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24 Cards in this Set
- Front
- Back
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ROTH IRA
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-Tax contributions are not tax deductible
-Distributions are tax free -Does not require any distribution date
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Modified Endowment Contracts (MECs)
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-IRS considers these to be investments -Lose their favored tax treatment |
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Taxable Event |
-A cash surrender where the amount received is more than amount paid in in premiums would |
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Taxable loans and withdrawals.
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-A modified endowment contract that is classified as life insurance but fails the seven pay test
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On a whole life policy, if a policy owner has paid premiums in the amount of $8,000 and surrenders the policy for its $10,000 cash value
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-$2,000 will be taxable as ordinary income.
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Non-taxable distributions from the ROTH IRA |
-not taxable if the participant held the contract for at least 5 years and is at least age59 ½
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IRC 305 Exchange |
-Surrendering a life insurance policy for cash and using the proceeds to buy a new life insurance policy from a different insurer is a tax deferred IRC
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INDIVIUAL + KEY PERSON LIFE |
-are not tax deductible -Benefits arent taxed |
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Mutual Insurance Company |
-Owners of the company are the policy holders. -Dividends received by the owners are NOT taxable |
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Stock Company |
-Dividends are taxable as regular income -Dividends are Never taxed as capital gains |
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Traditional IRA Contributions |
-may be tax-deductibleeven though the client is an active participantin another qualified plan, if income is below a certain level.- |
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Modified Endowment Contracts |
-are classified that way for the life of the contract
-10% IRS penalty for premature distributions |
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Upon Death |
-Life insurance proceeds paid to beneficiaries are tax-free |
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Section 1035 of the Internal Revenue Code
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-an annuity maybe exchanged for another annuity, but not for life insurance. |
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seven-pay test
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-Making a “material change” to a cash value life insurance policy
- be applied again and could cause the policy to be classified as a “modified endowment contract,”or MEC. |
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If a policy owner has paid premiums into a “whole life” policy in the amount of $10,000
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the policy for its cash value of $12,000, $2,000 would be taxable
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Section 1035 of the Internal Revenue Code
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Taxes maybe deferred when exchanging one life insurance contract for another
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Deferred interest earned on an annuity is taxable
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when withdrawals begin.
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exclusion ratio
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to determine how much of an annuity payment is taxable during the annuity (pay-out) period
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year of the gift
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life insurance policy owners who gift their policy to a charity are entitled to a tax deduction
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IRAs
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ay be funded with Annuities, but NOT with Whole Life policies
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Children cannot buy an IRA unless they have
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earned income
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Premature distributions
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may be made to a first-time homebuyer from an IRA without incurring a 10% penalty, subjectto a life-time dollar limit.
Premature distributions made from a deductible IRA for qualified educational expenses are exempt from the 10% penalty, but they are not exempt from income tax. Deferred annuities may be used to fund an IRA.Premature distribution penalties are not waiveddue to bankruptcy. |
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