Texas Life Insurance - Uses/Retirement

All of the following statements about traditional individual retirement accounts are false EXCEPT 10% penalty is applied to withdrawals after age 59 1/2 Withdrawals are normally tax-free to the recipient 10% penalty is applied to withdrawals before age 59 1/2 Contributions are not tax deductible

10% penalty is applied to withdrawals before age 59 1/2

Which of these is NOT considered to be a cost connected with an individual's death? Funeral expense Tax liability Business expenses Probate costs

Business expenses

What is the maximum number of employees (earning at least $5,000) that an employer can have in order to start a SIMPLE retirement plan? 25 50 100 250

100%

An individual participant personally received eligible rollover funds from a profit-sharing plan. What is the income tax withholding requirements for this transaction? 10% is withheld for income taxes 20% is withheld for income taxes 30% is withheld for income taxes Nothing is withheld

20% is withheld for income taxes

What is the excise tax rate the IRS imposes on individuals aged 70 1/2 or older who do not take the required minimum distributions from their qualified retirement plan? 30% 40% 50% 60%

50%

How long does an individual have to "rollover" funds from an IRA or qualified plan? 60 days 90 days 120 days No limit

60 days

Which of these is NOT a reason for a business to buy key person life insurance? The reduction in sales as a direct result from death of the key employee A void in leadership if the key person were to die The loss of company revenues while a replacement is being sought A pension deficiency if the key employee dies

A pension deficiency if the key employee dies

Which of the following is NOT a valid insurance policy exchange? An annuity exchanged for a life insurance policy An annuity exchanged for another annuity A life insurance policy exchanged for another life insurance policy A life insurance policy exchanged for an annuity

An annuity exchanged for a life insurance policy

Traditional individual retirement annuity (IRA) distributions must start by age 59 1/2 age 65 April 1st of the year following the year the participant attains age 59 1/2 April 1st of the year following the year the participant attains age 70 1/2

April 1st of the year following the year the participant attains age 70 1/2

Which of these is NOT relevant when determining the amount of personal life insurance needed? Existing life insurance coverage Local unemployment rate Household income Household debt

Local unemployment rate

When funds are shifted straight from one IRA to another IRA, what percentage of the tax is withheld? 10% 20% 20% None

None

Which tax would an IRA participant be subjected to on distributions received prior to age 59 1/2? 10% tax penalty for early withdrawal Capital gains tax Ordinary income tax and a 10% tax penalty for early withdrawal Ordinary income tax

Ordinary income tax and a 10% tax penalty for early withdrawal

The premiums paid by an employer for his employee's group life insurance is usually considered to be tax-deductible to the employer partially deductible to the employee tax-deductible to the employee taxable income to the employee

tax-deductible to the employer

Contributions made by an employee to a qualified retirement plan are required to be subject to income taxes fully refundable nonforfeitable subject to a vesting schedule

ubject to a vesting schedule

First-time homebuyers are able to withdraw up to how much from their qualified IRA's without incurring the 10% early withdrawal penalty? $2,500 $5,000 $7,500 $10,000

$10,000

An individual working part-time has an annual income of $25,000. If this individual has an IRA, what is the maximum deductible IRA contribution allowable? No deduction allowed $25,000 $20,000 $10,000

$25,000

Premature IRA distributions are assessed a penalty tax of 0% 10% 15% 20%

10%

An employee requested that the balance of her 401(k) account be sent directly to her in one lump sum. Upon receipt of the distribution, she immediately has the funds rolled over into an IRA. What is the tax consequence of the distribution sent to this employee? Distribution is subject to capital gains tax Distribution is subject to ordinary income tax Distribution is subject to a tax penalty Distribution is subject to federal income tax withholding

Distribution is subject to federal income tax withholding

How are Roth IRA distributions normally taxed? 10% penalty tax is applied Taxed as ordinary income Capital gains tax is applied Distributions are received tax-free

Distributions are received tax-free

Which of these is NOT a reason for purchasing life insurance on the life of a minor? If both parents were to die, it would provide death benefits to the child Provides funds for final expenses if the child were to die Provides living benefits for the child's college education Provides child with insurance now, in case the child becomes uninsurable later

If both parents were to die, it would provide death benefits to the child

A 55 year old recently received a $30,000 distribution from a previous employer's 401k plan, minus $10,000 withholding. Which federal taxes apply if none of the funds were rolled over? Only income taxes on $30,000 Only income taxes on $20,000 Income taxes plus a 10% penalty tax on $30,000 Income taxes plus a 10% penalty tax on $20,000

Income taxes plus a 10% penalty tax on $30,000

What does a 401(k) plan generally provide its participants? Tax-free distributions Salary-deferral distributions Salary-deferral contributions A defined retirement benefit

