Annuites and Retirement Plans

Question 1

Which statement is INCORRECT concerning a tax-sheltered annuity (TSA)?

Annual investment gains are included in participant’s gross income
Also known as 403(b) plans
Participants make payments from salary reductions
Normally used by charitable, educational, and religious organizations

Answer 1

The investment gains are deferred in a tax-sheltered annuity.

Question 2

When a deferred annuity is surrendered, who must sign the authorization to do so?

Annuitant and beneficiary
All parties involved
Annuitant
Owner

Answer 2

The contract owner exclusively has the power to surrender the cash value of an annuity.

Question 3

Taking a sum of money and decreasing it in size is called

capital appreciation
capital liquidation
capital sum
capital gains

Answer 3

Capital liquidation creates a situation in which a sum of money decreases in size.

Question 4

The main purpose of an annuity is to

provide a tax shelter
provide a death benefit
create an estate
create a stream of income

Answer 4

An annuity is simply a vehicle for liquidating a sum of money.

Question 5

When an annuity contract has been fully surrendered, how will the surrender charges affect the final contract settlement?

Final contract settlement will not be affected
Final contract settlement will be increased
Final contract settlement will be reduced
Final contract settlement will be held in escrow until surrender charges are paid

Answer 5

If the contract owner fully surrenders an annuity contract, any applicable surrender charges will reduce the final contract settlement.

Question 6

What determines how much an annuitant is paid for a variable annuity?

Payments fluctuate as annuitant gets older
The market value variations of the securities backing it
Varies according to the insurer’s investments in its general account
Varies according to how many outstanding annuity units

Answer 6

The amount of each variable annuity benefit paid to an annuitant varies according to the market value of the securities backing it.

Question 7

What is another term used for a “pure” life annuity?

Life income
Joint annuity
Annuity certain
Immediate annuity

Answer 7

A “pure” life annuity (also known as “life income”) provides the highest monthly income benefit. Upon the death of the annuitant, however, all remaining funds are lost to the insurer.

Question 8

What is the effect of the market value adjustment in a market value adjustment annuity?

Transfers the tax liability to the owner
No effect
Allows owner to periodically adjust the investment risk
Transfers some of the investment risk to the policyowner

Answer 8

A Market Value Adjustment (MVA) can be attached to a deferred annuity that features fixed interest rate guarantees combined with an interest rate adjustment factor that can cause the actual crediting rates to increase or decrease in response to market. Market value adjustments found in some annuity products are meant to shift some of the investment risk to the policyowner.

Question 9

Which of the following is NOT a valid contract exchange?

An annuity exchanged for a life insurance policy
An annuity exchanged for another annuity
A life insurance policy exchanged for another annuity
A life insurance policy exchanged for another life insurance policy

Answer 9

The 1035 exchange does not allow for an annuity to be exchanged for a life insurance policy. This is not considered an equal exchange and will be taxed.

Question 10

When a sum of money undergoes capital liquidation, that sum will

remain the same indefinitely
create tax deductions
decrease in size
increase in value

Answer 10

Capital liquidation creates a situation in which a sum of money decreases in size.

Question 11

A teacher recently retired at age 63 and has a tax sheltered annuity (TSA). Periodic deposits total $120,000 and the value of the contract is now worth $200,000. How much is taxed if the current value is surrendered today?

$80,000
$120,000
$200,000
$0

Answer 11

“$200,000”. In this situation, $200,000 will be taxed upon surrender. A tax-sheltered annuity is funded with pre-tax dollars so the entire current value is taxed when surrender. No additional tax penalties are imposed if the owner surrenders the annuity at age 59 1/2 or older.

Question 12

When does interest income for a flexible premium deferred annuity get reported for federal income taxes?

After the principal has been exhausted
During the accumulation phase
Never
Upon receiving distributions from the contract

Answer 12

The portion of the annuity payment that represents interest-earned is taxable. The portion that represents the return of principal is not taxed.

Question 13

Which annuity allows contributions to an IRA?

