Life Insurance Policy Provisions
Qualified Plans and Federal Tax
Considerations for Life Insurance and
Annuities
1. An employee quits her job where she has a balance of
$10,000 in her qual- ified plan. If she decides to do a direct
transfer from her plan to a Traditional IRA, how much will be
transferred from one plan administrator to another and what
is the tax consequence of a direct transfer?
A$8,000, tax on growth only B$10,000, tax on growth only
C$10,000, no tax consequence D$8,000, no tax consequence:
c
During an IRA direct transfer (or direct rollover), the full amount
gets reinvested from one plan to the other.
2. What is the penalty for IRA distributions that are below the
required mini- mum for the year?
A10% B25% C50% D60%: c
If there are no distributions at the required age, or if the
distributions are not large enough, the penalty is 50% of the
shortfall from the required annual amount.
, 3. If an immediate annuity is purchased with the face amount
at death or with the cash value at surrender, this would be
considered a
ANonforfeiture option. BRollover.
CSettlement option. DNontaxable exchange.: c
A settlement option is exercised when an immediate annuity is
purchased with the face amount at death or with the cash value at
surrender.
4. Which concept is associated with "exclusion ratio"? AHow
exclusion riders affect an insurance premium BPolicy
provisions
CAnnuity payments
DDividend distribution: c
A portion of an annuity payment is taxable, while another portion is
not. The return of the principal paid in is nontaxable. The portion that
is taxable is the actual amount of payment, less the expected return
of the principal paid in. This relationship is called the "exclusion
ratio."
5. What type of annuity activity will cause immediate taxation
of the interest earned?
AChanging a settlement option
BFailing to make a planned contribution
CSurrendering the annuity for cash
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