Chapter 7-9

Coverage Requirements

- Designed to prevent employee discrimination - Favoritism of company offers, highly compensated employees, and shareholders is strictly forbidden.

Annuities are flexible in that there are options available to purchasers to which enable them to structure and design the product to best suit their needs. These options include (4):

- Funding method - Single lump-sum payment or periodic payments over time. - Date annuity benefit payments begin - Immediately or deferred until a future date. - Investment configuration - a fixed (guaranteed) rate of return or a variable (non-guaranteed) rate of return. - Payout period - A specified number of years or for life, or a combination of both.

Social Security Survivors benefits

- Social Security Survivors benefits or death benefits - pay lump-sum death benefit or monthly income to survivors of deceased covered workers. Spouse without dependent children is eligible for survivor benefits as early as age 60. A spouse of any age who is caring for children under age 16. Children under age 18, children under age 19 are full time students, children at any age if disabled before age 22 and remain disabled. A social security benefit of 75% of the Primary Insurance Amount (PIA) is given to an underage child of a deceased worker.

Annuity Payout Options There are number of annuity income options availaible

- Straight life income - cash refund - Installment refund _ life with period certain - joint and survivor - fixed amount and period certain.

Deduction of IRA Contributions: The ability of an IRA participant to take a deduction for her contribution rests on two factors:

- Whether or not the participant is covered by an employer-sponsored retirement plan. - The amount of income the participant makes. Individuals who are not covered by an employer-sponsored plan may contribute up to the annual limit to a traditional IRA and deduct from their current income the full amount of the contribution, no matter what their level of income is.

OASDHI, who is covered and not covered:

- every American who is employed or self - Most federal employees hired before 1984 who are covered by Civil Service Retirement or another similar plan. - Approximately 25% of state and local government employees who are covered by a state pension program and elect not to participate in the Social Security Program. - Railroad workers covered under a separate federal program called the Railroad Retirement System.

No cash withdrawals prior to the age of 59 1/2 are permitted without having to pay a 10% excise tax, with the following exceptions:

- if the owner dies or becomes disabled - If the distribution is in equal payments over the owner's life time -If higher education expenses for a dependent are necessary - to purchase a first home with up to $10,000 down payment - if out-of-pocket medical expenses are in excess of 7.5% of adjusted gross - to pay health insurance premiums while unemployed - to correct or reduce an excess contribution

With any annuity, there are two distinct time periods involved:

- the accumulation period and the payout (or annuity) period. - The accumulation period is that time during which funds are being paid into the annuity.

There is an exception to this nonnatural person, as an agent for a natural person being, interest earned continues to be tax-deferred. Other exceptions to this rule include but are not limited to (3):

1. An annuity contract that is acquired by a person's estate following the death of that person 2. An annuity contract that is held under a qualified retirement plan, a TSA or an IRA. 3. A contract which is an immediate annuity purchased with a single premium, with periodic payments to commence within a year. The proceeds are paid tax free up to a certain level ($50,000).

What are the penalties for withdrawals from a deferred annuity before age 59 1/2? What about after that age?

10% None, but the nonforfeiture value of an annuity prior to annuitization is all premiums paid, plus interest, minus any withdrawals and surrender charges. If the annuitant dies before the annuity start date, the beneficiary receives the premiums paid plus interest earned.

With a few exceptions, any distribution from a traditional IRA before age 59 1/2 will have adverse taxes consequences. In addition to income tax, the taxable amount of the withdrawal will be subject to a ______ ______________. What are the situations where they won't be assessed a penalty (5).

10% penalty If the owner dies or become disabled. If the owner is faced with a certain amount of qualifying medical expenses. To pay for higher education expenses. To cover first time home purchase expenses. To pay for health insurance premiums while unemployed, To correct or reduce an excess contribution.

Any rollover must be made directly from one IRA to another IRA or it will be subject to a ________ ______________________. This is true even if the rollover occurs within the 60-day limit. To avoid withholding rate, the rollover must take place without the plan's funds being in the recipient's control for even an instant.