Single Premium Immediate Annuity (SPIA)
Deferred
Annuity certain
Life with period certain

Answer 13

A qualified deferred annuity in the accumulation phase may be used to fund an IRA and allow continued contributions within the maximum limits set by the IRS. IRA funds that have been annuitized no longer permit contributions.

Question 14

A business may purchase an annuity for all of the following reasons EXCEPT

informally funding a non-qualified deferred compensation plan
Providing a pension to employees
Accumulating assets on a tax-deferred basis
Structuring a liability settlement payment

Answer 14

The correct answer is “informally funding a non-qualified deferred compensation plan”. Business corporations may use annuities for all of these purposes EXCEPT informally funding a non-qualified deferred compensation plan.

Question 15

Which event triggers a deferred annuity to start making benefit payments to the annuitant?

When the contract is annuitized
When the contract’s cash value exceeds the cost basis
Cash surrender of the annuity
When the owner dies

Answer 15

Benefit payments begin when a deferred annuity contract has been annuitized.

Question 16

Which of the co-annuitants listed below would receive the largest monthly benefit payments in a joint and 100% survivor annuity?

Ages 70 and 72
Ages 69 and 71
Ages 71 and 73
Ages 60 and 80

Answer 16

The correct answer is “Age 71 and 73”. Given the older blended age, the co-annuitants aged 71 and 73 would receive the largest monthly benefit payment under a joint and 100% survivor annuity.

Question 17

Which of the following contracts offer deferred taxation, flexible payments, a guaranteed interest rate, and death benefits equal to the cash value?

Flexible premium fixed annuity
Modified life policy
Immediate fixed annuity
Variable life policy

Answer 17

A flexible premium fixed annuity offers flexible deposits, deferred taxation, a guaranteed minimum interest rate, and death proceeds equal to the cash value.

Question 18

A life annuity feature which provides benefit payments for a minimum number of years, no matter when the annuitant dies, is called

installment refund
period certain
fixed period
straight life

Answer 18

A life annuity feature which provides benefit payments for a minimum number of years, no matter when the annuitant dies, is called period certain.

Question 19

Which of the following is associated with an immediate annuity?

Tax-free benefit payments
Lack of an accumulation period
Lump-sum benefit
Installment premium payments

Answer 19

An immediate annuity lacks an accumulation period.

Question 20

An individual, age 45, would like to help pay for his daughter’s college expenses in 10 years. Which annuity would be appropriate for this individual?

Joint and survivor annuity
Immediate annuity
403(b) plan
Deferred annuity

Answer 20

In this situation, a deferred annuity would be appropriate.

Question 21

Which of the following would most likely purchase an immediate annuity?

Business needing an immediate tax write-off
Retiree having a lump sum to invest
Individual wishing to contribute to a tax-sheltered annuity
Individual wanting to accumulate an investment over time

Answer 21

Immediate annuities are often purchased by people who have a lump sum to invest at retirement.

Question 22

Which of these pays an income to two or more annuitants until the death of the last annuitant?

Deferred survivor annuity
Joint and survivor annuity
Survivorship annuity
Joint life annuity

Answer 22

A joint and survivor annuity covers two or more lives and continues in force so long as any one of them survives.

Question 23

How do benefit payments fluctuate over time in a variable life annuity?

Annuitant controls any benefit payment changes
Benefit payments stay fixed
Reflects changes in the market value of assets in a separate account
Any benefit payment fluctuations have to be approved in writing by the owner

Answer 23

A variable annuity’s benefit payment reflects changes in the market value of assets in a separate account.

Question 24

Interest is credited to a fixed annuity no lower than the

prime rate
current rate of inflation
variable contract rate
contract guaranteed rate

Answer 24

The interest rate on a fixed annuity does not fall below the contract guaranteed rate.

Question 25

An annuity which starts paying monthly benefits within a month after issuance is called a(n) period certain annuity fixed annuity deferred annuity immediate annuity

Answer 25

An immediate annuity starts paying benefits within approximately one month after issuance.

Question 26

John bought a deferred annuity on Mary. John amends the contract years later to name Tom as the recipient of the proceeds if Mary dies. Who is the annuitant for this contract? Tom John Mary's estate Mary

Answer 26

In this situation, Mary is the annuitant because that is where the proceeds of the annuity will be initially directed.

