Chapter 8 &9

Question 1

According to the IRS Premiums paid on life insurance are

Answer 1

not tax deductible

Question 2

Proceeds paid od Life Insurance are

Answer 2

Paid Income tax free to beneficiary

Question 3

The interest paid on the cash value as it increase or accumulates

Answer 3

is tax deferred unless the cash value exceeds the single premium that required to fund future contract benefits.

Question 4

If the cash surrender value exceeds the cost basis (gains) (Total Premiums paid less the dividends)

Answer 4

Considered Ordinary income and taxable

Question 5

Dividends paid on Whole life policy

Answer 5

are taxed exempt

Question 6

Dividends left the insurer to accumulate at interest

Answer 6

the interest earned will be taxed as ordinary income

Question 7

Dividends will be taxable unless

Answer 7

they are used to purchase paid up additional insurance

Question 8

If the total dividends received under a life insurance policy exceed the total premiums paid

Answer 8

it is taxable as ordinary income

Question 9

The beneficiary receives the lump sum settlement

Answer 9

Income tax free

Question 10

Whenever another settlement option is selected where the face amount is retained by the insurer

Answer 10

interest must be paid to the beneficiary

Question 11

If a policy is transferred to another party for valuable consideration

Answer 11

It will loose its tax free status

Question 12

When an individual dies all his or her assets are compiled and a monetary value are placed on them

Answer 12

Estate

Question 13

Federal and State taxes may be levied on the estate value

Answer 13

Death taxes or Estate Taxes

Question 14

Examples of property generally included in the estate

Answer 14

Real property, personal property, life insurance death benefits, annuities, gifts to others any interest or rights in other property

Question 15

If used to pay for business purposes or to provide charitable contributions

Answer 15

Premiums may be tax deductible

Question 16

The equity that builds with in a whole life policy is referred to as

Answer 16

cash value

Question 17

If a contract owner borrows against the cash value in a contract

Answer 17

there are no tax consequences (in most cases)

Question 18

If policy is a MEC distributions of subject to the interest first rule

Answer 18

They are taxable as income if the cash value of the contract immediately prior to payments exceeds the cost basis in the contract.

Question 19

Barrowing against the cash value is sometimes referred to as

Answer 19

Partial surrender ( not taxable but lower owners equity)

Question 20

What a owner paid into a contract

Answer 20

cost basis

Question 21

When a contract owner barrows against the cash value of a whole life policy

Answer 21

The interest paid to the insurer is not tax deductible

Question 22

When a beneficiary receives a lump sum settlement it is receive tax free but

Answer 22

the interest paid is taxable as ordinary income

Question 23

Home or rental property

Answer 23

Real Property

Question 24

Gifts or other property transfers are included in the estate if the descendants dies with in

Answer 24

60 months

Question 25

Based upon the value of the estate at the time of the property owners death

Answer 25

Death Taxes

Question 26

Premiums paid for it are not in proportion to the death benefit provided

Answer 26

Modified Endowment Contract (MEC)

Question 27

A MEC

Answer 27

Is not a life insurance policy

Question 28

If the accumulated premiums paid at any time during the initial seven years of the contract exceed the sum of net level premiums that should have been paid during this time frame

Answer 28

Is A (MEC) Modified Endowment Contract

Question 29

designed to reduce or prevent the purchase of whole life insurance for the purpose of short term investment gains

Answer 29

The Rule of Seven Pay Test

Question 30

Modified Endowment Contracts receive favorable tax treatment on interest credited policy cash value (tax deferral)

Answer 30

As long as no distributions are made

Question 31

Cash distributions from MEC are subject to taxation on income in the year received

Answer 31

if the cash value on the contract prior to pay exceeds the investments (premiums)

Question 32

The contract owner will be penalized 10% premature distribution and penalty tax is assessed on any MEC distributions from a MEC that is included in the recipients taxable income

Answer 32

When withdrawn prior to 59

Question 33

No penalty tax will be applied on a MEC if

Answer 33

received because of disability, received after age 59 or paid like a life annuity

Question 34

Once a policy is classified as a MEC

Answer 34

it can never revert back to an ordinary whole life policy with regard to tax treatment.

