Annuites and Retirement Plans Flashcards
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
The investment gains are deferred in a tax-sheltered annuity.
When a deferred annuity is surrendered, who must sign the authorization to do so?
Annuitant and beneficiary
All parties involved
Annuitant
Owner
The contract owner exclusively has the power to surrender the cash value of an annuity.
Taking a sum of money and decreasing it in size is called
capital appreciation
capital liquidation
capital sum
capital gains
Capital liquidation creates a situation in which a sum of money decreases in size.
The main purpose of an annuity is to
provide a tax shelter
provide a death benefit
create an estate
create a stream of income
An annuity is simply a vehicle for liquidating a sum of money.
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
If the contract owner fully surrenders an annuity contract, any applicable surrender charges will reduce the final contract settlement.
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
The amount of each variable annuity benefit paid to an annuitant varies according to the market value of the securities backing it.
What is another term used for a “pure” life annuity?
Life income
Joint annuity
Annuity certain
Immediate annuity
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.
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
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.
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
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.
When a sum of money undergoes capital liquidation, that sum will
remain the same indefinitely
create tax deductions
decrease in size
increase in value
Capital liquidation creates a situation in which a sum of money decreases in size.
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
“$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.
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
The portion of the annuity payment that represents interest-earned is taxable. The portion that represents the return of principal is not taxed.
Which annuity allows contributions to an IRA?
Single Premium Immediate Annuity (SPIA)
Deferred
Annuity certain
Life with period certain
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.
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
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.
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
Benefit payments begin when a deferred annuity contract has been annuitized.
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
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.
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
A flexible premium fixed annuity offers flexible deposits, deferred taxation, a guaranteed minimum interest rate, and death proceeds equal to the cash value.
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
A life annuity feature which provides benefit payments for a minimum number of years, no matter when the annuitant dies, is called period certain.
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
An immediate annuity lacks an accumulation period.
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
In this situation, a deferred annuity would be appropriate.
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
Immediate annuities are often purchased by people who have a lump sum to invest at retirement.
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
A joint and survivor annuity covers two or more lives and continues in force so long as any one of them survives.
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
A variable annuity’s benefit payment reflects changes in the market value of assets in a separate account.
Interest is credited to a fixed annuity no lower than the
prime rate
current rate of inflation
variable contract rate
contract guaranteed rate
The interest rate on a fixed annuity does not fall below the contract guaranteed rate.
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
An immediate annuity starts paying benefits within approximately one month after issuance.
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
In this situation, Mary is the annuitant because that is where the proceeds of the annuity will be initially directed.
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
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.
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
An immediate, straight life fixed annuity will pay out immediately to an annuitant a constant dollar amount until the annuitant dies.
A single-life annuity only has ONE
annuitant
premium payment
beneficiary
benefit payment
Single-life annuities are characterized by having only one annuitant.
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
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.
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
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.
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
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”.
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
The exclusion ratio determines the amount of an annuity payment subject to income tax.
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
The contract owner in a single premium deferred annuity (SPDA) makes only one lump-sum payment
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?
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.
The interest credited to the cash values of personally-owned non-qualified annuities is considered
tax-deferred
tax-exempt
tax-deductible
a tax credit
Interest credited to the cash values of annuities is deferred until distribution.
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
The accumulation period of an annuity usually may continue after the purchase payments stop.
What does a fixed life annuity offer protection against?
Inflation
Savings depletion due to longevity
Premature death
Inadequate retirement planning
Life annuities pay an annuitant a guaranteed income for the annuitant’s life.
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
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”.
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
An owner’s cost basis for a deferred annuity is typically the same amount as the premiums paid into the annuity.
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
Single premium deferred annuities involve a single, lump-sum deposit.
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
The correct answer is “annuitant dies or becomes disabled”. Many deferred annuity contracts waive the surrender charge when the annuitant dies or becomes disabled.
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
The accumulation value of a deferred annuity is equal to the sum of premiums paid plus interest earned minus any withdrawals and expenses.
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
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.
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
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.
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
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.
