Life/Health 8-10
Susan has a $500,000 permanent life insurance policy. She has paid $200,000 in premiums, and the policy has a cash value of $216,000. If Susan dies, her beneficiary will pay taxes on: Select one: a. $0 b. $16,000 c. $284,000 d. $500,000
The correct answer is: $0
Erin bought a $100,000 whole life insurance policy. When she is 65 she decides to surrender the policy for its cash value of $60,000. Of the cash value, $50,000 is premiums. How much of Erin's cash surrender is taxable? Select one: a. $10,000 b. $50,000 c. $60,000 d. $100,000
The correct answer is: $10,000
An individual age 49 and below can contribute what maximum amount to a 403(b) plan? Select one: a. $35,000 b. $49,000 c. $18,500 d. $22,000
The correct answer is: $18,500
How much is the maximum annual benefit for a defined benefit plan? Select one: a. $50,000 b. $80,000 c. $220,000 d. $250,000
The correct answer is: $220,000
How much is the maximum annual contribution limit for an individual age 35 that has a traditional IRA? Select one: a. $5,500 b. $6,000 c. $49,000 d. $195,000
The correct answer is: $5,500
How much is the maximum contribution for a defined contribution plan? Select one: a. $25,000 b. $55,000 c. $195,000 d. $200,000
The correct answer is: $55,000
Joe becomes totally disabled. How much will Social Security pay Joe's wife, who relies on child support payments from Joe, to care for their 12-year twins? Select one: a. 1/4 Joe's PIA b. 1/2 Joe's PIA c. 3/4 Joe's PIA d. Joe's PIA
The correct answer is: 1/2 Joe's PIA
Mildred is age 58. She withdraws a sum of money from her qualified plan. What is the penalty? Select one: a. 2% penalty tax b. 5% penalty tax c. 10% penalty tax d. 20% penalty tax
The correct answer is: 10% penalty tax
George is contributing to a qualified retirement plan at his company. What percentage of his contributions are vested immediately? Select one: a. 0% b. 25% c. 75% d. 100%
The correct answer is: 100%
Regardless of the vesting method used, by the end of a certain number of years employer contributions to a qualified retirement plan must vest: Select one: a. 0% b. 50% c. 75% d. 100%
The correct answer is: 100%
Which of the following is a CODA plan? Select one: a. Target benefit pension plan b. 401(k) c. Money-purchase pension plan d. Group deferred annuity
The correct answer is: 401(k)
Which of the following is not a nonqualified retirement plan? Select one: a. 401(k) b. Split-dollar plan c. Key person insurance d. Deferred compensation
The correct answer is: 401(k)
Which of the following is not a nonqualified retirement plan? Select one: a. Deferred compensation b. 401(k) c. Split-dollar d. Key person insurance
The correct answer is: 401(k)
Which of the following retirement plans is qualified? Select one: a. Deferred compensation b. Personal annuity c. 401(k) d. Split-dollar plan
The correct answer is: 401(k)
A common retirement plan for nonprofit organizations is a: Select one: a. CODA b. 401(k) c. Money-purchase pension plan d. 403(b)
The correct answer is: 403(b)
Which of the following is a retirement plan for nonprofit organizations? Select one: a. Money-purchase pension plan b. CODA c. 401(k) d. 403(b)
The correct answer is: 403(b)
Which of the following is a qualified plan that is a combination of an IRA and a profit-sharing plan for small employers? Select one: a. 401(k) b. Keogh c. SIMPLE d. 408(k)
The correct answer is: 408(k)
Retirement plans must meet which of the following rules to be classified as a defined benefit plan? Select one: a. 50/40 rule b. 25% rule c. 100% rule d. 30/40 rule
The correct answer is: 50/40 rule
Within how many days must Samantha roll over the funds from her IRA to avoid the 20% withholding tax penalty? Select one: a. 10 days b. 31 days c. 45 days d. 60 days
The correct answer is: 60 days
What is the full Social Security retirement age for a person born after 1960? Select one: a. 62 b. 65 c. 67 d. 70
The correct answer is: 67
Which of the following is an entity that may offer a 403(b) plan? Select one: a. A partnership b. A church c. A corporation d. None of the above
The correct answer is: A church
ERISA requires plan administrators to disclose which of the following information about pension plans and benefits plans? Select one: a. Summary Plan Description b. Summary of Material Modification c. Summary Annual Report d. All of the above
The correct answer is: All of the above
