SIE STC Ch. 8
Which of the following features applies to a variable annuity, but not to a mutual fund? ASales charge BManagement fees CAdministrative expenses DDeath benefit
A variable annuity may have a death benefit which provides a payment if the annuitant dies during the accumulation period. The amount of the death benefit is the greater of the value of the annuity on the day of the annuitant's death or the total amount contributed.
A person who invests in a variable annuity would be MOST concerned with the performance of the insurance company's: AProfitability BCredit rating CSeparate account DGeneral account
The performance of a variable annuity is related to the performance of the separate account. The insurance company's general account backs the company's fixed annuities and traditional (guaranteed) insurance products.
A 72-year-old grandfather wants to buy an annuity for his son (age 45) and his grandchild (age 15). Which payout option BEST satisfies the grandfather's intentions? AStraight life annuity with 10-year period certain BJoint and last survivor life annuity CUnit refund life annuity DStraight life annuity
A joint and last life survivor annuity will best satisfy the grandfather's intentions. In this payment option, benefit payments are made to the persons in the joint account, then to the survivor, as long as the survivor lives.
Which of the following investors is not a typical candidate for a variable annuity? AA senior investor BAn investor who is single CAn investor who is married with young children DAn investor who is saving for retirement
Generally, variable annuities are not suitable for senior investors; instead, they're more appropriate for investors with long-term investment goals who don't anticipate needing access to their money for at least five to seven years. The other investors listed may be candidates for variable annuities.
When discussing the purchase of a variable annuity with a client, the RR is not required to disclose: ASurrender fees BMortality fees CProbate fees DAdministrative fees
Probate fees and costs are associated with establishing the validity of a will, which is not a disclosure item for annuities. However, surrender, mortality, and administrative fees must be disclosed.
The assets in a Section 529 College Savings Plan may be transferred to another beneficiary without a tax penalty: AProvided the second beneficiary is already in college BProvided the second beneficiary is a member of the first beneficiary's family CAs long as the first beneficiary agrees DOnce every 12 months
The assets in a 529 plan may be transferred to another beneficiary as long as the second beneficiary is a member of the first beneficiary's family. Family includes spouses, children, grandchildren, siblings, nieces and nephews, and first cousins.
Section 1035 of the Internal Revenue Code: APermits the tax-free exchange of one annuity contract for another BForbids the tax-free exchange of an insurance policy for a new life insurance policy CForbids the tax-free exchange of an insurance policy for a new annuity contract DPermits the tax-free exchange of an annuity contract for a life insurance policy
1035 exchanges permit an individual to exchange one variable annuity contract for another, during the accumulation period, without tax consequences.
One of your clients is looking to annuitize a contract and wants a payout option that will provide income for the later of 10 years or death. Which of the following choices is most suitable for this investor? AStraight life BStraight life with period certain CVariable annuity DFixed annuity
A period certain payout guarantees that a minimum number of payments will be made even if the annuitant dies before the period certain has elapsed.
Which of the following statements is TRUE about variable annuities? AThe dollar amount of payments is guaranteed BParticipants may not vote to change objectives CPayout is based on a number of annuity units, which remains fixed for the duration of the payout period DAnnuity payments are of a constant dollar amount throughout the payout period
A variable annuity does not give an annuitant a fixed-dollar return over a fixed number of years. Variable annuities give the annuitant a variable return based on the value of the securities in the separate account of the annuity. Payout is based on the number of annuity units that an investor receives upon annuitizing. The number of units remains fixed for the duration of the payout period. The investor takes on all investment risk since payments are not guaranteed. Investors are allowed to vote on certain issues.
An investor has annuitized a variable annuity and has realized that the payments he's receiving are falling below market return. If the investor wants to reallocate a portion of the investment portfolio within the separate account, which of the following statements is TRUE regarding this situation? AThe investor is permitted to change the allocation of the investments within the separate account. BThe investor is not permitted to change the allocation of the investments within the separate account. CThe investor can only change the allocation to a fixed-income portfolio. DThe investor can only change the allocation to an equity growth portfolio.
Although some limitations may apply, the investor is permitted to reallocate their investments within the separate account. Keep in mind, both the decision to annuitize and the chosen settlement option are final.
All of the following statements are TRUE about 529 Prepaid Tuition Plans, EXCEPT: AThey are generally administered by the states BThey permit investors to pay for a child's tuition expenses at a state college in advance at a reduced rate CThe beneficiary may use the tuition credits purchased at virtually any college or university in the United States DThe account owner is protected against future increases in tuition
An investor who purchases a prepaid tuition plan is buying tuition credits that may be used for the beneficiary's education at a public school in the state that administered the plan.
Which of the following statements is NOT TRUE regarding an equity-indexed annuity (EIA)? AIt offers a guaranteed minimum rate of return BIt provides a return that is based on the performance of a stock market index CIt is considered a security DIt provides tax-deferred growth
Equity-indexed annuities (EIAs) are a type of fixed annuity that provide a guaranteed minimum rate of return (unlike variable annuities), but may potentially provide a greater rate of return. An EIA's return is tied to the performance of a stock market index to which it is linked. As with standard annuities, they also provide tax-deferred growth. However, EIAs are not currently considered securities; instead, they are categorized as a life insurance product.
