Federal Tax Considerations for Life Insurance and Annuities

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

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

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

Not subject to income taxation by the Federal Government

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 owner's death.

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

Interest only

Which of the following statements regarding the taxation of Modified Endowment Contracts is FALSE?

Withdrawals are not taxable.

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

From trustee to trustee

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

In life insurance policies, cash value increases

Grow tax deferred

An insured had paid only part of her total number of IRA premiums before she died. What effect will this have on the insured's estate?

Only the premiums paid will be included in the estate.

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

tax deductible

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

Spouse

Which of the following best describes taxation during the accumulation period of annuity?

Taxes are deferred

When contributions to an immediate annuity are made with before-tax dollars, which of the following is true of the distributions?

Distributions are taxable

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

If a life insurance policy develops cash value faster than a seven-pay whole life contract it is?

a modified endowment contract