AD Banker Chapter 7 Quiz

There are ____ broad categories of qualified retirement plans.

2

Regarding an accelerated death benefit, a physician must give a prognosis of ___ months or less life expectancy for the named insured

24

Regarding an accelerated death benefit, a physician must give a prognosis of ___ months or less life expectancy for the named insured.

24

An IRA catch up contribution can be made by any person age ______ or older.

50

The IRS allows for 'catch-up' IRA contributions for those age _______ and older.

50

What happens if a traditional IRA account owner fails to start taking required minimum distributions on time or for the proper amount?

50% tax penalty on the excess accumulation

When a life insurance policy does not pass the ______-pay test, it becomes classified as a MEC.

7

What is the age that is used to determine when the owner of a traditional IRA must begin to take Required Minimum Distributions?

70 1/2

P is 75. P's required minimum distribution for this year is $10,000. P only withdraws $2,000. What is the consequence to P for this?

A $4,000 tax penalty

When establishing a SIMPLE, what two different types of qualified plans must employers choose between?

A 401(k) or an IRA

All employer-paid premiums for amounts above $_________ of group life insurance are reported as taxable income to the employee.

$50,000

E has a $10,000 traditional whole life policy with a $4,000 cash value. Premiums paid to date are $3,500. If the policy lapses with a $4,000 loan outstanding, what amount will be taxable as income to E?

$500

SIMPLE plans are only available to companies that have ______ employees or less, and must be the only type of plan the company has available for the employees.

100

If the annuitant dies during the annuity or payout phase, the remaining value in the account will be:

Added to the deceased annuitant's estate for valuation

If an annuity is annuitized, then the _________ investment is recovered income tax-free over the income benefit payment period.

After-tax

A Section 1035 exchange is most similar to which of the following transactions?

An IRA rollover

When an employee receives a fixed and known benefit at retirement, it comes from a(n) __________ plan.

Defined Benefit

In which of the following plans does the company assume all of the investment risk?

Defined benefit

Which of the following plans is commonly known as a pension?

Defined benefit

A qualified pension plan must meet ___________ requirements.

ERISA

Anyone under the age of 70 1/2 who has _________ can open up a Traditional IRA.

Earned Income

All of the following regarding employer group life insurance are true, except:

Employee-paid premiums are tax-deductible to the employee

All of the following are characteristics of a 403(b) plan, except:

Employees can make direct payments into the retirement fund

If a policyowner unintentionally pays premiums in excess of the MEC guidelines, the excess premium can be refunded by the insurer within 60 days after the ________.

End of the contract year

When withdrawing cash from a cash value life insurance policy, the amount of the withdrawal up to the policy's cost basis is tax-free. This tax accounting rule is referred to as:

FIFO

The only time a policy loan is taxable is in which of the following situations?

Having the policy lapse with a loan outstanding in excess of cost basis

Which of the following statements about a Modified Endowment Contract (MEC) is FALSE?

If a contract is deemed a MEC, any funds distributed are subject to a first-in/first-out (FIFO) tax treatment

During the accumulation phase of an annuity, if the contract owner dies and the annuitant is someone other than the owner, the value of the annuity is:

Included in the owner's estate for valuation

Death benefits paid from an employee group life insurance plan to an employee's named beneficiary are received __________.

Income tax-free

Cash values within an ordinary straight whole life insurance policy _______ over time.

Increase

How often may a person perform a rollover from one IRA to another?

Once a year

David withdrew the money from his tax-deductible Traditional IRA and reinvested it 90 days later in another IRA. Which of the following statements is true regarding this transaction?

The distribution from the former IRA is fully taxable

Which of the following scenarios will cause the value of a life insurance policy death benefit to be included in the insured's estate?

The insured is also the policyowner and at death no beneficiaries are alive

Clayton is asking his life insurance producer about any potential taxation issues related to his $100,000 personal Whole Life policy. All of the following are TRUE, except:

The interest that he pays on policy loans is tax-deductible

Which of the following Is the reason why premiums paid on personal life insurance are not deductible?

They are considered a personal expense

Death benefits are paid to the estate of the policyowner/insured in which of the following situations?