What is the maximum contribution that can be made to a 529 plan without being subject to gift taxes? A$150,000 from a married couple if no further contributions are made for the next five years. B$15,000 C$300,000 from a married couple if no further contributions are made for the next ten years. D$30,000 from a married couple
In a 529 plan, contributions are based on the amount that can be gifted without any tax implication to the donor. Currently, this amount is $15,000 per person, per beneficiary. Contributions to 529 plans can be front-loaded with five years of contributions without penalty. This means that $75,000 (5 x $15,000) per person can be contributed, which can be doubled to $150,000 for married spouses. Prior to 2018, the maximum was $14,000 per year, with $70,000 front-loaded
An investor might take advantage of a Section 1035 exchange if: AThe new contract carries a new or longer surrender period BThe enhanced features do not apply to her CHer investment objectives have changed and she is unable to obtain new benefits by switching to another subaccount in the same contract DThe total cost of the exchange outweighs the benefits of the exchange
In order for the 1035 exchange to avoid scrutiny, the customer must be able to benefit from at least some of the features received on the new contract. Should the customer lose benefits, incur additional charges, or be subject to a longer surrender period, the 1035 exchange is likely to be viewed as unsuitable.
A 529A or ABLE account is permitted for which of the following persons? AA person who is receiving retirement benefits BA person who is saving for college CA person who has a significant disability DA person who is a minor
Similar to 529 college savings plans, 529 ABLE (or simply referred to as 529A) accounts are savings accounts that are created and administered by states under the Achieving a Better Life Experience (ABLE) Act. These accounts are designed to supplement the support of persons who are disabled or who meet the government's definition of disabled and are receiving Social Security disability, Medicaid, or private insurance payments.
Which of the following amounts may a customer contribute each year to a 529 college savings plan without incurring any taxes? AAn unlimited amount BAn amount equal to the annual gift tax exclusion CFive times the annual gift tax exclusion DTen times the annual gift tax exclusion
States that offer 529 plans determine the specific plan rules, such as allowable contributions, investment options (e.g., mutual funds), and the deductibility of contributions for state tax purposes. On an annual basis, a person may contribute to a 529 college savings plan up to the federal annual gift tax exclusion ($15,000) without paying a gift tax. Another choice is that the contributor can make a single, lump-sum gift of up to the five-year cumulative limit ($75,000) for tax free gifting.
Which of the following statements concerning a tax-qualified annuity is TRUE? AIt has a zero cost basis and grows tax-free BIt is not subject to contribution limits CIt has a zero cost basis and grows tax-deferred DIt may be subject to tax-free distributions, if qualified
Tax-qualified annuities are employer-sponsored plans that are available to certain nonprofit organizations, public school, and/or state/city university/college employees. These annuities, sometimes referred to as TSAs may be placed into a 403(b) or a 501(c)(3) plan. Since these plans are funded on a pretax basis, contributions are deducted from an individual's taxable income. An investor's cost basis is considered to be zero since none of the contributions have been recognized for tax purposes. Income grows tax-deferred not tax-free. Upon distribution, every dollar is taxable as unearned ordinary income. Tax-free growth means that none of the distributions will be subject to taxation. This is not the case with these types of plans.
The main disadvantage of 529 Prepaid Tuition Plans compared to 529 Savings Plans is that: ADistributions that are not used to pay for educational expenses are subject to a 10% tax penalty BQualified distributions may be used to pay for tuition, books, room and board, and other expenses CThe account owner may lose financially if the student does not attend a public school in that state DThe account owner can lock-in the beneficiary's tuition at a state college at a reduced rate
The main disadvantage of a prepaid tuition plan is that the investor may suffer financially if the beneficiary attends an out-of-state or private college. Unlike 529 Savings Plans, prepaid tuition plans do not have distributions. Instead, the account owner purchases credits toward tuition at a state university or college. Prepaid tuition plans generally may not be used to save money for other educational expenses such as room and board. The advantage of a prepaid tuition plan is that the investor is guaranteed a certain number of credits toward the beneficiary's tuition.
A variable annuity contract holder dies during the accumulation period. Which of the following is TRUE regarding the tax consequences? AAll proceeds are considered a return of capital. BThe growth is taxable as a capital gain to the beneficiary. C Proceeds in excess of cost are taxable as ordinary income to the beneficiary. DThe growth above cost is not taxable if the beneficiary rolls it over into a retirement plan.
When a variable annuity contract holder dies during the accumulation period, the proceeds in excess of cost are taxable to the beneficiary as ordinary income. -As is the case with retirement plans these contracts don't generate capital events
Which of the following calculations describes the payout on a variable annuity? AA fixed number of annuity units multiplied by a fixed dollar amount BA fixed number of annuity units multiplied by a variable dollar amount CA variable number of annuity units multiplied by a fixed dollar amount DA variable number of annuity units multiplied by a variable dollar amount
When a variable annuity is annuitized, the annuitant will be assigned a fixed number of annuity units based on several factors, including the value of the investment, assumed interest rate, age and gender of the annuitant, and payout option chosen. This fixed number of annuity units is then multiplied by the net asset value of the separate account at each payout period to determine the dollar amount the annuitant will receive each pay period.