Question 27

A single premium deferred annuity sometimes contains a bailout feature. Which statement regarding this feature is correct? If the interest rate rises above a certain level, the surrender charge is waived If the interest rate falls below a specified level, the surrender charge is waived It allows the Life and Health Guaranty Association to bailout the insolvent insurer A reinsurer will make the remainder of the annuity payments if the original insurance company becomes insolvent

Answer 27

Some annuity contracts allow the owner to withdraw funds without a withdrawal charge if the interest rate falls below a certain level. This is referred to as a "bail-out" option. The amount withdrawn may be subject at least in part to income tax and a 10% IRS penalty.

Question 28

Ron recently purchased an immediate, straight life fixed annuity. His benefit payments will pay a lump sum if the annuitant dies vary according to the underlying investment performance discontinue after a stated number of years remain a constant dollar amount for the duration of the annuity period

Answer 28

An immediate, straight life fixed annuity will pay out immediately to an annuitant a constant dollar amount until the annuitant dies.

Question 29

A single-life annuity only has ONE annuitant premium payment beneficiary benefit payment

Answer 29

Single-life annuities are characterized by having only one annuitant.

Question 30

Sarah, age 88, is a life annuitant who has lived beyond her life expectancy. The funds for additional benefit payments will be derived primarily from funds that were given up by the annuitant's refund beneficiary obtained from the state's Guaranty Association not distributed to life annuitants who died before life expectancy accumulated from the invested principal

Answer 30

When a life annuitant outlives life expectancy, the funds for additional benefit payments will be derived primarily from funds that were not distributed to life annuitants who died before life expectancy.

Question 31

A teacher recently retired at age 63 and has a tax sheltered annuity (TSA). Periodic deposits total $120,000 and the value of the contract is now worth $200,000. How much is taxed if the current value is surrendered today? $80,000 $120,000 $200,000 $0

Answer 31

The correct answer is "$200,000". In this situation, $200,000 will be taxed upon surrender. A tax-sheltered annuity is funded with pre-tax dollars so the entire current value is taxed when surrender. No additional tax penalties are imposed if the owner surrenders the annuity at age 59 1/2 or older.

Question 32

The administrator for a corporate pension plan bought an accumulation annuity contract for its 2,000 employees. All 2,000 participating employees received certificates of participation. What kind of contract is this? 403(b) plan Deferred compensation plan Group immediate annuity Group deferred annuity

Answer 32

With a group deferred annuity, the employer holds a master contract and certificates of participation are given to the persons covered by the plan. It is considered a deferred annuity because of the word "accumulation".

Question 33

The exclusion ratio determines the amount of an annuity payment subject to income tax if an annuity is eligible for a 1035 exchange the interest rate for an annuity how long an annuitant receives benefit payments

Answer 33

The exclusion ratio determines the amount of an annuity payment subject to income tax.

Question 34

The annuitant in a single premium deferred annuity (SPDA) receives immediate benefit payments is also the beneficiary makes only one premium payment can make tax-free withdrawals until the principal is recovered

Answer 34

The contract owner in a single premium deferred annuity (SPDA) makes only one lump-sum payment

Question 35

An annuitant is paid $495 per month until the contract value is exhausted at some undetermined date in the future. Which type of annuity payout option is this?

Answer 35

Under the fixed amount option, the annuitant receives a fixed payment until the contract value is exhausted, regardless of when that will be. If the annuitant dies before the contract is depleted, the beneficiary receives the remainder.

Question 36

The interest credited to the cash values of personally-owned non-qualified annuities is considered tax-deferred tax-exempt tax-deductible a tax credit

Answer 36

Interest credited to the cash values of annuities is deferred until distribution.

Question 37

An annuity's accumulation period may continue after the benefit payments start continue after the annuitant dies continue after the annuity has been surrendered continue after the purchase payments stop

Answer 37

The accumulation period of an annuity usually may continue after the purchase payments stop.

