Annuities (chapter 7)
An Internal Revenue Code provision that specifically provides for an individual retirement plan for public school teachers is a(n)
403(b) Plan (TSA) - Under a 403(b) Plan, tax-sheltered annuities may be established for the employees of specified nonprofit charitable, educational, religious and other 501c(3) organizations, including teachers in public schools systems. Such plans generally are not available to other kinds of employees.
Who would be eligible to contribute to an IRA?
A 50-year old school teacher. - Anyone with earned income who has not attained age 70 1/2 can have an IRA. Unemployment benefits would not be considered "earned income
Who is eligible to purchase an IRA?
Anyone under the age of 70 1/2 who has earned income. - Anyone with earned income who has not attained age 70 1/2 can have an IRA.
All of the following employees may use a 403(b) plan for their retirement EXCEPT
CEO of private corporation. - Not all public employees are eligible for 403(b) plans, or tax-sheltered annuities, only employees of public education (local, state, or federal), as well as employees of charitable organizations.
Which of the following is NOT a legitimate use of annuities by businesses?
Creating a tax shelter - Annuities are most often used by businesses to fund employee retirement plans, to provide deferred compensation for employees or as an investment vehicle.
Which of the following is NOT a term for the period of time during which the annuitant or the beneficiary receives income?
Depreciation period - The "annuitization period" is the time during which accumulated money is converted into an income stream. It is also referred to as the annuity, liquidation or pay-out period.
If a deferred annuity is surrendered prematurely, a surrender charge is imposed. How is the surrender charge determined?
It is a percentage of the cash value and decreases over time. - If a deferred annuity is surrendered prematurely, a surrender charge is imposed. The charge is generally a percentage that reduces over time until it ends.
A couple receives a set amount of income from their annuity. When the wife dies, the husband no longer receives annuity payments. What type of annuity did the couple buy?
Joint Life - Joint life annuity settlement option pays benefits to two or more annuitants, but stops upon the death of the first.
The form of life annuity which pays benefits throughout the lifetime of the annuitant and also guarantees payment for a minimum number of years is called
Life income with period certain - If the annuitant dies before the period certain, the payments continue to a beneficiary or the estate for the remainder of the period certain.
Which of the following is NOT true about a joint and survivor annuity benefit option?
Payments stop after the first death among the annuitants. - A joint and survivor annuity will pay until the last annuitant has died; however, the surviving annuitant may receive reduced payments.
Which of the following best describes what the annuity period is?
The period of time during which accumulated money is converted into income payments - The annuity period is the time during which accumulated money is converted into an income stream.
What form of the annuity settlement options provides payments to an annuitant for the rest of the annuitant's life and ceases at the annuitant's death?
pure life - A Pure Life Annuity has the potential for providing the maximum income per dollar of premium if the annuitant lives beyond their life expectancy. However, if the annuitant dies before his or her life expectancy, and before the total benefit has been paid out, payments cease and there is no refund of payments to survivors.
If the annuitant dies during the accumulation period, who will receive the annuity benefits?
beneficiary - If the annuitant dies during the accumulation period, the beneficiary receives benefits from the annuity: either the amount paid into the plan or the cash value - whichever is greater.
