Qualified plans, and federal Tax considerations for life insurance and annuities

An employee quits her job where she has a balance of $10,000 in her qualified plan. The balance was paid out directly to the employee in order for her to move the funds to a new account. If she decides to rollover her plan to a Traditional IRA, how much will she receive from the plan administrator and how long does she have to complete the tax-free rollover?

$10,000, no tax consequence

What is the penalty for IRA distributions that are below the required minimum for the year?

50%

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?

50% tax on the amount not distributed as required.

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 qualified plan?

Are subject to vesting requirements

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 owners death.

When contributions to an immediate annuity are made with before tax dollars, what is true of distributions?

Distributions are taxable

what term is used to name the nontaxed return of unused premiums?

Dividend

What is true regarding taxation of dividends in participating policies?

Dividends are not taxable

For a retirement plan to be qualified, it must be designed for the benefit of?

Employees

In a direct rollover, how is the money transferred from one plan to the new one?

From trustee to trustee

Life insurance death proceeds are?

Generally not taxed as income

What is the tax consequence of amounts received from a Traditional IRA after the money was left in the tax-deferred account by the beneficiary?

Income tax on distributions and no penalty

When a beneficiary receives payments consisting of both principal and interest portions, which parts are taxable as income?

Interest only

What is TRUE about a qualified plan?

It has a tax benefit for both employer and employee

If a retirement plan or annuity is "qualified", this means?

It is approved by the IRS.

IF an insured surrenders his life insurance policy, which statement is true regarding the cash value of the policy?

It is only taxable if the cash value exceeds the amount paid for premiums.

What is not true regarding policy loans?

Money borrowed from the cash value is taxable.

Death benefits payable to a beneficiary under a life insurance policy are generally?

Not subject to income taxation by the federal government.

Which type of retirement account does not require the owner to start talking distributions at age 72?

Roth IRA

What part of the internal revenue code allows an owner of a life insurance policy or annuity to exchange or replace their current contract with another contract without creating adverse tax consequences?

Section 1035 policy exchange

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.

An applicant buys a nonqualified annuity, but dies before the starting date. For which of the following beneficiaries would the contract's interest NOT be taxable?

Spouse

What type of annuity activity will cause immediate taxation of the interest earned?

Surrendering the annuity for cash

During the accumulation period in a non qualified annuity, what are the tax consequences of a withdrawal?

Taxable interest will be withdrawn first and the 10% penalty will be imposed if under age 59.5

What would NOT be different between qualified and nonqualified retirement plans?

Taxation on accumulation

What best describes taxation during the accumulation period of an annuity?

Taxed are deferred.

What method is used to determine the taxable portion of each annuity payment?

The exclusion ratio.

What is not a general requirement of a qualified plan?

The plan must provide an offset for social security benefits.

What describes the taxation of an annuity when money is withdrawn during the accumulation phase?

Withdrawn amounts are taxed on a last in, first out basis.