Chapter 6 - Qualified Plans Flashcards

1
Q

What are the requirements of qualified plans? (5)

A
  • Exclusively for employees and their beneficiaries
  • Formally written and communicated
  • Cannot discriminate
  • Are permanent
  • Must have a vesting requirement
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2
Q

What is the difference in taxability between qualified and non-qualified plans?

A

Qualified plans’ employer contributions are deductible business expenses while nonqualified plan employer contributions are not deductible.
-Employee benefits for both plans are taxable to the employee.

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3
Q

What types of annuity has zero cost basis?

A

Tax-Sheltered Annuity (403(b))

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4
Q

What is the tax treatment of permanent life products:
What is not tax-deductible? (2)
What is not taxable? (2)
What is taxable? (2)

A
Not Tax-Deductible
-Premium
-Policy Loans
Not Taxable
-Policy Dividends (from participating policies)
-Death Benefit
Taxable
-Excess Cash Value
-Interest On Dividends
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5
Q

What is the taxation of deferred annuities for:

  1. Accumulation?
  2. Withdrawals?
  3. Early Withdrawals?
  4. Cash Surrender?
A
  1. Tax-Deferred Accumulation
  2. Withdrawals - gain before the principal (LIFO)
  3. Early Withdrawals: 10% penalty
  4. Cash Surrender: Taxable Interest (Ordinary Rate)
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6
Q

What are some exemptions to the 59 1/2 rule for IRAs that allows you to take out money before then without the 10% penalty? (4)

A
  • Total Disability
  • Catastrophic Medical Expenses
  • Down payment on a first home (up to $10,000)
  • Post-Secondary Education
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7
Q

The death benefit or face amount of a life insurance policy may be included in the insured’s taxable estate at death and is subject to the federal estate tax in what situations? (3)

A
  1. Incidents of ownership - Any one of the rights of policy ownership (right to cash value, to change the beneficiary, to obtain policy loans, or to assign the policy). If the insured possessed any one of these incidents of ownership at the time of death, the entire face amount of the policy will be included in the insured’s taxable estate, even though the actual proceeds were paid out to the beneficiary.
  2. Estate as beneficiary - If the insured’s estate is the designated beneficiary at the time of the insured’s death, the entire face amount of the policy will be included in the insured’s taxable estate.
  3. Transfer of ownership - If the insured, as a policyowner, assigns or transfers ownership of the policy OR makes a gift of the policy within 3 years prior to death, the entire face amount of the policy will be included in the insured’s taxable estate.
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8
Q

What would be the same between qualified and non-qualified retirement plans?

A

Taxation on accumulation

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9
Q

Keogh plans are for who?

A

Self-employed individuals and their employees

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10
Q

SEPs allow who to make annual tax-deductible contributions up to 25% of an employee’s earned income?

A

Employers

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11
Q

What plan is an employer-sponsored IRA?

A

A SEP (Simplified Employee Pension)

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