20% withholding

Salary Deferral Option

401K this is also called cash "deferred arrangements". This is an option for 401 k and maximum annual pretax contribution limit is $19,500

The ____________________ Plan is a retirement plan for certain employees of public schools, employees of certain tax-exempt organizations, and certain ministers.

403(b)

Roth IRA

A personal savings plan; contributions are not tax-deductible; earnings are tax-free. Taxed prior to receiving amount after age 59 1/2. Rules to withdrawals: The funds must have been held in the account for a minimum of five years. The withdrawal must occur because the owner has reached age 59 1/2, the owner dies, the owner becomes disabled, or the distribution is used to purchase a first home.

Conduit IRA

A separate IRA established with a rollover from an eligible retirement plan. No withholding tax is necessary unless any of the funds are distributed directly to the individual.

Social Security: Fully Insured

A status of complete eligibility for the full range of Social Security benefits: death benefits, retirement benefits, disability benefits, and Medicare benefits. A person must have contributed for 40 quarters of employment to be fully insured.

Tax sheltered annuity, or TSA. Its also known as a 403(b) plan

A tax sheltered annuity is a special tax-favored retirement plan available only to certain groups of employees. Tax-sheltered annuities may be established for the employees of specified nonprofit charitable, educational, religious, and other 501(c) (3) organizations, including teachers in public school systems. Such plans generally are not available to other kinds of employees.

Fixed Annuities

A type of annuity that provides a guaranteed fixed benefit amount, payable for the life of the annuitant. The interest payable for any given year is declared in advance by the insurer and is guaranteed to be no less than a minimum specified in the contract. With fixed annuities, the investment risk is on the insurer. Allows the insurer to credit a steady interest rate to the annuity contract. annuitant is making payments to fund the annuity (the accumulation period), the insurer invests these payments in conservative, long-term securities (typically bonds). When converted to a payout mode, fixed annuities proved a guaranteed fixed benefit amount to the annuitant, typically stated in terms of dollars per $1,000 of accumulated value.

Guaranteed Minimum Withdrawal Benefit (GMWB)

A variable annuity rider that guarantees that the owner can withdraw a minimum amount annually without a surrender charge. Annual withdrawals are usually limited to a specified percentage, such as 5 to 10 percent, of total premiums paid, until reaching the depletion of the total initial investment, the annuitant may continue to receive income during the withdrawal period.

Salary Reduction SEP Plans

A variation of the SEP plan is the salary reduction SEP (SARSEP). SARSEPs incorporate a deferral/salary reduction approach in that the employee can elect to have employer contributions directed into the SEP or paid out as taxable cash compensation. Same as 401(K). For 25 or smaller companys. Plans before 1996 may continue to operate and accept new employee participants.

Deferred Annuities

Accumulate interest earning on a tax-deferred basis and provide income payments at some specified future date (normally within a minimum of 12 months after date of purchase). Provides for postponement of the commencement of an annuity until after a specified period or until the annuitant attains a specified age. May be purchased either on single-premium or flexible premium or flexible premium basis. Deferred annuities typically do not begin making income payments for at least one year after the date of purchase. The accumulation value of a deferred annuity is equal to the sum of premium paid plus interest earned minus expenses and withdrawals. Benefit payments are initiated after the contract become annuitized.

Section 529 Plans

Also known as Qualified Tuition Programs (QTPs), these plans are designed to save for college tuition as well as receive tax credits and deductions towards college expenses. Don't restrict eligibility or limit the amount of contribution based on the income of the contributor. State residency also is not a restriction. Does not need to report income when withdrawals are used for qualified college costs.

Single Premium Annuity

An Annuity purchased with one lump sum payment at the beginning of the contract period. This can be deferred or immediate.

Corporate-Owned Annuities

An annuity contract owned by a non-natural person is not treated as an annuity for federal income tax purposes, so the contract's gains are currently taxed as opposed to being tax deferred. In short, there are no tax benefits when an annuity is owned by a corporation. Natural person is referred to as a measurable life.