How are personal life insurance dividends taxed? Select one: a. Interest earned on dividends is considered taxable income. b. Dividends are considered a return of overcharged premium. c. Dividends are not taxable because premiums are paid with after-tax dollars. d. All of the above
The correct answer is: All of the above
In order to obtain fully insured status, a covered worker must accrue one quarter of coverage each calendar year after the age of 21 for a total of 40 quarters and minimum of six quarters, upon the earliest of: Select one: a. The year prior to reaching age 62 b. The year of disability onset c. The year prior to death d. All of the above
The correct answer is: All of the above
When can an individual make a distribution from a traditional IRA? Select one: a. Upon retirement after age 59 1/2 b. For education expenses c. For death or disability d. All of the above
The correct answer is: All of the above
Which of the following correctly describes Social Security survivors benefits for a covered worker who is fully insured? Select one: a. Monthly payments to the widow equal to the deceased spouse's PIA if the widow is age 65 or above b. Lump-sum death benefit paid to the widow and eligible children of the deceased covered worker c. Monthly payments to a dependent parent age 62 and above d. All of the above
The correct answer is: All of the above
Which of the following is a modified profit-sharing or pension plan where part of the participant's compensation is deferred by putting it into the plan via pre-tax cash bonus or pre-tax reduced salary? Select one: a. CODA b. 403(b) c. 401(k) d. All of the above
The correct answer is: All of the above
Which of the following qualified plans uses employer contributions to a pension plan based on the employee's compensation and years of service with the company? Select one: a. Pension plan b. Target benefit pension plan c. Money-purchase pension plan d. All of the above
The correct answer is: All of the above
How long is the reduction in Social Security retirement benefits effective for a person who retires early? Select one: a. 2 years b. 5 years c. Until age 70 d. All throughout retirement
The correct answer is: All throughout retirement
If Becky wants to take a distribution from her qualified retirement plan, she should know that distributions can be made: Select one: a. Only upon retirement. b. Only after age 59 1/2 c. Only after age 70 1/2 d. At any time.
The correct answer is: At any time.
Who of the following cannot contribute to an IRA ? Select one: a. Blake, an unemployed college graduate b. Stan, a commercial pilot c. Chelsea, an accountant working for a manufacturer. d. Jacob, a contract engineer
The correct answer is: Blake, an unemployed college graduate
All of the following may contribute to an IRA, EXCEPT: Select one: a. Joan, a contract engineer b. Bo, an unemployed college graduate c. Carly, an accountant working for the government d. Stuart, a commercial pilot
The correct answer is: Bo, an unemployed college graduate
The most common funding tool used for defined benefit plans is: Select one: a. An individual annuity b. A group deferred annuity c. Both of the above d. None of the above
The correct answer is: Both of the above
Which of the following is true regarding the taxation of universal life insurance policies? Select one: a. Premiums are tax-deductible. b. All cash value is taxed upon withdrawal. c. Only withdrawals of premium dollars from the cash value are taxable. d. Cash value grows tax-deferred, but may be subject to taxation upon withdrawal.
The correct answer is: Cash value grows tax-deferred, but may be subject to taxation upon withdrawal.
Which of the following is true regarding the taxation of traditional IRAs? Select one: a. Contributions are made with after-tax dollars and interest earned is tax-deferred. b. Contributions are made with pre-tax dollars and interest earned is tax-deferred. c. Contributions are made with after-tax dollars, but interest is taxable in the year it is earned. d. Contributions are made with pre-tax dollars, but interest is taxable in the year it is earned.
The correct answer is: Contributions are made with pre-tax dollars and interest earned is tax-deferred.
All of the following are false regarding the tax consequences of Roth IRAs, EXCEPT: Select one: a. Contributions are tax-deductible. b. Contributions are made with taxed dollars; however, interest grows tax-free. c. Once the plan participant reaches age 59 1/2, taxes on distributions may still be imposed. d. Contributions and interest are tax-free.
