Chapter 6 Quiz Questions

Which type of retirement account allows contributions to continue beyond age 70 1/2 and does not force distributions to start at age 70 1/2?

Roth IRA

Which is the same between qualified and non qualified retirement plans?

Taxation on accumulation

All of the following statements are true regarding tax-qualified annuities EXCEPT:

Employer contributions are not tax deductible.

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.

Which is false concerning SEP plan?

SEP's are suitable for large companies...(they are actually for small business owners)

Employer contributions made to a qualified plan:

are subject to vesting requirements

In life insurance policies, cash value increases:

grow tax deferred.

For an individual who is NOT covered by an employer-sponsored plan, IRA contributions are:

tax deductible

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

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

From trustee to trustee

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

employees

Who can make a fully deductible contribution to a traditional IRA?

An individual not covered by an employer-sponsored plan who has earned income.

A tax-sheltered annuity is a special tax-favored retirement plan available to:

Certain groups of employees only.

All of the following are general requirements of a qualified plan EXCEPT:

The plan must provide an offset for social security benefits.

Which of the below statements is FALSE concerning a MEC?

The policy holder can receive distributions at any time without being penalized.

How are contributions to a tax-sheltered annuity treated with regards to taxation?

They are not included as income for the employee, but are taxable upon distribution.

employee quits her job where she has 10k in her qualified plan. She does a direct transfer to a trad. IRA. How much will be transferred and what is the tax consequence of a direct transfer?

10k; no tax consequence

if someone moves 10k to a trad. IRA rolled over, how much will she receive from the plan admin. and how long does she have to complete the tax-free rollover?

8k; 60 days

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

Interest only

Which of the following is TRUE of a qualified plan?

It has a tax benefit for both employer and employee

When must an IRA be completely distributed when a beneficiary is not named?

dec. 31st at the 5 year anniversary of the owner's death.

If taken as a lump sum, life insurance proceeds to beneficiaries are passed:

free of federal income taxation

Under the 401-k bonus or thrift plan, the employer will contribute:

An undetermined % for each dollar contributed by the employee

All of the following are true of the federal tax advantages of a qualified plan EXCEPT?

At distribution, all amounts received by the employee are tax free.

Under a SIMPLE plan, which is true regarding taxation on both contributions and earnings?

They are tax deferred until withdrawn.

When would life insurance policy proceeds be included in the insured's taxable estate?

When there are any incidents of ownership at the time of death.

What is true concerning whole life insurance?

Lump Sum death benefits are not taxable

Which of the following describes the tax advantage of a qualified retirement plan?

The earnings in the plan accumulate tax deferred.

J transferred his life ins. policy to his son 2 year before his death. Which of the following is true?

The entire face value of the policy will be included in J's taxable estate.

What is the main purpose of the seven-pay test?

it determines if the insurance policy is an MEC. (modified endowment contract)