Funding Standards

An employer must deposit enough money to cover the pension plans and administrative costs. These funds must be held by a third party. This method for investing the funds as they accumulate.

IRA Participation

Anyone under the age of 70 1/2 who has earned income may open a traditional IRA and contribute up to the contribution limit or 100% of compensation each year, whichever less. A non-wage earning spouse may open an IRA and contribute up to the limit each year.

Traditional IRA Withdrawals: Traditional IRA owners must begin to receive payment from their accounts no later than ____________ ___ following the year in which they reach 70 1/2. The law specifies a minimum amount that must be withdrawn every year. Failure to withdraw the minimum amount can result in a ________ __________ _________ that will be assessed on the amount that should have been withdrawn.

April 1 50% excise tax

Money Purchase Plan

Defined contribution plan that uses a fixed percentage of employee earnings to defer compensation. It works well for organizations with relatively stable earnings from year to year because the percentage is fixed, and, once established, contributions must be made every year. The contribution limits are the same as for profit-sharing plans. - Contributions and earning must be allocated to participants in accordance with a definite formula. -Distributions can be made only in accordance with amounts credited to participants. - Plan assets must be valued at least once a year, with participants' accounts being adjusted accordingly.

Disability Benefits

Disability, as defined for Social Security purposes, describes an employee who is unable to engage in any occupation. A person may first become eligible for disability benefits under Social Security after having been disabled for 5 months.

What formula is used to determine the amount of annual annuity income exempt from federal income taxes?

Exclusion Ratio

The accumulation period of an annuity normally doesn't continue after the purchase of payments cease?

False, it does.

ERISA (Employee Retirement Income Security Act)

Federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans.

IRC Section 457 Deferred Compensation Plans

For employees of state and local governments and nonprofit organizations became popular in the 1970s. Allows participants in such plans to defer compensation without current taxation as long as certain conditions are met. Will not be included in gross income until they are actually received or made available. Self-Employed Individuals Retirement Act, signed into law in 1962, recited this situation by treating small business owners and self-employed individuals as employees.

Social Security Payroll Taxes

Funding or Social Security is collected from FICA payroll taxes. Collected from employers, employees, and self-employed individuals. FICA tax is applied to an employee's income up to a certain income amount. Taxable wage base. Medicare Part A are not subject to a subject to a maximum taxable wage cap.

Two-Tiered Annuities

Has different values available for distribution at maturity depending on whether the value is taken in a lump sum before annuitization or left with the issuer for periodic payments. If an owner/insured keeps the contract for a specific number of years (or until it annuitizes), they will have received a higher rate of interest. If the contract is surrendered at an earlier date, the interest credited will be recalculated from the contract's inception using a lower (i.e., tier) interest rate.

Nonqualified Withdrawal

If a withdrawal is taken without meeting the above criteria and the amount of the withdrawal exceeds the total amount contributed, it is a nonqualified withdrawal. The earnings from the contributions become taxable.

Life With Period Certain Option

Known as the life income with term-certain option. Annuity option that is designed to pay the annuitant an income for life but guarantees a definite minimum period of payments(ex:life and 10yr contract and they die after 6 years their beneficiary still gets paid for 4 years)

Dual Benefit Liability

Often a person is eligible to receive more than one Social Security benefit. For example, a spouse who has reached age 65 may be eligible to receive a retirement benefit based on her own earnings and also a benefit based on her late husband's earnings. In these cases, the person is entitled to receive only the larger of the two benefit amounts instead of both amounts.

OASDI

Old Age, Survivors, and Disability Insurance, also known as social security. To pay for these programs, the federal government imposes a tax on earned income that must be withheld by your employer. The OASDI deduction on your paycheck shows how much was withheld.

Vesting Schedule

Right that employees have to their retirement funds. Benefits that are vested belong to each employee even if the employee terminates employment prior to retirement.

