Taxation - Section 9 - Quiz

All of the following would qualify for a Keogh plan except:

Owners of an incorporated business

A widow can begin to receive full social security retirement benefits at age:

65 (Hint: At age 60 is the age that a widow can begin to receive full social security for spousal income)

How much is the one time death benefit from the social security?

$255

In a seven year vesting schedule, what percentage of employer contributions must be vested after seven years of service?

100% (Hint: 100% vested means 100% owned by the employee. The vesting schedule would be: 1-2 years 0%; 3rd year 20%; 4th year 40%; 5th year 60%; 6th year 80%; and 7th year 100% vested)

This provision allows you to exchange an existing insurance or annuity contract for a newer contract without having to pay taxed on the accumulation in your old contract.

1035 Exchange

Within how many days must an employer give a terminated employee notice to convert his life policy?

15 days

Upon the death of a primary breadwinner who is fully insured under Social Security, a dependent child is eligible to receive an income benefit until the age of

18 or 19, if unmarried and a student in elementary or secondary school

The number of credits required for fully insured status is:

40 credits (or 10 years)

Which of the following statements about 401K plans is correct?

401Ks are known as a cash or deferred account or CODA (Hint: CODA stands for "Cash or deferred arrangements" not account)

What qualified retirement plan is a defined contribution plan with pre tax contributions that uses annuities and mutual funds only for investment options?

403B (Hint: The main difference between 401(k) and 403(b) plan is that unlike the 401(k) plan, investment option in the 403(b) plan are limited to annuities and mutual funds only)

Which of the following are not regulatory requirements for dependents under group life plans?

A dependent may be covered up to age 18 under normal circumstances (Hint: Up to age 20 for normal circumstances)

All of the following should be eligible to establish a Keogh retirement plan, except:

A family owned corporation for the benefit of their employees (Hint: Corporations set up pension plans. Self-employed, sole proprietor and partnerships set up Keoghs)

Vesting is best described as:

An employee's right to ownership of the funds contributed by the employer.

Which of the following statements is correct?

Annuities do not pass tax-exempt however life insurance does (Hint: Only life insurance passess tax-exempt (income tax free) at death)

Annuity benefits are a combination of principal and interest. What is the taxation status of the principal?

Both are correct statements (Hint: Pre-tax dollars means that the annuity was funding a qualified retirement plan which allowed the policyowner to deduct the amount paid into the annuity which makes both the principal and interest taxable)

Which statement concerning a Roth IRA is not incorrect?

Contributions are not deductible

Which of the following is not a major type of social security disability coverage?

Disabled Adult Benefits

Which of the following is not a requirement for eligibility in an employer plan?

Employees must be 18 years of age or older (Hint: Employees must be 21 years of age or older and have completed 1 year of service with the employer)

All monthly retirement benefits can be paid to the following family members except:

Married children under age 19 if still in school (Hint: Unmarried is the key)

In a group policy the employer is responsible for all of the following except:

Paying the premium and notifying the insurer of employees who are higher risk than others (Hint: Employers are responsible for applying, selection of coverage, enrollment, recordkeeping and any administration not provided by the insurer and paying the premium to the insurer)

Which of the following is not a major difference between social and private insurance?

Private insurance benefits are mandated by law (Hint: The benefits provided under social insurance are required by law)

The incorrect statement pertaining to TSAs would be:

TSAs are available to employees of certain nonprofit organizations and schools, such as nursing student

The period of time following the youngest child's 16th birthday until the surviving parent is eligible is called:

The blackout period (Hint: The blackout period runs from the sixteenth birthday of the youngest child until the widow's sixtieth birthday)

All the following statements about group life insurance policies are false except:

The employer is the master policy holder

The following are IRS requirements for qualified retirement plans except:

The plan must have a vesting requirement just for the officers and stockholders (Hint: Plan must have a vesting requirement but cannot be exclusively for a certain group)

Which of the following would generate a taxable situation?

The policyowner surrenders the policy and receives $15,000 in cash value in which they paid $12,000 in premiums (Hint: Loans, dividends and cash surrender where the cash received is less than premiums paid are not taxable)

Which of the following statements concerning currently insured is incorrect?

The spouse with no minor children will be entitled to the widow/widower (spousal income) at age 60

Of the following correct statements concerning the conversion privilege of group term life insurance which is not correct?

There is no coverage during the conversion period if the employee/insured has decided not to exercise their right to convert

Which of the following is incorrect concerning quarters?

To be fully insured you must earn at least 1 credit being at age 21 for each year so at 24 you would only need 4 credits to be fully insured

All the following characteristics of group life policies are correct except:

Underwriting is based on the group age and average health condition

When would life insurance proceeds be subject to federal or state income taxes?

When the policy is transferred for money

Each of the following would be able to deduct the premiums from a life policy from taxes except:

When the premiums are paid from a company bonus

Which of the following statement about profit sharing plans is incorrect?

Yearly earnings are fully taxable in the year received (Hint: Contributions and earnings accumulate tax free until withdrawn by the participant, and are then fully taxable)

Laura has paid a total of $3,600 into her annuity. The cash value in her account is currently $4,200. If Laura rolls the entire value of her annuity into a different annuity under a Section 1035 exchange, she must pay income tax on:

ZERO = 0 (Hint: The purpose of the 1035 exchange is to protect the insured's tax-deferred status)

Which of the following statements regarding annuity taxation is FALSE?

a withdrawal from a deferred annuity under the contract's free withdrawal provision exempts the distribution from the pre-59 penalty tax

A defined contribution plan is a qualified retirement plan in which:

contributions are defined, but the ultimate benefits to be paid is not

All of the following are valid reasons that could support the recommendation to purchase a deferred annuity EXCEPT:

stepped-up basis to the beneficiary at the owner's death