The correct answer is: Contributions are made with taxed dollars; however, interest grows tax-free.
All of the following are characteristics of qualified retirement plans, EXCEPT: Select one: a. Contributions made by the employer are tax-deductible as a business expense. b. Interest earned on the investment is tax-deferred until funds are withdrawn. c. Contributions are not tax-deductible for the employee. d. Plans are non-discriminatory.
The correct answer is: Contributions are not tax-deductible for the employee.
Social Security quarters of coverage earned are based on ________ quarters worked, and ________ be earned consecutively. Select one: a. Consecutive; must b. Consecutive; can c. Cumulative; cannot d. Cumulative; do not need to
The correct answer is: Cumulative; do not need to
All of the following are defined contribution plans, EXCEPT: Select one: a. Deferred annuity b. Money-purchase plan c. Pension plan d. Profit-sharing plan
The correct answer is: Deferred annuity
The two primary types of qualified retirement plans are: Select one: a. Defined benefit and defined contribution b. SIMPLE and SEP c. IRAs and 401(k)s d. Individual and group annuities
The correct answer is: Defined benefit and defined contribution
The two primary types of qualified retirement plans are: Select one: a. Individual and group annuities b. Defined benefit and defined contribution c. SIMPLE and SEP d. IRAs and 401(k)s
The correct answer is: Defined benefit and defined contribution
Qualified retirement plans are grouped into two general categories called: Select one: a. 401(k) plans and 403(b) plans b. Keogh plans and IRAs c. Annuities and life insurance d. Defined benefit plans and defined contribution plans
The correct answer is: Defined benefit plans and defined contribution plans
What are the two general categories of qualified retirement plans? Select one: a. Annuities and life insurance b. Keogh plans and IRAs c. 401(k) plans and 403(b) plans d. Defined benefit plans and defined contribution plans
The correct answer is: Defined benefit plans and defined contribution plans
What are the two primary types of qualified plans? Select one: a. Money-purchase pension plan and target benefit pension plan b. Profit-sharing and pension plans c. Defined benefit plans and defined contribution plans d. Annuities and life insurance
The correct answer is: Defined benefit plans and defined contribution plans
What is the 50/40 rule when in reference to individual and group deferred annuities? Select one: a. Defined benefit plans must cover employees over 50, 40% of the time. b. Defined benefit plans must cover 50 eligible employees, or 40% of all employees, with at least two participants. c. Defined benefits plans are used 40-50% of the time. d. Defined benefit plans must cover 50% of the employees over 40 years of age.
The correct answer is: Defined benefit plans must cover 50 eligible employees, or 40% of all employees, with at least two participants.
Distributions from a qualified plan may be made without incurring the early distribution penalty tax for all of the following reasons, EXCEPT: Select one: a. Distribution made as a qualified rollover. b. The plan participant incurs a disability. c. The plan participant dies. d. Distribution made to pay for a new RV.
The correct answer is: Distribution made to pay for a new RV.
Which of the following is false regarding taxation of distributions from qualified plans? Select one: a. Benefits are taxable as income upon withdrawal from the account. b. Distributions prior to 62 are subject to an additional 10% IRS penalty. c. Plan loans and rollovers are considered withdrawals, but are not subject to the 10% IRS penalty. d. If the plan participant becomes disabled, he or she may make early withdrawals that are subject to tax, but not the 10% IRS penalty.
The correct answer is: Distributions prior to 62 are subject to an additional 10% IRS penalty.