Participation Standards

Rules that must be followed for determining employee eligibility for a qualified retirement plan. Must receive the Summary Plan within 90 days after becoming covered by the plan. Church, governmental, and collectively bargained plans are specifically exempt from ERISA regulations Must be 21 and completed one year of service.

The Amount of an Annuity Payment is Dependent Upon three factors:

Starting principle Interest Income Period

Pension Protection Act of 2006

The act encourages workers to increase their contributions to employer sponsored retirement plans and helps them manage their investments. Provides automatic enrollment is a means of increasing participation in 401 (k) plans, especially among young workers entering the workforce. Plan sponsors can offer fund-specific investment advice to participants through their retirement plan providers or other fiduciary advisers.

Primary Insurance Amount (PIA)

The benefit (before rounding down to next lower whole dollar) a person would receive if he/she elects to begin receiving retirement benefits at his/her normal retirement age. At this age, the benefit is neither reduced for early retirement nor increased for delayed retirement.

Calculating Benefits

The primary insurance amount determines the full amount of retirement benefits for an eligible person at age 65. If a worker retires early, for example at age 62, his retirement benefits will be 80% off his PIA and will remain lower for the covered worker's life.

Annuity Investments and Senior Citizens

This law applies to any recommendation to purchase or exchange a fixed or variable annuity whether the product is classified as an individual or group annuit. Senior is any person age 65 or older. Agent must have an objectively reasonable basis for believing that the recommendation is suitable for the senior based upon the facts disclosed regarding the seniors investments, other insurance products, and the senior's financial situation. An agent is required to make reasonable efforts to obtain information concerning the senior's financial status, tax status, and risk tolerance, among other specified information relevant to determining suitability. Must make reasonable efforts to obtain age, if no identification must obtain signature. Agents must maintain records relating to such transactions for five years.

T or F - While anyone can set up an annuity and pay income for a stated period of time, only life insurance companies can guarantee income for the life of the annuitant.

True

T or F: All contributions to a SIMPLE IRA or SIMPLE 401 (k) plan are nonforfeitable and the employee is immediately and fully vested and the taxation of contributions and their earning is deferred until funds are withdrawn or distributed?

True

T or F: SARSEP and SIMPLE plans allow participants who are at least 50 years old by the plan year to make additional "catch-up" contributions?

True

T or F: The Roth IRA was created by the Taxpayer Relief Act of 1997. Roth IRA's require nondeductible contributions but offers tax-free earnings and withdrawals?

True

Social Security: Currently Insured

Under Social Security, a status of limited eligibility that provides only death benefits.

SIMPLE

a qualified employer retirement plan that allows small employers to set up tax-favored retirement savings plans for their employees. Are available to small business (including tax exempt and government entities) that employ no more than 100 employees who received at least $5,000 in compensation from the employer during the previous year. Cant have a plan already in place. May be structured as an IRA or as a 401 (k) cash or deferred arrangement.

403(b) plan

a tax-deferred retirement plan for employees of public schools and tax-exempt organizations, and certain ministers.

401(k) plan

a tax-deferred retirement plan offered to employees by their employer

Defined Contribution Plan

a tax-qualified retirement plan in which annual contributions are determined by a formula set forth in the plan. Benefits paid to a participant vary with the amount of contributions made on the participant's behalf and the length of service under the plan.

Straight Life Annuity

annuity income option that pays a guaranteed income for annuitant's lifetime, after which the payments stop.

Installment Refund Option

annuity option that guarantees the total annuity fund will be paid to the annuitant or their beneficiary but the fund remaining at the annuitants death is paid to the beneficiary in the form of continued annuity payments not a single lump sum.

Straight Life Income Option

annuity option that pays the annuitant a guaranteed income for the annuitants lifetime but when the annuitant dies no further payments are made to anyone. This annuity guarantees protection against exhaustion of savings due to longeviry. When a life annuitant outlives life expectancy, the funds for additional benefit payments will be derived primarily from funds that ere not distributed to life annuitants who died before life expectancy. The straight life annuity typically pays the largest monthly benefit to a single annuitant because it is based only on the life expectancy.

