Qualified Plans/Tax Considerations Flashcards
If a retirement plan is ‘qualified’ what does that mean?
The plan has favorable tax treatment.
Upon surrender of a life insurance policy, what portion of the cash value will be taxed?
Portion in excess of premium paid.
Cash minus premiums paid.
What are the consequences of withdrawing funds from a traditional IRA prior to age 59 1/2?
10 % penalty.
What portion of a nonqualified annuity payment would be taxed?
Interest earned on principal.
Why are dividends in life insurance policies not taxable?
They are a return of unused premium.
In a direct rollover, how is the money transferred from one retirement plan to a new one?
From trustee to trustee.
What are the three types of social security benefits?
Retirement, Disability, Survivors.
According to the taxation rules of life insurance policies, how are cash value increases taxed?
Tax deferred.
When should life insurance policy proceeds be included in the insured’s taxable estate?
When the insured is the policy owner.
When death occurs with three years of a policy being gifted to another person or entity.
What is the name for an overfunded life insurance policy?
Modified endowment contract.
What is required to qualify an individual to contribute to a traditional IRA?
Must earn income.
An employer is sponsoring a qualified retirement plan for its employees where the employer contributes money whenever the business has profit. What is this type of plan called?
Profit sharing plan.
What is the primary purpose of a 401(k) plan?
Provide retirement income.
What is the general taxation rule for death benefits payable to the beneficiary?
Not subject to income taxes.
What is the main purpose of the seven-pay test?
To determine if a policy is a modified endowment contract.
For a retirement plan to be qualified, it must be designed for whose benefit?
Employees.
If the beneficiary of a life insurance policy receives death benefit payments that consist of principal and interest, which portion, if any, will be taxed?
Interest only.
Is the death benefit of a life insurance policy taxed to the beneficiary if it’s received as a lump sum?
No.
In qualified plans, are employer contributions taxed as income to the employees?
No.
SIMPLE plans are available to groups of how many employees?
No more than 100.
Who would be considered a third party owner?
Someone who is not the insured.
What are some examples of qualified plans?
IRA, 401K, HR10 (Keogh), SEP, SIMPLE.
What qualified plan is suitable for the self-employed?
HR-10 Keogh.
What type of plan is a 401(k)?
Qualified profit sharing plan.
Who qualifies for tax-sheltered annuities, or 403(b) plans?
Employees of Non-profit orgs, employees of public school systems.
What is the penalty for excessive contributions to a traditional IRA?
6%.
Who may contribute to an HR-10?
Self-employed person.
In what form of payment must the contributions to a traditional IRA be made?
Cash.
What are the income tax benefits of a qualified plan?
Employer contributions are tax deductible and are not taxed to the employee. The earnings accumulate tax deferred.
How are income payments from a 403(b) plan taxed?
Contributions are excluded but become taxable upon withdrawal.