The beneficiary is the estate

What type of retirement plan is not required to have a vesting schedule, is not approved by the IRS, can discriminate in favor of highly compensated employees, and can benefit the employer?

A non-qualified plan

A Section 1035 Exchange is permitted in each of the following transactions, except:

An annuity is exchanged for a Whole Life Policy

If a non-qualified variable annuity owned for 15 years is surrendered, what is the income tax consequence?

Any amount received in excess of its cost basis is taxable as ordinary income

Which of the following statements regarding Roth IRAs is FALSE?

As long as the account owner is under age 59 1/2 there is no maximum contribution limit

In which of the following situations will the annuity's value be included in the deceased annuitant's estate?

If the annuitant dies during the annuity or payout phase with any remaining value

An employer's contribution to a SIMPLE plan is vested _________

Immediately at 100%

The Modified Endowment Contract (MEC) rules were put into place because:

Individuals were abusing life insurance policies as tax-free investment vehicles

An Individual Retirement Account (IRA) may be funded with all of the following, except:

Life Insurance

If money is paid to change the ownership on a policy covering an insured who is not terminally ill, this is referred to as a(n) __________.

Life Settlement

Which of the following is NOT a taxable event for a Modified Endowment Contract (MEC)?

Lump sum death benefit paid to the beneficiary

ERISA requires that those who establish qualified plans must meet certain ___________standards.

Minimum

If an accelerated death benefit is in effect, how often must the insurer provide a report showing the amount paid and the amount of the remaining benefit?

Monthly

____________ plans do not meet the requirements of federal law to be eligible for favorable tax treatment.

Non-qualified

For an individually purchased life insurance policy, the premiums are considered a __________.

Nondeductible personal expense

____________ do not meet requirements of federal law to be eligible for favorable tax treatment.

Nonqualified Retirement Plans

F has a $100,000 face amount term life policy for which F paid $10,000 in premium to date. F dies and the benefit is paid out to G, the beneficiary. What amount of the death benefit received is taxable as income to G?

Nothing

When the annuitant dies during the accumulation phase of the annuity, the beneficiary receiving the death benefit:

Pays income tax on any gains at his or her own income tax rate

All of the following are TRUE regarding qualified plans, except:

Plans can discriminate in favor of highly compensated employees

All of the following regarding policy loans are true, except:

Policy loans are taxable if the policy remains in effect and the amount borrowed exceeds the premiums paid

A life insurance 1035 exchange can only be completed after:

Proof of insurability has been provided and accepted

Chad and Sue have successfully owned and operated their bakery for 10 years and have decided to plan for their retirement. They are not incorporated and have no full-time employees, and want a qualified plan to maximize the tax advantages while at the same time not bog them down with paperwork. Which of the following plans would be their best option?

Simplified Employee Pension (SEP

Which of the following policies would be deemed a MEC?

Single Premium Whole Life

Which of the following would always be considered a Modified Endowment Contract?

Single Premium Whole Life

Which of the following plans is designed for employees of non-profit organizations, which includes schools and other 501(c)(3) entities?

Tax-Sheltered Annuity (TSA)

Joe had $500,000 of life insurance at work. He has an additional $40,000 life insurance policy the company purchased on all employees. His wife is the primary beneficiary and their four children are contingent beneficiaries. Upon Joe's death, what are the tax consequences to his beneficiaries?

The $540,000 lump sum proceeds will be received income tax-free

To eliminate the use of life insurance as a short-term, tax-free savings vehicle, what tax law change took place?

The Modified Endowment Contract (MEC) rules were put into place

By what means is a transfer for value made?

Through an absolute assignment

What is the main purpose that IRC section 1035 was enacted?

To allow for continued tax-deferral on any gains in an existing policy when a policyowner moves into a new one

If money is paid when a change of ownership in a life insurance policy takes place, this is generally known as a ____________.

Transfer for value

All of the following are times in which life insurance policy cash values can become taxable, except:

When a policy loan is taken out

All of the following will determine whether or not an IRA contribution is deductible, except:

Whether the IRA owner is over a specified age