Question 35

Qualified and none qualified annuity receives tax deferral during the

Answer 35

accumulation phase

Question 36

Contributions to qualified individual (employee- sponsored annuity

Answer 36

tax deductible

Question 37

Cost basis of an annuity are generally

Answer 37

The amounts paid

Question 38

penalties are assessed on annuities

Answer 38

for premature distribution

Question 39

Generally taxed on a last in first out basis, accumulation or interest earned is considered with drawn first win distributions are made

Answer 39

Prematurely withdrawn amount (10 percent federal age base tax penalty )

Question 40

Total investment of a contract divided by the expected return

Answer 40

Exclusion ration

Question 41

If a owner dies during the accumulation phase and prior to the annuity phase

Answer 41

Beneficiary will receive the greater of the accumulated value of the annuity or the amount of contribution premium

Question 42

If the owner dies prior to the annuity phase the entire interest in the contract must be distributed with in fiver years following the owner death or contract surrender

Answer 42

In less the beneficiary chooses to annuitize the contract proceeds with in one year of the owners death.

Question 43

No matter the amount of premiums paid

Answer 43

The beneficiary will receive the face amount on a policy

Question 44

A corporation may purchase a annuity. However it must identify a natural person as a annuitant. If a firm fails to do this which of the following will occur.

Answer 44

Interest earned during the year will be taxable to the firm

Question 45

Which of the following is not true in regard to the 1035 exchange

Answer 45

Once begun the exchange must be completed with in 30 days

Question 46

The continue increase of cash value in a whole life policy

Answer 46

may be subject to taxation if withdrawn if the policy fails the seven pay test.

Question 47

Plans approved by the IRS to receive favorable tax treatment.

Answer 47

Qualified plans

Question 48

Contributions are generally tax deductible

Answer 48

Qualified Plan

Question 49

Contributions made by employers to qualified plans are

Answer 49

Tax deductible

Question 50

Contributions made to qualified plans are

Answer 50

not counted as income

Question 51

Funds accumulate in the plan are taxed deferred, contributions and earnings are exempt from current income taxation

Answer 51

Qualified Plan

Question 52

Any distributions from qualified plans prior to 59 are taxed

Answer 52

on pro rata- recovery basis

Question 53

10% Penalty is also imposed on

Answer 53

premature distribution (except of death, disability divorce financial hardship, loans or qualified roll over)

Question 54

Age related distributions made after age 59

Answer 54

qualified retirement distributions

Question 55

Transfer of one qualified plan to another

Answer 55

Rollover

Question 56

Any distribution that represents an employee cost basis is

Answer 56

Tax free

Question 57

Any amount received as employer compensation or appreciation will be

Answer 57

taxed as ordinary income

Question 58

If a employee or individual withdraws such funds in order to deposit them in another plan

Answer 58

20% percent withholding tax may apply

Question 59

A rollover must be effected with in how many days

Answer 59

60

Question 60

an investment vehicle available to all individuals who posses earned income

Answer 60

(IRA ) Individual Retirement Account

Question 61

Characterized by heavy withdraw penalties in the early years after they are purchased even if funds are withdrawn to be roll over

Answer 61

IRA

Question 62

Annual Contributions to an IRA may be equal to 100% income earned not to exceed

Answer 62

5,500 per year (above 50 6,500

Question 63

IRAs may be rolled over to another high yield account with out

Answer 63

tax penalty (long as its with in 60 days)

Question 64

IRA are allowed to be withdrawn up to 10,000 in order to

Answer 64

to buy his or her first home

Question 65

Excess contributions to a IRA

Answer 65

subject to a 6% penalty

Question 66

A tax deduction is available to individuals who contribute to an IRA and is not covered by an IRS qualified pension plan or an employer sponsored retirement program no matter what their annual taxable income

Answer 66

True

Question 67

allows investors age 50 and older to add additional 1,000

Answer 67

catch up provision

Question 68

Coverdell education savings account were a investor can make nondeductible contributions up to 2,000 per child up to the age eighteen

Answer 68

Education IRA

Question 69

allows one to make nondeductible contributions which are tax free when withdrawn

Answer 69

Roth IRA

Question 70

Beneficial for individuals with large savings that may leave them in the same or even higher tax bracket after that retire.