Cash Refund Option

annuity option that provides a guaranteed income to the annuitant for life and if the annuitant dies before the annuity fund is depleted a lump sum cash payment of the remainder is made to the annuitants beneficiary. Insurance company gets the interest.

profit-sharing plan

any plans whereby a portion of a company's profits is set aside for distribution to employees who qualify under the plan.

1035 Contract Exchange

applies to annuities. If an annuity is exchanged for another annuity, a gain (for tax purposes) is not realized. The is also true for a life insurance policy or an endowment contract exchanged for an annuity. However, an annuity cannot be exchanged for a life insurance policy. This provision in the tax code allows you, as policyholder, to transfer funds from a life insurance, endowment or annuity to a new policy, without having to pay taxes.

Equity Indexed Annuities

are a fixed deferred annuity that offers the traditional guaranteed minimum interest rate and an excess interest feature that is based on the performance of an external equities market index. The interest credited to an EIA is tied to increases in a specific equity or stock index (such as S&P 500), which results in long-term inflation protection. minimum guaranteed rate (ordinarily 3 to 4%). At the end of the contracts term (usually five to seven years) the annuity will be credited with the greater of the guaranteed minimum value or the indexed value.

Rollovers

are an individual retirement account established with funds transferred from another IRA or qualified retirement plan that the owner had terminated.

Keogh Plan

are designed to fund retirement of self-employed individuals; name derived from the author of the Keogh Act (HR-10), under which contributions to such plans are given favorable tax treatment. Is a qualified retirement plan designed for unincorporated businesses (self-employed) that allows the business owner (or partner in a business) to participate as an employee, only if the employees of the business are included. - Subject to the same maximum contribution limits and benefit limits as qualified corporate plans. - Must comply with the same participation and coverage requirements as qualified corporate plans. - Are subject to the same nondiscrimination rules as qualified corporate plans. Plans have a maximum contribution of $57,000.

Employee Stock Ownership Plan (ESOP)

are employee-owner programs that provide a company's workforce with an ownership interest in the company.

Annuity Units

are the converted accumulation units once variable annuity benefits are to be paid out to the annuitant. At the time of the initial payout the annuity unit calculations is made. From then on, the number of annuity units remains the same for that annuitant. The value of one annuity unit can and does vary from month to month, depending on investment results.

Social Security Credits

are the determining factor betwen being classified as fully insured or currently insured. Once a person becomes fully insured, death benefits are extended to his (or her) family. In other words, the family becomes eligible for survivorship benefits. Four credits is the maximum any one person can earn in a given year; therefore, for the 40-quarter rule to apply, an individual must have been employed and have paid FICA taxes for 10 years at least.

Surrender Charges

are used to discourage withdrawals and exchanges in an annuity. Most have a limited duration, applying only during the first five to eight years of the contract. Most provide free withdrawal which allows the annuity owner to a certain percentage, usually 10%, of the annuity account with no surrender charge applied.

FICA Taxes (Federal Insurance Contributions Act)

are used to fund the Social Security program if a person hasn't contributed through their payroll program, they are not eligible for benefits.

Market Value Adjustment

can be attached to a deferred annuity that features fixed interest rate guarantees combined with an interest rate adjustment factor that can cause the actual crediting rates to increase or decrease in response to market conditions. Instead of having the annuity's interest rate linked to an index as with the equity-indexed annuity, an MVA annuity's interest rate is guaranteed fixed if the contract is held for the period specified in the policy. The market-value adjustment feature applies only if the contract is surrendered before the contract period expires. Otherwise, the annuity functions the same way a fixed annuity does. If an MVA annuity owner decides to surrender the contract early, a surrender charge and a market-value adjustment will apply. Shits some of the investment to the owner. The interest earned on the declining principal is taxed as ordinary income. Contributions made by the annuitant are not taxed.