Question 38

What does a fixed life annuity offer protection against? Inflation Savings depletion due to longevity Premature death Inadequate retirement planning

Answer 38

Life annuities pay an annuitant a guaranteed income for the annuitant's life.

Question 39

The contractual rights which allow the owner of a deferred annuity to surrender the cash value several years before the annuity date are called surrender options nonforfeiture options conversion options settlement options

Answer 39

The correct answer is "nonforfeiture options". If the owner of a deferred annuity surrenders the contract several years before the annuity date in exchange for the cash value, the owner is said to be exercising contractual rights called "nonforfeiture options".

Question 40

The owner's cost basis for a non-qualified deferred annuity is typically the same as the total premiums paid benefits payable to the annuitant interest earned within the annuity annuity's cash value

Answer 40

An owner's cost basis for a deferred annuity is typically the same amount as the premiums paid into the annuity.

Question 41

The owner of a single premium deferred annuity is entitled to do all of these EXCEPT choose who will be the recipient of the annuity payments cash surrender the contract make additional payments into the annuity choose the length of the payout period

Answer 41

Single premium deferred annuities involve a single, lump-sum deposit.

Question 42

The surrender charge on many deferred annuity contracts are waived when the contract is canceled within the first year contract's interest rate falls below a stated percentage annuitant dies or becomes disabled annuitant becomes unemployed

Answer 42

The correct answer is "annuitant dies or becomes disabled". Many deferred annuity contracts waive the surrender charge when the annuitant dies or becomes disabled.

Question 43

When determining the accumulation value of a deferred annuity, the total is calculated by taking the premiums paid plus interest earned minus bailout option charge taxes owed surrender charges expenses and withdrawals

Answer 43

The accumulation value of a deferred annuity is equal to the sum of premiums paid plus interest earned minus any withdrawals and expenses.

Question 44

Tori has an annuity that pays her a $500 per month income benefit for life or for ten years, whichever is longer. What kind of annuity is this? Variable life annuity with period certain Fixed life annuity with cash refund Variable life annuity with installment refund Fixed life annuity with period certain

Answer 44

A fixed life annuity with period certain is designed to pay the annuitant a fixed income for life, but guarantees a definite minimum period of payments.

Question 45

Which benefit can be found in an equity indexed annuity, but not in a fixed annuity? Protection against long-term inflation Equity loans Protection against living too long A fixed rate of return

Answer 45

An equity indexed annuity is tied to an equity index such as the S&P 500 but also provides a guaranteed minimum interest rate. It gives the annuitant the opportunity to beat the rate of inflation.

Question 46

What happens to the purchasing power of benefit payments from a fixed life annuity when the cost of living goes up? Decreases Increases Not affected by inflation Tied to stock index

Answer 46

Under a fixed life annuity, the purchasing power decreases when the cost of living goes up because the amount of benefit payments remains fixed. On the flip side, the purchasing power increases when the cost of living goes down.

Question 47

Which of the following is NOT an intended use of an annuity? Create new funds upon the death of a wage-earner Accumulate assets on a tax-deferred basis Obtain income benefits for a stated period of time for more than one person Create immediate lifetime income benefits

Answer 47

All of these are uses of annuities EXCEPT "Create new funds upon the death of a wage-earner".

Question 48

Under a deferred annuity, which contract feature initially charges a 5-10% fee that eventually reduces to $0 after a stated amount of time? Premature withdrawal charge Surrender charge Progressive fee Cancellation fee

Answer 48

If you cancel your deferred annuity contract before the surrender period (full surrender or partial surrender) is expired, you will incur a surrender charge of typically 5-10%.

Question 49

When compared to a fixed annuity, a variable annuity has what distinguishing feature? Investment risk is assumed by the insurer Investment risk is assumed by the purchaser Payout option can be changed after the accumulation phase Flexible premiums according to a stock index

Answer 49

The purchaser assumes the investment risk with a variable annuity.

Question 50

Under which circumstance is the interest rate guaranteed within a market value adjusted annuity? For the entire length of the contract When the cash value has reached a stated minimum amount When the contract has been held for the period specified in the policy Never

Answer 50

When the contract has been held for the period specified in the policy". The interest rate applied to the cash value within a market value adjusted annuity is guaranteed only when the contract has been in force for a stated time period.

