Ohio Life Insurance - Federal Tax Considerations for Life Insurance and Annuities

An IRA uses immediate annuities to pay out benefits; the IRA owner is nearly 75 years old when he decides to collect distributions. What kind of penalty would the IRA owner pay? A) 15% for early withdrawal B) 50% tax on the amount not distributed as required C) No penalties, since the owner is older than 59 1/2 D) 10% for early withdrawal

B) 50% tax on the amount not distributed as required

If taken as a lump sum, life insurance proceeds to beneficiaries are passed? A) Free of federal income taxation. B) Tax-deductible. C) Part tax-free and part taxable. D) Without Interest.

A) Free of federal income taxation.

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 the withdrawal the interest paid on was $11,000, the beneficiary would be required to pay income tax on? A) $261,000. B) $239,000. C) $11,000. D) None, because the beneficiary has not received the death benefit.

C) $11,000.

If a life insurance policy develops cash value faster than a seven pay whole life contract, it becomes a/an? A) Endowment. B) Nonqualified annuity. C) Modified endowment contract. D) Accelerated benefit policy.

C) Modified endowment contract.

An insured decides to surrender his $100,000 Whole Life policy. The premiums 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

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 NOT an allowable 1035 exchange? A) A life insurance policy is exchanged for an annuity. B) A whole life policy is exchanged for a term insurance 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 policy is exchanged for a term insurance policy.

What is the penalty for IRA distributions that are below the required minimum for the year? A) 10% B) 25% C) 50% D) 60%

C) 50%

When must an IRA be completely distributed when a beneficiary is not named? A) Due date of the beneficiary's tax return including extensions. B) December 31 of the year following the owner's death. C) Due date of the deceased owner's final tax return including extensions. D) December 31 of the year that contains the fifth anniversary of the owner's death.

D) December 31 of the year that contains the fifth anniversary of the owner's death.

Traditional IRA contributions are tax-deductible based on which of the following? A) How long the plan has been in force B) Owners age C) IRA limit D) Owner's income

D) Owner's income

Which of the following is true regarding taxation of dividends in participating policies? A) Dividends are not taxable. B) Dividends are taxable only after a certain amount is accumulated annually. C) Dividends are taxable in some life insurance policies and nontaxable in others. D) Dividends are considered income for tax purposes.

A) Dividends are not taxable.

When contributions to an immediate annuity are made with before-tax dollars, which of the following is true of the distributions? A) Distributions are non-taxable B) Distributions cannot begin prior to age 72 C) There are no distributions D) Distributions are taxable

D) Distributions are taxable

In a direct transfer, how is money transferred from one retirement plan to a traditional IRA? A) From trustee to participant B) From the participant to the new plan C) From the original plan to the original custodian D) From trustee to trustee

D) From trustee to trustee

What is the main purpose of the Seven-Pay-Test? A) It requires level premium payments for 7 years. B) It ensures that the policy benefits are paid out in 7 years. C) It guarantees the minimum interest. D) It determines if the insurance policy is a MEC.

D) It determines if the insurance policy is a MEC.

An applicant buys a nonqualified annuity, but dies before the starting date. For which of the following beneficiaries would interest accumulated in the annuity NOT be taxable? A) Charitable organization B) Dependents C) Annuitant D) Spouse

D) Spouse

When a beneficiary receives payments consisting of both principal and interest portions, which parts are taxable as income? A) Interest only B) Both principal and interest C) Neither principal nor interest D) Principal only

A) Interest only

During the accumulation period in a nonqualified annuity, what are the tax consequences of a withdrawal? A) Nontaxable principle may be withdrawn first, but the 10% penalty will be imposed if under the age of 59 1/2. B) Both interest and principal are taxed; no other penalties are imposed. C) Neither interest nor principal is taxed, but penalties may be imposed. D) Taxable interest will be withdrawn first and the 10% penalty will be imposed if under age 59 1/2.

D) Taxable interest will be withdrawn first and the 10% penalty will be imposed if under age 59 1/2.