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
All of these are uses of annuities EXCEPT “Create new funds upon the death of a wage-earner”.
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
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%.
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
The purchaser assumes the investment risk with a variable annuity.
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
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.
Which of these annuity contract features is meant to discourage withdrawals and exchanges?
Surrender charges
Annual fees
Withdrawal penalty
Annuitization
The correct answer is “Surrender charges”. Surrender charges are intended to discourage withdrawals and exchanges in an annuity.
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
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.
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
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.
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
Monthly life annuity benefit payments received from a tax sheltered annuity (TSA) are taxed as ordinary income in the year received.
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
Under a non-qualified annuity, benefits are taxable at all times. Furthermore, only the earnings (gains) are taxed as income; the principal is not.
What does a 401(k) plan generally provide its participants?
Salary-deferral option
Tax-free distributions
Salary-deferral distributions
A defined retirement benefit
The correct answer is “Salary-deferral option”. A 401(k) plan normally provides participants with a salary-deferral option for contributions to the plan.
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%
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.
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
An employer can have a maximum of 100 employees earning at least $5,000 to be eligible for a SIMPLE retirement plan.
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
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.
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
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.
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
Profit-sharing plans set aside a portion of a company’s net income for distributions to qualified employees.
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
A Summary Plan Description must be provided within 90 days following a new plan member’s eligibility date.
An employee welfare plan exempt from ERISA regulations would be
accident only plans
indemnity plans
church plans
split dollar plans
Church plans are exempt from ERISA regulations.
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
Annual limits to an employee’s qualified retirement plan are based on maximum limits set by the IRS.
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)
Form 5500 is a disclosure document that employee benefit plans use to satisfy annual reporting requirements under ERISA.
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
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.
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
An employee who resigns and receives funds from a qualified plan could deposit the available funds into a rollover individual retirement account (IRA).
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
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.
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
Because an IRA is a qualified plan, it has the same rules for early withdrawal.
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
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.
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
The participating employee normally applies for and owns a 403(b) tax-sheltered annuity.
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
Under IRS rules, a company may do all of these except “Repossess the funds for business purposes”.
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
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.
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
The assets held in a company’s qualified retirement plan must be maintained for the exclusive benefit of the employees and their beneficiaries.
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
Under the IRS “minimum coverage” rules, a qualified retirement plan must benefit a broad cross-section of employees.
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
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.
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
First-time homebuyers are able to withdraw up to $10,000 from their qualified IRAs without incurring the 10% early withdrawal penalty.
The time limit an individual has to “rollover” funds from an IRA or qualified plan is
No Limit
120 days
60 days
90 days
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.
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
Qualified distributions are received income tax-free in a Roth IRA.
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
The survivor benefits under a qualified retirement plan can be waived only with the written consent of a married worker’s spouse.
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
Rollover contributions to an individual retirement account are unlimited by dollar amount.
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
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.
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
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.
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
A Keogh plan is a qualified retirement plan for the self employed.
When funds are transferred directly from one IRA to another IRA, what percentage of the tax is withheld?
20%
30%
10%
None
The correct answer is “None”. There is no tax withheld on an IRA transfer that directly involves two IRAs.
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
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.
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
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.
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
One of the purposes of a qualified profit-sharing plan is to distribute a portion of company earnings to employees.
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
The advantage gained by providing a qualified retirement plan is the employer’s contributions to the plan are tax deductible.
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
In this situation, the maximum allowable IRA contribution is $5,000.
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
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.
What is another name for a Keogh plan?
HR 10 plan
1040 plan
Roth IRA
Rollover plan
The Keogh plan, or HR 10, is an employer-funded, tax-deferred retirement plan designed for unincorporated businesses or self-employed.
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
A surviving spouse who inherits IRA benefits from a deceased spouse’s qualified plan is eligible to establish a rollover IRA in their name.
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
A qualified retirement plan may not discriminate in favor of highly compensated employees.
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
In this situation, 80% “vested” means that 20% of the funds could be forfeited if Tom’s employment is terminated.
