Michigan Life Insurance 2020 Chapter 6

Front 1

Qualified Plans are

Back 1

Approved by the IRS which gives both the employer and employee benefits such as deductible contributions and tax deferred growth.

Front 2

What do non qualified and qualified retirement plans have in common?

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Both earnings grow tax defferred

Front 3

Qualified V Non Qualified

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-Qualified plans are approved by the IRS and cannot discriminate.

-Non Qualified can discriminate and does not need irs approval

Front 4

Traditional IRA contributions are allowed until the age of

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70 and a half years old

Front 5

You must start withdrawals from Traditional IRAs no later than age

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72 years old

Front 6

You can begin withdrawals from retirement accounts at the age of

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59 1/2 years old

Front 7

Roth IRA contributions can be made until age

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There is no age limit to contribution

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Required minimum distribution (RMD)

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The annual amount the owner in a qualified plan must distribute annually.

Front 9

Roth IRAs can contribute to age...

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There is no age limit for Roth IRA contributions. They also do not have to start taking out at 72. Theres no limit

Front 10

Traditional IRA excess contributions are taxed at

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6% as long as it remains in the account for that year

Front 11

Distributions on IRAs are subject to income tax in the

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Year that it was withdraw

Front 12

IRA Early withdrawal penalty tax exceptions

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-Participant is 59.5

-Totally disabled

-10K is used for down payment on home

-Post secondary education expenses

-Catastrophic medical expenses or upon death

Front 13

If the owner of an IRA dies before distributions, the interest must be distributed by

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December 31 of the 5 year after death unless the owner named a beneficary

Front 14

If spouses are the beneficiary of an IRA then

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They can treat it as their own and will have the same guidelines.

Front 15

Non spouse (individuals) beneficiaries of IRAs can

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Withdraw the entire balance by the end of the 5 year after death, starting the 1st year

Front 16

Roth IRA contributions are not

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Tax deductible

Front 17

Rollover

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Switching from one retirement plan to another (ex 401k to IRA)

Front 18

Transfer

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Switching the custodian (company) you work with for your investments

Front 19

Life ins proceeds are not taxed if

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Its a lump sum distribution to a named beneficary

Front 20

If the life ins is pay in installments, how is it taxed?

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Principal is tax free and the interest is taxable

Front 21

Cash value in life policy grows

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Tax deferred. Any interest that is in excess of cost basis is taxed as ordinary income

Front 22

Are Policy loans from the cash value taxed?

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No. Its not taxable income

Front 23

Are Dividends in a whole life policy considered income?

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No. But when dividends are left with the insurer to accumulate interest, the interest is taxable that year

Front 24

When surrending a policy for cash value, what is taxed?

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Money that exceeds the total amount premium paid for the life of the policy.

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Cost base of an annuity

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The amount of money the client put in (principal)

Front 26

Accumulation phase of annuity

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The phase of adding money to the account. The interest grows tax deferred

Front 27

Tax base of annuity

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The interest accumulated in the annuity

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When money is withdrawn in annuity during the accumulation phase the amounts are taxed by

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LIFO (Last in first out) All withdrwals with be taxable until cost base (principal) is reached.

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Exclusion Ratio

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Method Is used to determine the annuity amounts to be excluded from taxes. Which is the principal (cost base)

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If an annuity is used to fund an IRA and distributions are not made at the required age or at the minimum distribution, then the client will be

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Taxed at a penalty of 50% of what they was supposed to withdraw out

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If annuitant dies before annuitization then

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Spouse beneficiary: interest can still be tax deferred until annuitaization

Individual Beneficiary: interest taxed

Front 32

Coropate owned annuities growth is not

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Taxed deferred

Front 33

The only time corporate annuities is not taxed annually is when

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Its a group annuity for all employees and each employee gets a certificate of participation

Front 34

1035 Exchange

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When you exchange like policies or like annuities they can be done tax free if they are on the same life.

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1035 Exchange examples

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-Cash Value to another cash value. Annuity or endowment

-Annuity to annuity

-endowment to endowment

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Dividend

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Is the return of unused premium