Answer 70

Roth IRA

Question 71

Advantageous for those who continue to work after the age of 70 who prefer to daily IRA distribution

Answer 71

Roth IRA

Question 72

Penalty free withdraws may be made prior to age 59 for qualified education expenses for the taxpayer, spouse, or any child or grandchild

Answer 72

Roth IRA

Question 73

Roth IRA Federal income tax and penalty free distributions may be made in the following situations

Answer 73

Roth must have existed for five years; after age 59; death or disability; first time home buyers expenses

Question 74

Contribution retirement vehicles for small business, self employed individuals and their eligible employees.

Answer 74

Simplified Employee Pension (SEP)

Question 75

employer Sponsored IRA

Answer 75

SEP Simplified Employee Pension

Question 76

The amount of employer SEP contributions permitted each year is the lesser of 25% of earned income not exceed

Answer 76

54,000

Question 77

Offer the ease of administration with minimal reporting requirements

Answer 77

(SEP) Simplified Employee Pension

Question 78

Contributions for employees are allowed up

Answer 78

18,000

Question 79

Records the amount of contributions on the appropriate area on his or her tax form

Answer 79

( SEP) Simplified Employee Pension

Question 80

Non corporate retirement savings vehicle

Answer 80

KEOCH Plans or 11R-10 plan

Question 81

designed for self employed or sole proprietor

Answer 81

KEOCH Plan

Question 82

Characterized by strict reporting, great deal of documentation must be provided to the IRS for as contributions and deductibles

Answer 82

KEOCH Plan

Question 83

allows contributions by employees to be invested into various vehicles

Answer 83

401K

Question 84

Contributions made to this qualified plan are excluded from the individuals gross income up to a maximum limit The limit is adjusted annually for inflation.

Answer 84

401K

Question 85

employee conurbation may be match my the employer which reduces the employees tax ability as well

Answer 85

Salary Reduction (401K)

Question 86

Contribution in which employer profits are shared with employees, no definite benefits and if no profits are made no contributions will be made.

Answer 86

Profit Sharing Plan

Question 87

Plans are employer sponsored and maintained utilized by firms with larger number of employees

Answer 87

Pension Plans

Question 88

Identifies the amount of installment benefit to be paid to the retired employee upon retirement.

Answer 88

define benefit

Question 89

Characterized by an individual account for each employee

Answer 89

a defined contribution plan

Question 90

allows any state or local government entity to provide a deferred compensation program for its employees

Answer 90

Section 457 (Deferred Compensation)

Question 91

The employer agrees with the employee to reduce his or her pay by a specified amount and invest the deferrals in one or more investment outlets that may include insurance outlets.

Answer 91

Section 457 (fixed variable accounts)

Question 92

The difference between 457 and 403b is

Answer 92

Investments in the 457 plan are not owned by the employer

Question 93

Retirement plan is set for qualified or tax exempt organizations

Answer 93

403b (Tax Sheltered Annuities) TSA

Question 94

403b plan is available to

Answer 94

Teachers, social workers, collage professors, and non profit organizations

Question 95

funds may be contributed to a qualified annuity with pre tax contributions which are referred to

Answer 95

before tax dollars

Question 96

TSA is characterized as a salary reduction rather

Answer 96

tax deduction

Question 97

Savings incentive match plan for employees who work for small employers 100 or less and received a least 5000 in compensation.

Answer 97

Simple Plan