Periodic Payments (Flexible Premium)

describes an annuity owner making multiple premium payments to accumulate principle. Typically, after the initial premium, these payments are flexible with frequency and amount.

A Joint and full survivor option provides

for payment of the annuity to two people. If either person dies, the same income payments continue to the survivor for life. IF both die, nobody gets it. There can be a 2/3 or 1/2 survivor, they get that much amount when the insured dies.

Alienation of benefits

involves the assignment of a pension or retirement plan participants benefits to another person. Permitted only under exceptional circumstances per IRS rules, such as certain participant loans and certain domestic relations orders.

Social Security Quarter of Coverage

is a basic unit for determining whether a worker is insured under the Social Security program.

Exclusion Ratio

is a fraction used to determine the amount of annual annuity income exempt from federal income tax. The exclusion ratio is the total contribution or investment in the annuity divided by the expected ratio.

Blackout Period

is a period following the death of a family breadwinner during which no Social Security benefits are available to the surviving spouse.

Traditional IRA

is a personal qualified retirement account through which eligible individuals accumulate tax-deferred income up to a certain amount each year, depending on the person's tax bracket. Depending on the individuals earnings and whether or not the individual is covered by an employer-sponsored retirement plan, the amount the individual contributes to a traditional IRA may be fully or partially deducted from current income, resulting in lower current income taxes.

Qualified Plan

is a retirement or employee compensation plan established and maintained by an employer that meets specific guidelines spelled out by the IRS and consequently receives favorable tax treatment.

Period Certain

is an annuity income option that guarantees a definite minimum period of payments. IE: 10 years

retirement benefits

is hen Social Security retirement benefits are only available to covered workers who are fully insured upon retirement. Benefits are paid monthly. If a covered worker retires at the normal retirement age, he or she will receive 100% of the PIA. However, if a covered worker retires early at the age of 62, the maximum Social Security benefits is 80% of the PIA. This reduction remains all through retirement. Retirement benefits pay covered retired workers, their spouses, and other eligible dependents a monthly retirement income.

Annuitant

is one to whom an annuity is payable, or a person upon the continuance of whose life further payment depends.

Principal

is the original sum of money paid in to an annuity through premiums.

Disability Benefit Qualifications

is when Social Security uses both medical disability criteria and non-medical criteria to determine whether you qualify for Social Security disability (SSDI, the program based on work credits) or Supplemental Security Income (SSI, the low-income program). First, you must be able to prove that you are medically disabled.

Accumulation Period

is when the premiums an annuitant pays into annuities are credited as accumulation units. The accumulation period may continue between the time after premiums have ceased but pay out has not yet begun. At the end of the accumulation period, accumulation units are converted to annuity units.

Accumulation Units

make up the values of contributions made by the annuitant less a deduction for expenses. The value of each accumulation unit is credit to the individual's account and varies depending on the value of the underlying stock investment.

defined benefit plan

pension plan that guarantees a specified level of retirement income. -Plan must provide for definitely determinable benefits, either by a formula specified in the plan or by actuarial computation. - The plan must provide for systematic payment of benefits to employees over a period of years after retirement. Thus, the plan has to detail the conditions under which benefits are payable and the potions under which benefits are paid. - The plan must provide primarily retirement benefits. Death benefits must be incidental to retirements. -The maximum annual benefit an employee may receive in any one year is limited to an amount set by the tax law. - The appropriate choice of a qualified corporate retirement plan requires an understanding of the operation and characteristics of each plan as they relate to the employer's objectives.

What are three primary types of defined contribution plans:

profit sharing loans stock bonus plans money purchase plans

Immediate Annuities

provide for payment of annuity benefit at one payment interval for date of purchase. Can only be purchased with a single payment. Immediate annuities typically begin paying income with one month of purchase. Lacks an accumulation period. Cannot simultaneously accept periodic funding payments by the annuitant and pay out income to the annuitant.