Salary-deferral contributions

Rick recently died and left behind an individual IRA account in his name. His widow transferred these funds to her own individual IRA account. What did Rick's widow qualify for? Tax credit Death benefits Section 1035 exchange Capital gains taxation

Section 1035 exchange

Which of these factors does NOT influence an applicant's need for life insurance? Lifestyle of the applicant Number of dependents Future educational costs of the dependents Self-maintenance expenses

Self-maintenance expenses

Which of the following is TRUE if the owner of an IRA names their spouse as beneficiary, but then dies before any distributions are made? Surrender charge is applied The account can be rolled into the surviving spouse's IRA Distributions will be received tax-free if surviving spouse is over age 59 1/2 Future distributions are payable to the owner's estate

The account can be rolled into the surviving spouse's IRA

A qualified profit-sharing plan is designed to allow key employees to participate in the profits of the company allow employees to participate in the profits of the company keep key employees from leaving the company allow employees to elect company officers

allow employees to participate in the profits of the company

In a qualified retirement plan, the yearly contributions to an employee's account are not tax-deductible are restricted to minimum levels set by the IRS are restricted to maximum levels set by the IRS must be matched dollar-for-dollar by the employer

are restricted to maximum levels set by the IRS

Employers will frequently purchase life insurance on a key employee in order to provide an income to the deceased key employee's family pay for funeral costs provide the employer with a tax credit help offset the cost of finding and training a replacement

elp offset the cost of finding and training a replacement

In life insurance, the needs approach is used mostly to establish which type of life insurance a client should apply for how much life insurance a client should apply for which company a client should use when applying for life insurance what the maximum amount the client can spend on life insurance

how much life insurance a client should apply for

An employer that offers a qualified retirement plan to its employees is eligible to avoid ERISA regulations make tax-deductible contributions to the plan make tax deductible contributions to key employees only make partial tax-deductible contributions to the plan

make tax-deductible contributions to the plan

A trustee-to-trustee transfer of rollover funds in a qualified plan allows a participant to avoid mandatory income tax withholding on the transfer amount paying transfer fees paying trustee fees ever paying income taxes on the distributions

mandatory income tax withholding on the transfer amount

In an individual retirement account (IRA), rollover contributions are subject to capital gains tax subject to ordinary income tax partially limited by dollar amount not limited by dollar amount

not limited by dollar amount

Which of the following is TRUE about a qualified retirement that is "top heavy"? More than 30% of plan assets are in key employee accounts More than 40% of annual additions are for key employee accounts More than 50% of plan assets are in key employee accounts More than 60% of plan assets are in key employee accounts

ore than 60% of plan assets are in key employee accounts

Who is normally considered to be the owner of a 403(b) tax-sheltered annuity? The 403(b) custodian The financial institution The employer The employee

Employee

When using the needs approach to life insurance planning, lump sums may be created for all of the following reasons EXCEPT Final expenses Charitable donation Education Employee benefits

Employee benefits

When an individual is planning to protect his family with life insurance, one method of doing so is called needs analysis. What exactly does needs analysis involve?

Establishes the needs of the individual and his dependents

An officer for a corporation takes out numerous loans from the company's qualified retirement plan. Which of these rules is the plan in violation of? Key employee rule Top heavy rule Vesting rule Exclusive benefit rule

Exclusive benefit rule

What is considered a valid reason for small businesses to insure the lives of its major shareholders? To provide an income for the surviving dependents Reduce the company's tax liability To pay for final expenses Fund a buy-sell agreement

Fund a buy-sell agreement

Tom has a qualified retirement plan with his employer that is currently considered to be 80% "vested". How can this be interpreted? 20% of the funds are subject to taxes 80% of the funds are invested in a separate account If Tom's employment is terminated, 20% of the funds would be forfeited If Tom's employment is terminated, 80% of the funds would be forfeited

If Tom's employment is terminated, 20% of the funds would be forfeited

Which of these is a true statement regarding survivor benefits under a qualified retirement plan? Survivor benefits can only be waived with the written consent of a married employee's spouse Survivor benefits CANNOT be waived with the written consent of a married employee's spouse Survivor benefits are rarely included in small company plans Survivor benefits do not apply to divorced employees

Survivor benefits can only be waived with the written consent of a married employee's spouse

According to the needs approach, an emergency reserve fund's primary purpose is to pay off debt pay for unexpected expenses pay for the cost of life insurance provide an supplemental income source

pay for unexpected expenses

A retirement plan that sets aside part of the company's net income for distributions to qualified employees is called a rollover plan 403(b) plan profit-sharing plan salary reduction plan

profit-sharing plan