Question 51

Which of these annuity contract features is meant to discourage withdrawals and exchanges? Surrender charges Annual fees Withdrawal penalty Annuitization

Answer 51

The correct answer is "Surrender charges". Surrender charges are intended to discourage withdrawals and exchanges in an annuity.

Question 52

An insurer will typically assess a back-end load on a deferred annuity that is cancelled during the early contract years. What is this back-end load referred to as? Surrender charge Cancellation fee Back-end assessment Tax penalty

Answer 52

When a deferred annuity is cancelled during the early contract years, the insurer normally will assess a back-end load known as a surrender charge.

Question 53

What happens to the cash value of a market value adjusted annuity if it's surrendered prior to the end of the stated guarantee period? Cash value is forfeited Subject to no adjustments Subject to a surrender charge only Subject to market value adjustment

Answer 53

The correct answer is "Subject to market value adjustment". The market value adjustment comes into play only if the annuity owner decides to surrender the annuity contract early.

Question 54

How are monthly life annuity benefit payments treated under a tax sheltered annuity (TSA)? Taxed as ordinary income in the year received Taxed as ordinary income during the accumulation period Received tax-free to all recipients Taxed as a capital gain during the accumulation period

Answer 54

Monthly life annuity benefit payments received from a tax sheltered annuity (TSA) are taxed as ordinary income in the year received.

Question 55

What is the tax treatment of benefit payments for a non-qualified annuity? Benefit payments received after 70 1/2 are always tax-exempt Benefit payments must begin at age 59 1/2 to avoid a penalty Benefit payments are always taxable Benefit payments are subject to taxes only prior to age 70 1/2

Answer 55

Under a non-qualified annuity, benefits are taxable at all times. Furthermore, only the earnings (gains) are taxed as income; the principal is not.

Question 56

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

Answer 56

The correct answer is "Salary-deferral option". A 401(k) plan normally provides participants with a salary-deferral option for contributions to the plan.

Question 57

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? 50% 30% 60% 40%

Answer 57

Distributions must be made by April 1 following the year the participant turns age 70 1/2 or a 50% excise tax will be assessed on the amount that should have been withdrawn.

Question 58

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? 50 100 25 250

Answer 58

An employer can have a maximum of 100 employees earning at least $5,000 to be eligible for a SIMPLE retirement plan.

Question 59

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

Answer 59

The correct answer is "Income tax and penalty tax". Income tax and a penalty tax are generally assessed when a participant receives retirement savings from an IRA before reaching age 59 1/2.

Question 60

A 55 year old recently received a $30,000 distribution from a previous employer's 401k plan, minus $6,000 for income tax withholding. Which federal taxes apply if none of the funds were rolled over? Income taxes plus a 10% penalty tax on $24,000 Only income taxes on $24,000 Income taxes plus a 10% penalty tax on $30,000 Only income taxes on $30,000

Answer 60

All withdrawals from a qualified retirement plan are taxable as current income. In addition, any withdrawals made before age 59 1/2 is subject to an additional tax penalty of 10% of the amount withdrawn.

Question 61

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

Answer 61

Profit-sharing plans set aside a portion of a company's net income for distributions to qualified employees.

Question 62

According to ERISA regulations, a Summary Plan Description must be provided to a new plan member within ___ days of the member's eligibility date. 60 120 90 30

Answer 62

A Summary Plan Description must be provided within 90 days following a new plan member's eligibility date.

Question 63

An employee welfare plan exempt from ERISA regulations would be accident only plans indemnity plans church plans split dollar plans

Answer 63

Church plans are exempt from ERISA regulations.

Question 64

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

Answer 64

Annual limits to an employee's qualified retirement plan are based on maximum limits set by the IRS.

Question 65

A description of a qualified plan's insurance contract may be found in which ERISA reporting form? IRS Form 1040 Annual return/report (Form 5500) Shareholder's report Summary report (Form 6500)

Answer 65

Form 5500 is a disclosure document that employee benefit plans use to satisfy annual reporting requirements under ERISA.