What qualified plan resembles a profit-sharing plan, in which the employer establishes a trust fund and uses cash or new shares of stock to purchase existing shares? Select one: a. Keogh b. SIMPLE c. SEP d. ESOP
The correct answer is: ESOP
In order to establish an IRA, an individual must have: Select one: a. A qualified plan b. Dependent children c. Earned income d. A disability
The correct answer is: Earned income
Which of the following terms describes the portion of the periodic annuity benefit that is taxed? Select one: a. Estate tax b. Seven-pay test c. Exclusion ratio d. None of the above
The correct answer is: Exclusion ratio
All of the following are defined contribution plans, EXCEPT: Select one: a. CODA b. 401(k) c. Money-purchase pension plan d. Group deferred annuity
The correct answer is: Group deferred annuity
All of the following are defined contribution plans, EXCEPT: Select one: a. Profit-sharing b. Group deferred annuity c. Money-purchase pension plan d. 401(k)
The correct answer is: Group deferred annuity
Which of the following is not a defined contribution plan? Select one: a. 401(k) b. Group deferred annuity c. CODA d. Money-purchase pension plan
The correct answer is: Group deferred annuity
All of the following are defined contribution plans, EXCEPT: Select one: a. CODA. b. 401(k). c. Group deferred annuity. d. Money-purchase pension plan.
The correct answer is: Group deferred annuity.
Which type of life insurance policy allows an employer to deduct premium payments as an ordinary business expense for tax purposes? Select one: a. Key employee b. Split-dollar plan c. Group life insurance d. Business continuation agreement
The correct answer is: Group life insurance
Which of the following statements best describes how cash value in a life insurance policy is taxed? Select one: a. Cash value grows tax-free. b. Cash value does not earn interest and is, therefore, not taxable. c. If the policy cash value is surrendered, the interest earned on the cash value is taxable as ordinary income. d. None of the above
The correct answer is: If the policy cash value is surrendered, the interest earned on the cash value is taxable as ordinary income.
All of the following are defined contribution plans, EXCEPT: Select one: a. Individual annuity b. Pension plan c. Profit-sharing plan d. Money-purchase plan
The correct answer is: Individual annuity
All of the following are defined contribution plans, EXCEPT: Select one: a. Individual annuity b. Profit-sharing plan c. Pension plan d. Money-purchase plan
The correct answer is: Individual annuity
IRAs are established and funded by: Select one: a. Social Security b. Individuals c. The federal government d. Employers
The correct answer is: Individuals
All of the following are true regarding traditional IRAs, EXCEPT: Select one: a. All withdrawals are taxed. b. If an individual does not have a retirement plan through their employer, the entire contribution to the IRA may be deducted from gross income up to the annual contribution limit. c. The amount of money an individual can contribute to their IRA is limited, and indexed annually. d. Interest earned on IRA contributions is taxable in the year earned.
The correct answer is: Interest earned on IRA contributions is taxable in the year earned.
Which of the following statements is false regarding taxation of non-living entity owned nonqualified annuities? Select one: a. Interest earned on the principal is tax-deferred. b. Interest earned is taxed in the year it is earned. c. Only human annuitants can receive tax-deferred interest on annuities. d. A corporation that owns a nonqualified annuity will be required to pay tax on interest on a current-basis.
The correct answer is: Interest earned on the principal is tax-deferred.
Which of the following is false regarding federal taxation of qualified plans? Select one: a. Interest is taxable in the year earned. b. Contributions made by the employer are tax-deductible. c. Interest is tax-deferred d. Employee contributions are made with pretax dollars
The correct answer is: Interest is taxable in the year earned.
