Life XV Federal Tax Considerations for Life Insurance and Annuities

Stephanie contributes more than the maximum amount to her Roth IRA. What will most likely happen? A. Nothing will happen, her money will continue to grow B. Her contribution limit will be raised C. She will pay a tax penalty D. She will be taxed on her distributions

She will pay a tax penalty

There are many federal requirements of a qualified plan. Which of the following is not requirement? A. Vesting schedule B. Employees can make unlimited contributions C. An employer establishes the plan D. The benefits are for a broad cross section of employees

Employees can make unlimited contributions

Which of the following would not be offered a Tax Sheltered Annuity? A. Charitable Organizations B. Public School Teachers C. Self Employed Individuals D. Religious Groups

Self Employed Individuals

Larry had $100,000 in Life insurance. He chose to have a settlement option for ten years. It paid $13,000. What amount was his taxable income? A. None B. $100,000 C. $3,000 D. $130,000

$3,000

When a beneficiary receives separate payments of both the principal and interest portions, what is taxable as income? A. Earned Interest B. Both principal and interest C. Neither principal nor interest D. Principal amount

Earned Interest

When will a 10% penalty be imposed on a MEC distribution?

If an insured is younger than 59 1/2 years old

What is the taxable part of a Non Qualified Annuity payment? A. The principal amount B. The payment part is always tax free C. Interest earned on principal D. half of the payment amount

Interest earned on principal

Which of the following best describes a Modified Endowment Contract? A. It exceeds the maximum amount of premium that can be paid into a policy and still have it recognized as a Life insurance contract B. It is below the minimum amount of premium that can be paid into a policy and still have it recognized as a Life insurance contract C. It is tested by the HR-10 rule D. It is tested by the Section 1035 rule

It exceeds the maximum amount of premium that can be paid into a policy and still have it recognized as a Life insurance contract

M&G company is disqualified from receiving favorable tax treatment. What is the reason? A. It is temporary B. It has a vesting schedule C. It is formed for its employees and their beneficiaries D. The Contributions are applied without regard to income

It is temporary

Which of the following characteristics would disqualify Jason's company retirement plan from receiving favorable tax treatment? A. It has a vesting schedule B. It is temporary C. It is for the benefit of employees and their beneficiaries D. Contributions are submitted with no regard to income

It is temporary

When a Life insurance policy fails the 7-Pay test by the IRS statements, it is considered to be a Modified Endowment Contract. What will then happen? A. It will lose some of its tax benefits B. It will gain some tax benefits C. The owner will no longer need to pay dividends D. The owner will experience free gains

It will lose some of its tax benefits

Ken is a 58 year old that just received a $40,000 distribution from his previous employer's 401K plan, less $5,000 withholding. What federal taxes will apply if none of the funds were rolled over/ A. Income taxes on the $40,000 B. Income taxes on the $35,000 C. Income taxes plus a 10% penalty on the $35,000 D. Income taxes plus a penalty tax on the $40,000

Income taxes plus a penalty tax on the $40,000

What kind of plan may be established regardless of any retirement plan in existence? A. Individual retirement account B. Keogh C. 403 D. TAS

Individual retirement account

What is the taxable part of a Non Qualified Annuity Payment? A. The principal amount B. The payment part is always tax free C. Interest earned on principal D. Half of the payment amount

Interest earned on principal

Allen is a sole proprietor that has a plan that includes his employees. which of the following applies? A. SIMPLE B. SEP C. 405 D. Keogh

Keogh

Cindy recently died and left behind an individual IRA account in her name. Her husband was forwarded the remaining balance of her IRA. Which of the following will her husband qualify for? A. All death benefits B. A 1035 Exchange of funds C. Marital deduction D. Tax on the gains

Marital deduction

Modified Endowment contract funds: A. Are deductible B. Are paid annually C. May be used as a collateral on a loan D. May be subject to unfavorable tax rules

May be subject to unfavorable tax rules

Paul is a 60 year old totally disabled construction worker that has a IRA. If paul withdraws some money from his retirement plan to pay for his son's college education, what penalty will he pay? A. None B. 7% C. 10% D. 6%

None

What term best describes a Defined Benefit Plan? A. Qualified B. Certified C. Employed D. Self-Employed

Qualified

Paul had a $500,000 Life insurance policy. He died and his beneficiary left the policy's benefits to his brother with the Interest Settlement Option. When the funds were withdrawn the interest had accumulated to $21,000. The beneficiary would be required to pay tax on which amount? A. $500,000 B. None C. $521,000 D. $21,000

$21,000

How long must a Roth IRA be open to grow tax free?

5 years

Annuity benefit payments become part of the annuitant's estate when the .............. .................... continue to another person (beneficiary)

Benefit payments

An employee's contribution to their 401K Plan relates to which of the following? A. Must be matched on a perchanges basis by their employer B. Contributions are made on a pretax basis C. Contribution amounts are tax deferred if their total exceeds $50,000 D. Contributions are taxed if they exceed 7.5% of their gross income.