Question 66

Which of the following can be used to avoid the mandatory withholding tax on qualified plan distributions? 1035 exchange Conduit IRA Qualified plan waiver Trustee-to-trustee transfer

Answer 66

The correct answer is "Conduit IRA". A conduit IRA is a holding tank for funds that originally came from a qualified plan and are on their way to another qualified plan. No withholding tax is necessary unless any of the funds are distributed directly to the person.

Question 67

Which of the following situations would allow funds to be deposited into a rollover IRA? An employee quits her job and receives $50,000 from her qualified plan A policyowner surrenders his life insurance policy's $25,000 cash value A family receives $1,000,000 in a wrongful death lawsuit An individual receives a $100,000 inheritance

Answer 67

An employee who resigns and receives funds from a qualified plan could deposit the available funds into a rollover individual retirement account (IRA).

Question 68

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

Answer 68

mandatory income tax withholding on the amount transferred". There is no federal tax withholding involved in a transfer of funds from one qualified plan into another. Rollovers, however, involve a 20% withholding. Once the rollover takes place to the new custodian, the remainder of the distribution is made.

Question 69

Which of these statements about traditional individual retirement accounts is accurate? 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 prior to age 59 1/2 Contributions are not tax deductible

Answer 69

Because an IRA is a qualified plan, it has the same rules for early withdrawal.

Question 70

Rick recently died and left behind an individual IRA account in his name. His widow was forwarded the balance of the IRA. The transfer of Rick's IRA account balance to his surviving spouse qualifies for the marital deduction Section 1035 exchange capital gains taxation death benefits

Answer 70

The correct answer is "the marital deduction". The transfer of a decedent's IRA account balance to a surviving spouse qualifies for the Unlimited Marital Deduction, which generally exempts the transfer from estate taxes.

Question 71

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

Answer 71

The participating employee normally applies for and owns a 403(b) tax-sheltered annuity.

Question 72

According to the IRS, a company may NOT do which of the following in regards to funds in a qualified retirement plan? Transfer vested funds to terminated employees Transfer the funds to a new custodian Invest the funds in mutual funds Repossess the funds for business purposes

Answer 72

Under IRS rules, a company may do all of these except "Repossess the funds for business purposes".

Question 73

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 had the funds rolled over into an IRA. What is the tax consequence of the distribution sent to this employee? Distribution is subject to ordinary income tax Distribution is subject to capital gains tax Distribution is subject to a tax penalty Distribution is subject to federal income tax withholding

Answer 73

The correct answer is "Distribution is subject to federal income tax withholding". A participant must complete a rollover to another qualified plan within 60 days or the distribution is considered a nonqualified distribution and is subject to taxes and penalties. A plan sponsor must withhold 20% of the distribution for federal taxes on a rollover. Once the rollover takes place to the new custodian, the remainder of the distribution is released.

Question 74

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

Answer 74

The assets held in a company's qualified retirement plan must be maintained for the exclusive benefit of the employees and their beneficiaries.

Question 75

The IRS has a "minimum coverage" rule regarding qualified retirement plans. This rule states that each qualified plan is required to benefit a broad cross-section of employees provide benefits to a company's executive team benefit a minimum number of employees provide a minimum amount of income per year

Answer 75

Under the IRS "minimum coverage" rules, a qualified retirement plan must benefit a broad cross-section of employees.

Question 76

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

Answer 76

The correct answer is "subject to a vesting schedule". An employee's contribution to a qualified retirement plan must be subject to the vesting schedule.

Question 77

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

Answer 77

First-time homebuyers are able to withdraw up to $10,000 from their qualified IRAs without incurring the 10% early withdrawal penalty.

Question 78

The time limit an individual has to "rollover" funds from an IRA or qualified plan is No Limit 120 days 60 days 90 days

Answer 78

In IRAs and qualified plans, the time limit for rollover funds is 60 days, or the funds could be subjected to income taxes and a penalty tax.

Question 79

How are qualified Roth IRA distributions normally treated for tax purposes? Taxed as ordinary income Capital gains tax is applied 10% penalty tax is applied Received income tax-free

Answer 79

Qualified distributions are received income tax-free in a Roth IRA.