Premiums for life insurance are not tax-deductible and death benefits, received in a lump sum, are not taxable. Which of the following is taxable? Select one: a. Interest on life proceeds paid in installments b. Dividends c. Accelerated benefits d. Policy loans
The correct answer is: Interest on life proceeds paid in installments
Which of the following may not be used as an IRA investment tool? Select one: a. Life insurance policies b. Annuities c. Mutual funds d. Savings accounts
The correct answer is: Life insurance policies
All of the following are CODA plans, EXCEPT: Select one: a. Money-purchase pension plan b. 403(b) c. 401(k) d. Tax-sheltered annuity
The correct answer is: Money-purchase pension plan
All of the following are CODA plans, EXCEPT: Select one: a. Tax-sheltered annuity b. 401(k) c. Money-purchase pension plan d. 403(b)
The correct answer is: Money-purchase pension plan
In which qualified plan does the employer contribute a fixed amount to the plan every year, apportioned among each plan participant's account? Select one: a. Profit-sharing plan b. Money-purchase pension plan c. CODA d. Keogh
The correct answer is: Money-purchase pension plan
A policy loan on a whole life policy is: Select one: a. Not taxable b. Taxable c. Tax-deferred d. Taxable if not repaid prior to policy maturation
The correct answer is: Not taxable
Lump sum payments for life insurance are: Select one: a. Taxable b. Not taxable c. Taxable over the premium payment amounts d. Taxable if the employer paid the premiums
The correct answer is: Not taxable
Social Security is also referred to as: Select one: a. Medicare b. Medicaid c. OASDI d. Disability income insurance
The correct answer is: OASDI
A nonqualified plan: Select one: a. Permits discrimination in favor of certain employees b. Must be approved by the IRS c. Has tax-deductible contributions d. Does not have tax-deferred interest
The correct answer is: Permits discrimination in favor of certain employees
A nonqualified plan: Select one: a. Must be approved by the IRS. b. Permits discrimination in favor of certain employees. c. Does not have tax-deferred interest. d. Has tax-deductible contributions.
The correct answer is: Permits discrimination in favor of certain employees.
Which of the following is true regarding taxes on nonqualified annuities? Select one: a. Premiums are paid with pre-tax dollars and interest is tax-deferred. b. Premiums are not tax-deductible and interest is taxable in the year it is earned. c. Premiums are not tax-deductible, but interest is tax-deferred. d. Premiums are paid with pre-tax dollars, but interest is taxable in the year it is earned.
The correct answer is: Premiums are not tax-deductible, but interest is tax-deferred.
What is the general rule for taxation of personal life insurance? Select one: a. Premiums are paid with after-tax dollars; proceeds received in a lump-sum are received tax-free; proceeds received in installments are taxable only to the extent of interest earned. b. Premiums are paid with pre-tax dollars; proceeds received in a lump-sum are taxed; proceeds received in installments are not taxed. c. Premiums are paid with after-tax dollars; proceeds are taxed. d. Premiums are paid with pre-tax dollars; proceeds are taxable only if received in a lump-sum.
The correct answer is: Premiums are paid with after-tax dollars; proceeds received in a lump-sum are received tax-free; proceeds received in installments are taxable only to the extent of interest earned.
Which of the following best describes the seven-pay test? Select one: a. Premiums paid over a seven-year period cannot exceed the total level annual premiums for a paid-up policy in seven years. b. Policy cash value cannot exceed cost basis. c. First seven premium payments cannot exceed cost basis over a ten-year period. d. First seven annuity premium payments cannot exceed cost basis over a ten-year period.
The correct answer is: Premiums paid over a seven-year period cannot exceed the total level annual premiums for a paid-up policy in seven years.
What is the basis for Social Security retirement benefits? Select one: a. Status of dependency b. Age c. Primary insurance amount (PIA) d. Quarters of credit
The correct answer is: Primary insurance amount (PIA)
Which of the following qualified plans distributes profits to participants? Select one: a. Target benefit pension plan b. Keogh c. Profit-sharing plan d. Pension plan
The correct answer is: Profit-sharing plan
A 403(b) plan may be offered by a: Select one: a. Corporation with over 1,000 employees b. Public school c. Small company with fewer than 50 employees d. Partnership
The correct answer is: Public school
A 408(k) is what type of qualified plan? Select one: a. SEP b. 401(k) c. SIMPLE d. Keogh
The correct answer is: SEP
What qualified retirement plan is a combination of an IRA and profit sharing plan, permitting the employer to tax-deduct up to 25% of contributions made to employees? Select one: a. SEP b. 403(b) c. Deferred compensation d. Keogh
The correct answer is: SEP
