OVERVIEW Pt 2 (LLQP flashcards)
If a client purchased an individual variable insurance contract with a front-end load and subsequently withdraws/redeems all or part of the money from the contract, what impact would the front-end load have on the money withdrawn/redeemed?
There would not be any additional sale charges withheld from the money because the expense fees were paid when the contract was purchased.
(Refer to Section 2.3.2.1)
If a client purchases an Individual Variable Insurance Contract with a deferred sales charge and subsequently withdraws/redeems all or part the money from the contract, what impact would the deferred sales charge have on the money withdrawn/redeemed?
There would be a sales charge withheld from the money withdrawn/redeemed during an agreed-upon number of years from the issue date of the contract.
The deferred sales charge is the most popular choice. The investor agrees to pay a sales charge if he or she redeems all or part of the original investment during an agreed-upon number of years. The sales charge declines over this period of time until, by about year six or seven, the charge is eliminated.
(Refer to Section 2.3.2.2)
How are net capital gains and net capital losses under an individual variable insurance contract treated for income tax purposes?
A tax advantage for investments that may earn capital gains is capital losses. A capital loss is received by investors if the return on their investment is negative. Therefore, if an investor loses money on an investment, he incurs a capital loss.
Although a capital loss means an investor has lost money on his investment, half the capital loss can be deducted from taxable capital gains on other investments. The loss must be used first against capital gains in the year the loss is incurred. However, if capital gains are unavailable or insufficient in that year, the capital loss may be applied against capital gains in any of the three previous years or in any future year. This reduces the amount of taxable capital gain and the tax to be paid on that gain.
(Refer to Section 1.2.5, 2.1.8)
Elaine is 56 years old. She just received a $125,000 severance package from her long-time employer. Elaine knows that she wants to retire when she is 60 years of age. She will be eligible for a pension from her employer starting when she turns 60. She wants to purchase a condominium within the next six months. Elaine does not have any other investments.
Is an individual variable insurance contract a suitable investment product for Elaine at this time?
No, Elaine will require capital liquidity to purchase the condominium. Therefore, an individual variable insurance contract would not be a suitable investment choice. A segregated fund investment requires a minimum of 10-year term-to-maturity for the maturity guarantee to apply.
(Refer to Section 1.3.1.1)
If a plan holder does not contribute his or her full allowable contribution limit to his or her RRSP in a particular year, what happens to the un-contributed limit?
Unused RRSP contribution room is carried forward and can be used in future years.
(Refer to Section 4.7.1.1)
Many employers are moving from defined benefit pension plans (DBPPs) to defined contribution pension plans (DCPPs). Why?
Employers have come to favour the DCPP over DBPP because the employer is relieved of the need to provide a pre-determined pension to employees. Therefore, the cost of the plan to the employer is much less.
(Refer to Section 4.5.2)
What options are available for an employee who has vested contributions in a Registered Pension Plan (RPP) and is changing employers?
The employee can:
- Transfer the funds to a locked-in retirement account (LIRA);
- Transfer the funds to the RPP of the new employer;
- Transfer the funds to an insurer to purchase an annuity; or
- Keep the funds with the existing pension plan until retirement.
(Refer to Section 4.5)
What party makes contributions to a deferred profit-sharing plan (DPSP)?
Only an employer can make contributions to a DPSP on behalf of the employees who are members of the plan. Employees are not permitted to contribute to a DPSP.
(Refer to Section 4.6.1.2)
When can members of a group registered retirement savings plan (GRRSP) access funds within the plan?
Anytime: Group RRSPs are not locked in and can be withdrawn, depending on the terms of the plan, whenever the employee decides.
(Refer to Section 4.7.1.3)
What options do employees have with respect to receiving payment from a DPSP?
Employees can receive payment as:
- A lump sum in cash and/or stock;
- Periodic payments for no more than a 10-year period;
- A life annuity.
(Refer to Section 8.2.2.5, 8.2.2.6)
What are the four government retirement pensions?
- Old Age Security (OAS)
- Guaranteed Income Supplement (GIS)
- The Allowance
- Canada Pension Plan (CPP)/Québec Pension Plan (QPP)
(Refer to Section 4.4)
What is the minimum age for a Canadian resident to be able to earn Old Age Security (OAS)?
Canadians or legal residents, age 65 and over, who meet the residency requirements are eligible for OAS.
(Refer to Section 4.4.1.1)
Allowance is payable to residents of Canada whose legal or common-law spouse receives the OAS and GIS, and who have little other income. What age must a resident be to receive the Allowance?
The applicant must be between 60 and 64 years of age to receive the Allowance.
(Refer to Section 4.4.3.2)
CPP contributions are made by all working Canadians, age 18 and older, until the contributor is retired (between ages 65 and 70). There are certain parameters that guide contribution amounts – one of these is the “year’s maximum pensionable earnings” (YMPE). What is YMPE?
The amount contributed to the CPP is based on employment income. This is called “pensionable earnings.” The minimum income at which contributions begin was $3,500 per year in 2021. Those who earn less than this amount are not required to contribute. There is a maximum amount, above which contributions are not made, called the “year’s maximum pensionable earnings” (YMPE).
(Refer to Section 4.4.2.2)
How are pensions that are paid by the government treated for tax purposes?
Pensions paid by the government are treated as taxable income.
(Refer to Section 4.4.1.4, 4.4.2.4)
FILL IN THE BLANK!
Annuities are classified according to their __________, and _____________.
Annuities are classified according to their features, and potential limitations
TRUE OR FALSE?
In regards to accrual annuity, tax implications are leveled over time.
FALSE
In regards to accrual annuity tax declines over time as the portion of each payment that is interest declines and more investment capital is paid.
REF: 3.7.2.2
TRUE OR FALSE?
Accrual annuities often have a larger amount of tax owing in the early years of payments compared to prescribed annuities.
TRUE