Question 80

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 do not apply to divorced employees Survivor benefits CANNOT be waived with the written consent of a married employee's spouse Survivor benefits are rarely included in small company plans

Answer 80

The survivor benefits under a qualified retirement plan can be waived only with the written consent of a married worker's spouse.

Question 81

In an individual retirement account (IRA), rollover contributions are partially limited by dollar amount subject to capital gains tax unlimited by dollar amount subject to ordinary income tax

Answer 81

Rollover contributions to an individual retirement account are unlimited by dollar amount.

Question 82

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

Answer 82

The correct answer is "20% is withheld for income taxes". A plan sponsor must withhold 20% of the distribution in federal taxes on a rollover. Once the rollover takes place to a new custodian, the remainder of the distribution is made.

Question 83

Traditional individual retirement annuity (IRA) distributions must start by 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 age 59 1/2 age 65

Answer 83

Distributions from a traditional IRA must be made by April 1 following the year the participant turns age 70 1/2 or an excise tax will be assessed.

Question 84

A Keogh plan is a(n) unqualified retirement plan for large corporations qualified retirement plan for the self employed split dollar plan for key employees tax-exempt annuity for government workers

Answer 84

A Keogh plan is a qualified retirement plan for the self employed.

Question 85

When funds are transferred directly from one IRA to another IRA, what percentage of the tax is withheld? 20% 30% 10% None

Answer 85

The correct answer is "None". There is no tax withheld on an IRA transfer that directly involves two IRAs.

Question 86

A life insurance producer's underwriting duties may include ordering an MIB report determining the rate classification of the applicant seeking additional information requested by the insurance company approving or declining a life insurance application

Answer 86

The correct answer is "seeking additional information requested by the insurance company". Underwriting responsibilities of the life insurance producer include seeking additional information requested by the insurer.

Question 87

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

Answer 87

A plan is considered to be top heavy if more than 60% of plan assets are attributable to “key employees” as of the last day of the prior plan year.

Question 88

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

Answer 88

One of the purposes of a qualified profit-sharing plan is to distribute a portion of company earnings to employees.

Question 89

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

Answer 89

The advantage gained by providing a qualified retirement plan is the employer's contributions to the plan are tax deductible.

Question 90

An individual working part-time has a gross income of $5,000 for the year. If this individual has an IRA, what is the maximum deductible IRA contribution allowable? $2,000 $1,000 $5,000 No deduction allowed

Answer 90

In this situation, the maximum allowable IRA contribution is $5,000.

Question 91

Tim is retired and has recently separated from his wife. He receives benefits from a qualified retirement plan through his former employer. The plan's trustee has decided to split these benefit payments between Tim and his estranged wife. This decision is likely in violation of which IRS rule? Alienation of benefits Indemnity of benefits Reasonable expectations Minimum coverage

Answer 91

Alienation of benefits involves the assignment of a pension or retirement plan participant's benefits to another person. It is permitted only under exceptional circumstances per IRS rules, such as certain participant loans and certain domestic relations orders. With no domestic relations order, this trustee is likely in violation of this rule.

Question 92

What is another name for a Keogh plan? HR 10 plan 1040 plan Roth IRA Rollover plan

Answer 92

The Keogh plan, or HR 10, is an employer-funded, tax-deferred retirement plan designed for unincorporated businesses or self-employed.

Question 93

Which of the following statements is TRUE if the owner of an IRA names their spouse as beneficiary, but then dies before any distributions are made? 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 Surrender charge is applied

Answer 93

A surviving spouse who inherits IRA benefits from a deceased spouse's qualified plan is eligible to establish a rollover IRA in their name.

Question 94

XYZ Corp has implemented a qualified retirement plan. This plan may NOT discriminate in favor of employees with higher seniority against stockholders against employees under the age of 21 in favor of highly compensated employees

Answer 94

A qualified retirement plan may not discriminate in favor of highly compensated employees.

Question 95

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

Answer 95

In this situation, 80% "vested" means that 20% of the funds could be forfeited if Tom's employment is terminated.