Contributions are made on a pretax basis

How will Tax Sheltered Annuity contributions be taxed? A. The contributions are tax free up to $50,000 B. The contributions are non included as income for an employee, but are taxable upon distribution C. The contributions are taxed depending on their amount D. The contributions are taxed as income for the employer

The contributions are non included as income for an employee, but are taxable upon distribution

Which of the following transactions would not be subject to income tax under a Modified Endowment Contract? A. Policy withdraws B. The death benefit C. Direct dividend surrenders D. Policy loans

The death benefit

If a Life Insurance policy is sold to another party, it is a transfer of value True or False A. True B. False

True

Within how many days must a rollover be completed to avoid being taxed as current income? A. 10 B. 20 C. 40 D. 60

60

Anyone with earned income that has not attained what age can have a traditional IRA? A. 75 B. 72 C. 70 1/2 D. 71

70 1/2

A 403(b) plan, commonly referred to as a TSA, is available and commonly used by: A. Postal employees B. Government workers C. Teachers and non-profit organizations D. Self-employed persons

Teachers and non-profit organizations

What is the non-taxable portion of a Non-Qualified Annuity Called?

The Cost base

Which statement about federal income tax treatment for Life insurance is false? A. The entire cash surrender is flexible B. Cash dividends are generally not taxed C. In general premiums are not tax deductible D. If a named beneficiary their proceeds are tax free when received

The entire cash surrender is flexible

If an annuitant dies before their annuity's starting date, then their contract's intrestrest will become taxable. True or False? A. True B. False

True

What describes a rollover A. A change from a standard to a preferred risk B. A transfer of funds from one qualified IRA to another qualified IRA C. A change in contributions made to a retirement plan D. A change in a Modified Endowment contract

A transfer of funds from one qualified IRA to another qualified IRA

In which scenario would the premium of a policy be tax deductible? A. Betty, that paid the premium for her daughter's policy B. Ed, an employer that paid the premium on the life of the life of his key employee C. Ned, that paid his own Life insurance policy D. Danny, an employer that paid a premium for group term life insurance for his employees.

Danny, an employer that paid a premium for group term life insurance for his employees.

In regard to a modified Endowment contract, which of the following is not subject to income tax? A. Death benefit B. Dividend C. Any policy withdrawal D. Any loan against the cash value

Death benefit

The non-taxed return of unused premiums refers to which term? A. Dividend B. Surplus C. Premium D. Equity

Dividend

What term relates to an individual's salary and commissions? A. Earned Income B. Profit Sharing amounts C. Profits D. Distributions

Earned Income

Roth IRA Contributions are tax deductible. True or False? A. True B. Free

False Roth IRA contributions are not tax deductible.

Ken is the beneficiary of his uncle's Life policy. Ken doesn't want to take his proceeds in a lump sum, so what will he be taxed? A. He will be taxed on half of his principal amount B. Nothing will be taxed C. He will be taxed on the interest earned D. He will be taxed on 10% of his principal amount

He will be taxed on the interest earned

Which of the following is used mostly by a sole proprietor and their employees? A. SIMPLE B. Roth C. Keogh D. SEP

Keogh

When money is withdrawn from an annuity during its accumulation phase, how is the amount taxed? A. 6% B. On an annual basis C. On a first in last out basis D. On a last in first out basis

On a last in first out basis

Melanie pays only part of her total number of IRA premiums before she dies. Her daughter wants to know what effect this will have on Melanie's estate. Which of the following is true? A. Premiums left unpaid will be deducted from Melanie's estate B. IRAs have no effect on estate C. Only the premiums paid will be included in Melanie's estate D. All of their IRA funds will be directed to the state

Only the premiums paid will be included in Melanie's estate

Frank wants a retirement account that allows him to make contributions to its beyond age 70 1/2. What kind of IRA would best suit Frank's lifestyle? A. Standard IRA B. Variable IRA C. Roth IRA D. Non-Profit IRA

Roth IRA

Where would post tax dollar contributions be found? A. Traditional IRA B. 401K C. SIMPLE D. Roth IRA

Roth IRA

when a Life Insurance policy is replaced with another Life Insurance policy, to enable postponement of tax consequences, this is referred to as a: A. Taxed Growth Option B. Non-Forfeiture option C. Section 1035 Exchange D. Bail Out Provision

Section 1035 Exchange

Allen is a beneficiary of his mother's Life policy. he received payments of the principal and interest. Which of the following describes his taxable income? A. The principal is taxable income B. The interest is taxable income C. Nothing is taxable income D. It depends on the death benefit total

The interest is taxable income

Which of the following is the main reason for the Seven Pay Test? A. To guarantee payments B. To make sure a beneficiary receives their benefits in five years C. To make sure the beneficiary receives level fixed payments D. To determine if the policy is a MEC

To determine if the policy is a MEC

The death benefit would not be subjected to income tax under an MEC. True or False? A. True B. False

True

When an annuity is replaced with another annuity it is a qualified Section 1035 Exchange. True or False? A. True B. False

True