IRA Contributions/Withdrawals

provide generous tax breaks. But it's a matter of timing when you get to claim them. Traditional IRA contributions are tax deductible on both state and federal tax returns for the year you make the contribution, while withdrawals in retirement are taxed at ordinary income tax rates. Anyone under the age of 70 1/2 with earned income may open a traditional IRA. Withdrawals must start no later than April 1 following the year in which the participant reaches the age of 70 1/2, and the law specifies a minimum amount that must be withdrawn every year.

Qualified Annuity Plans

provide retirement benefits for employees. A qualified annuity plan is Individual Retirement Account. Tax sheltered annuity, or TSA. Its also known as a 403(b) plan or a 501 (c) (3) plan because it was made possible by those sections of the Tax Code. For many years, the federal government, through its tax laws, has encouraged specified nonprofit charitable, educational, and religious organizations to set aside funds for their employees' retirement. Upon retirement, payments received by employees from the accumulated savings in tax-sheltered annuities are treated as ordinary income. In addition to TSAs and IRAs, annuities are an acceptable funding mechanism for other qualified plans, including pensions and 401 (k) plans.

Qualified Withdrawals

provide the tax-free distribution of earning. To be a qualified withdrawal, the funds must have been held in the account for a minimum of five years; and if the withdrawal occurs for one of the following reasons, no portion of the withdrawal is subject to tax. - The owner has reached age 59 1/2 - The owner dies or becomes disabled - The distribution is used to purchase a first home

Variable Annuities

shift the investment risk from the insurer to the contract owner. Are similar to a traditional, fixed annuity in that retirement payments will be made periodically to the annuitants, usually over the remaining years of their lives. Under the variable annuity, there is no guarantee of the dollar amount of the payments; they fluctuate according to the value of an account invested primarily in common stocks. Variable annuities invest deferred annuity payments in an insurer's separate accounts, as opposed to an insurer's general accounts (which allow the insurer to guarantee interest in a fixed annuity). Because variable annuities are based on non-guaranteed equity investments (such as common stock), a sales representative who wants to sell such contracts must be registered with the Financial Industry Regulatory Authority (FINRA) as well as hold a state insurance license.

Stock Bonus Plans

similar to profit sharing plans except that benefits are delivered in the form of company stock instead of relying on the profits of the company

Taxation of Social Security Benefits

states that Social Security benefits are subject to federal income tax if the beneficiary files an individual tax return and his or her annual income is greater than $25,000. Joint filers will pay federal income tax on their Social Security benefits if their income is greater than $32,000.

The death of an annuity contract owner will generally trigger a payout to the beneficiary. A spouse as beneficiary may continue the contract with deferred ___________________ as contingent owner.

taxation.

Simplified Employee Pension (SEP)

type of qualified retirement plan under which the employer contributes to an individual retirement account set up and maintained by the employee. More for a smaller employer. Much larger amount that can be contributed compared to an IRA.

Social Security Act of 1935

was created to provide for the general welfare of United States citizens who are 65 years of age and older. The Act was enacted by the Senate and House of Representatives of the United States to enable individual states to make more adequate provisions to furnish financial assistance to the aged, blind, dependent and crippled children, maternal and child welfare, public health, and to establish more adequate provisions for the administration of their unemployment compensation laws; to establish a Social Security; to raise revenue; and to provide basic floor of protection to all working Americans against the financial problems brought on by death, disability, and aging. In 1939 the law was changed to add survivors' benefits and benefits for the retiree's spouse and children. In 1956 disability benefits were added. Social Security is an entitlement program, not a welfare program. It is based on a "pay now in exchange for benefits later" system.

Life with Period Certain or Life Income

with term-certain option is designed to pay the annuitant an income for life, but guarantees a definite minimum period of payments. The life with period certain option provides income to the annuitant for life but guarantees a minimum period of payments. This, if the annuitant dies during the specified period, benefit payments continue to the beneficiary for the remainder of that period.