What retirement plan blends an IRA with a profit-sharing plan and allows the employer to deduct up to 25% of contributions made to all employees? Select one: a. SIMPLE b. SEP c. 401(k) d. Keogh
The correct answer is: SEP
Which of the following is a retirement plan for employers with 100 or fewer employees? Select one: a. 401(k) b. CODA c. 403(b) d. SIMPLE
The correct answer is: SIMPLE
Which federal law allows a person exchanging one life insurance policy for another to defer tax on the gains? Select one: a. Section 1035 exchange b. Tax-sheltered annuity c. Section 457 deferred compensation d. Roth IRA
The correct answer is: Section 1035 exchange
What nonqualified deferred compensation plan is intended for government employees? Select one: a. Keogh b. SIMPLE c. SEP d. Section 457 plan
The correct answer is: Section 457 plan
A qualified plan that is a combination of a defined contribution and defined benefit plan, in which a set contribution amount is made is called a: Select one: a. Tax-sheltered annuity b. Money-purchase pension plan c. 401(k) d. Target benefit pension plan
The correct answer is: Target benefit pension plan
Which qualified plan is a combination of a defined contribution and defined benefit plan, in which a set contribution amount is made? Select one: a. Tax-sheltered annuity b. Target benefit pension plan c. Money-purchase pension plan d. 401(k)
The correct answer is: Target benefit pension plan
All of the following statements are true regarding the IRS early withdrawal penalty for nonqualified annuities, EXCEPT: Select one: a. The penalty applies to withdrawals made prior to age 59 1/2. b. If an early withdrawal is made, the penalty applies in addition to ordinary taxes on the taxable portion of the withdrawal. c. The IRS early withdrawal penalty is 20%. d. Early withdrawals are subject to the IRS early withdrawal penalty.
The correct answer is: The IRS early withdrawal penalty is 20%.
Which of the following is false regarding eligibility for Social Security disability benefits? Select one: a. The covered worker must be unable to do the work they did prior to the disability. b. The covered worker must not be able to do other work. c. The disability must have lasted or will last for at least 6 full months or be expected to end in death. d. All of the above
The correct answer is: The disability must have lasted or will last for at least 6 full months or be expected to end in death.
Who pays tax on personal life insurance given as a gift? Select one: a. The insurer b. The state c. The gift-giver d. The gift recipient
The correct answer is: The gift-giver
All of the following are false regarding IRAs, EXCEPT: Select one: a. The maximum annual contribution amount is set by the law. b. Interest earned is not taxable. c. Spousal IRAs can be established for employed spouses. d. There are no penalties for withdrawing funds from an IRA.
The correct answer is: The maximum annual contribution amount is set by the law.
Which of the following statements is true regarding IRAs? Select one: a. There are no penalties for withdrawing funds from an IRA. b. Spousal IRAs can be established for employed spouses. c. The maximum annual contribution amount is set by the law. d. Interest earned is not taxable.
The correct answer is: The maximum annual contribution amount is set by the law.
All of the following are reasons the face amount of a life insurance policy may be subject to tax, EXCEPT: Select one: a. The policy's ownership has been transferred to a third party. b. The designated beneficiary is receiving the face amount in installments. c. The deceased transferred ownership of the policy within three years prior to death. d. The policy proceeds are paid out in a lump-sum.
The correct answer is: The policy proceeds are paid out in a lump-sum.
After the 5-month waiting period, Social Security disability benefits are payable to the disabled covered worker in the amount of: Select one: a. 1/4 their PIA b. 1/2 their PIA c. 3/4 their PIA d. Their total PIA
The correct answer is: Their total PIA
All of the following are characteristics of qualified retirement plans, EXCEPT: Select one: a. Contributions are not taxed until withdrawn. b. Employer's contributions are tax-deductible as a business expense. c. There are two types of qualified plans. d. Employee contributions are made with pretax dollars.
The correct answer is: There are two types of qualified plans.
Which of the following is generally true regarding premiums for individually-purchased life insurance and annuities? Select one: a. They are tax-deductible. b. They are not tax-deductible. c. Only life insurance premiums are tax-deductible. d. Only annuity premiums are tax-deductible.
The correct answer is: They are not tax-deductible.
When a life insurance policy becomes a MEC, what are the tax consequences? Select one: a. Interest loses tax-deferred advantage. b. Premiums are no longer tax-deductible. c. Premiums do not accrue interest. d. Withdrawals and policy loans are taxed as ordinary income.
The correct answer is: Withdrawals and policy loans are taxed as ordinary income.
