percentage gain is usually capped.

Which of the following statements regarding the taxation of individual annuities is (are) true?

II. After the net cost of the annuity has been paid to the annuitant, the total annuity payment is taxable.

Which of the following statements is (are) true regarding the Roth IRA?

II. Roth IRA investment income accumulates income-tax free.

Which of the following statements regarding individual retirement account s (IRAs) is (are) true?

If an individualʹs only income during the year is from investments, he or she cannot make an IRA contribution

Which of the following statements is (are) true regarding the taxation of distributions from individual annuities?

Once the annuitant has recovered the premiums he or she paid for the annuity, the entire annuity distribution is taxable.

Which of the following statements about converting a traditional IRA to a Roth IRA is (are) true?

Qualified distributions from a Roth IRA after a conversion are received tax-free.

10) Which of the following statements is (are) true with respect to variable annuities?

The price at which accumulation units can be purchased fluctuates during the funding period. II. The value of annuity units fluctuates over time.

Which of the following statements is (are) true with regard to the inflation-indexed annuity option?

The initial monthly payment is lower than the initial payment a fixed annuity would have provided if purchased at the same age. II. Periodic payments to the annuitant are adjusted for inflation.

In offering life annuities, what risk is the insurer pooling?

excessive longevity

All of the following are permissible IRA investments EXCEPT

life insurance

Under an equity-indexed annuity, what name is given to the percentage increase in the stock index that is credited to the contract?

the participation rate

Which of the following statements is (are) true with respect to the cash (lump sum) annuity settlement option?

the taxable portion of the distribution is subject to federal and state income taxes. II. The option results in adverse selection against the insurer as those in poor health are more likely to take cash than to annuitize the funds.

All of the following are circumstances under which withdrawals from a traditional IRA may be made prior to age 59.5 without incurring a substantial penalty EXCEPT

the withdrawal is used to pay living expenses after unemployment insurance benefits cease.

√purpose of variable annuity

√Contribution limits are higher for workers aged 50 and older. II. A spouse who does not work outside of the home may make a fully deductible contribution to a traditional IRA even if his or her spouse is covered by a retirement plan at work.