banker 7

When establishing a SIMPLE, what two different types of qualified plans must employers choose between? A 401(k) or IRA

401(k) or IRA A SIMPLE may take the form of either a 401(k) or an IRA

Sherman is the custodian at an elementary school and participates in its qualified retirement plan. This describes a

403(b) Tax-Sheltered Annuity

Which of the following is a qualified retirement plan that bases an employee's retirement benefit upon length of service and highest attained salary?

A defined benefit plan usually bases the employee's retirement check on length of service and highest attained salary.

What type of retirement plan is not required to have a vesting schedule, is not approved by the IRS, can discriminate in favor of highly compensated employees, and can benefit the employer?

A non-qualified plan

If a non-qualified variable annuity owned for 15 years is surrendered, what is the income tax consequence?

Any amount received in excess of its cost basis is taxable as ordinary income The same tax rules apply to both fixed and variable annuities. The funds received in excess of the cost basis are taxable as ordinary income.

Life insurance policy premiums establish a _________ in the policy for tax purposes.

Cost basis is primarily established by accounting for the premiums paid into the policy.

All of the following types of qualified plans provide an employee with a retirement benefit based on the value of the employee's account at retirement, except:

Defined Benefit

When an employee receives a fixed and known benefit at retirement, it comes from a(n) __________ plan.

Defined Benefit Defined benefit plans pay out a fixed and known benefit to retirees based on a formula considering years of employment and highest earnings.

An annuity held within a traditional IRA __

Does not provide any additional tax-deferral benefit

ERISA sets ________ standards for pension plans in private industry.

ERISA sets minimum standards.

When withdrawing cash from a cash value life insurance policy, the amount of the withdrawal up to the policy's cost basis is tax-free. This tax accounting rule is referred to as:

First-In, First-Out (FIFO) FIFO accounting is first-in, first-out, which is why the recovery of amounts up to the cost basis are income tax-free.

Which of the following best defines the 'Cost Recovery Rule'? The 'Cost Recovery Rule' stipulates that upon a partial withdrawal of cash or the surrender of a policy, the cash value in excess of premiums paid (cost basis) is subject to income tax.

Generally, the difference between the amount of cash value received and the amount of premium paid in is subject to income tax upon surrender D The amount of the policy's internal expenses plus the life pro

Death benefits are paid to the estate of the policyowner/insured in which of the following situations

If the beneficiary is listed as the estate, then upon death of the insured that is where the funds will end up.

When would a life insurance policy loan be subject to income taxation?

If the policy lapses when there is a policy loan outstanding which is in excess of the policy's cost basis

Which of the following is NOT a taxable event for a Modified Endowment Contract (MEC)?

Lump sum death benefit paid to the beneficiary Withdrawal of any cash value to pay for a daughter's wedding, policy loans, and cash surrender of the policy are all taxable distributions. Lump-sum death benefits are considered to be tax-free life insurance proceeds.

__ plans do not meet the requirements of federal law to be eligible for favorable tax treatment.

Non-qualified

If an annuity is annuitized, then the _________ investment is recovered income tax-free over the income benefit payment period.

Only the after-tax investment is recovered income tax-free from an annuity that is annuitized. It represents a return of the cost basis.

All of the following are TRUE regarding qualified plans, except:

Plans can discriminate in favor of highly compensated employees

Joe had $500,000 of life insurance at work. He has an additional $40,000 life insurance policy the company purchased on all employees. His wife is the primary beneficiary and their four children are contingent beneficiaries. Upon Joe's death, what are the tax consequences to his beneficiaries? A The $540,000 lump sum proceeds will be received income tax-free

The death benefit (face amount) of both individual and group policies received in a lump sum by a named beneficiary(s) is income tax-free.

Which of the following scenarios will cause the value of a life insurance policy death benefit to be included in the insured's estate?

The insured is also the policyowner and at death no beneficiaries are alive

Clayton is asking his life insurance producer about any potential taxation issues related to his $100,000 personal Whole Life policy. All of the following are TRUE, except:

The interest on policy loans is not tax-deductible.

By what means is a transfer for value made?

Through an absolute assignment

Cash values within an ordinary straight whole life insurance policy _______ over time.

increase

Any amount received in excess of its cost basis is taxable as ordinary income

keogh

Which of the following would always be considered a Modified Endowment Contract? A Single Premium Whole Life B Variable Whole Life C Straight or Continuous Pay Whole Life D Limited Pay Whole Life

letra a

What is the main purpose that IRC section 1035 was enacted? A To allow consumers to get better performance from a new policy B To allow for continued tax-deferral on any gains in an existing policy when a policyowner moves into a new one C To allow consumers to obtain less expensive life insurance policies D To allow policyowners to obtain features and benefits not available on their existing policies

letra b To allow for continued tax-deferral on any gains in an existing policy when a policyowner moves into a new one

An Individual Retirement Account (IRA) may be funded with all of the following, except:

life insurance

Death benefits paid from an employee group life insurance plan to an employee's named beneficiary are received __________. A Income tax-free

por esto Death benefits paid in a lump sum to a named beneficiary are income tax-free.