6 Federal Tax

Front 1

1

Which of the following is NOT true regarding a nonqualified retirement plan?

Back 1

A Contributions are not currently tax deductible.

B It can discriminate in benefits and selecting p articipants.

C Earnings grow tax deferred.

D It needs IRS approval.

Front 2

2

For a retirement plan to be qualified, it must be designed for the benefit of

Back 2

A Key employee.

B Employer.

C IRS.

D Employees

Front 3

3

All of the following statements are true regarding tax-qualified annuities EXCEPT

Back 3

A Employer contributions are not tax deductible.

B Tax accumulation is deferred.

C They must be approved by the IRS.

D Withdrawals are taxed.

Front 4

4

All of the following would be different between qualified and nonqualified retirement plans EXCEPT

Back 4

A Taxation of withdrawals

B Taxation of contributions

C IRS approval requirements

D Taxation on accumulation

Front 5

5

A tax-sheltered annuity is a special tax-favored retirement plan available to

Back 5

A Certain age groups only.

B Certain groups depending on factors such as race, gender, and age.

C Certain groups of employees only.

D Anyone

Front 6

6

Which of the following is true of a qualified plan?

Back 6

A It may discriminate in favor of highly paid employees.

B It may allow unlimited contributions.

C It has a tax benefit for both employer and employee.

D It does not need to have a vesting schedule.

Front 7

7

Which of the following is an example of a nonqualified retirement plan?

Back 7

A Individual retirement arrangement

B Profit-sharing plan

C Keogh plan

D Executive bonus plan

Front 8

8

In life insurance policies, cash value increases

Back 8

A Grow tax deferred.

B Are income taxable immediately.

C Are taxed annually.

D Are only taxed when the owner reaches age 65.

Front 9

9

Who can make a fully deductible contribution to a traditional IRA?

Back 9

A Anybody: all IRA contributions are fully deductible regardless of income level

B Someone making contributions to an educational IRA

C A person whose contributions are funded by a return on investment

D An individual not covered by an employer-sponsored plan who has earned income

Front 10

10If an insured surrenders his life insurance policy, which statement is true regarding the cash value of the policy?

Back 10

A It is not considered to be taxable.

B It is taxable only if it exceeds the amounts paid for premiums by 50%.

C It is automatically taxable.

D It is only taxable if the cash value exceeds the amount paid for premiums

Front 11

11

All of the following employees may use a 403(b) plan for their retirement EXCEPT

Back 11

A A school bus driver.

B A part-time classroom aide.

C The vice president of a charitable organization.

D The CEO of a private corporation.

Front 12

12An Internal Revenue Code provision that specifically provides for an individual retirement plan for public school teachers, for example, is a(n)

Back 12

A PST Plan.

B 403(b) Plan (TSA).

C Keogh Plan.

D IPG Plan

Front 13

13

Life insurance death proceeds are

Back 13

A Taxed as ordinary income.

B Generally not taxed as income.

C Taxable to the extent that they exceed 7.5% of the beneficiaries adjusted gross income.

D Taxed as a capital gain.

Front 14

14

If taken as a lump sum, life insurance proceeds to beneficiaries are passed

Back 14

A Tax-deductible.

B Part tax-free and part taxable.

C Without interest.

D Free of federal income taxation.

Front 15

1

Which of the following is NOT true regarding a nonqualified retirement plan?

Back 15

D It needs IRS approval.Correct! Incorrect! Nonqualified retirement plans do not meet the IRS requirements for favorable tax treatment of deductions and contributions; therefore, they do not need to be approved by IRS.

Front 16

2For a retirement plan to be qualified, it must be designed for the benefit of

Back 16

D Employees.Correct! Incorrect! Qualified plans are designed for the exclusive benefit of the employees and their beneficiaries.

Front 17

3

All of the following statements are true regarding tax-qualified annuities EXCEPT

Back 17

A Employer contributions are not tax deductible.

Incorrect! Tax qualified annuities are required to be approved by the IRS. Tax qualified annuities provide tax deductible employer contributions and all tax accumulation is deferred.

Front 18

4All of the following would be different between qualified and nonqualified retirement plans EXCEPT

Back 18

D Taxation on accumulation

Incorrect! Taxation on accumulation is deferred in both types of plans. The rest of the characteristics would differ.

Front 19

5 A tax-sheltered annuity is a special tax-favored retirement plan available to

Back 19

C Certain groups of employees only.

Incorrect! A tax-sheltered annuity is a special tax-favored retirement plan available only to certain groups of employees (nonprofit charitable, educational, religious, and other 501c(3) organizations, including all employees in public education).

Front 20

6Which of the following is true of a qualified plan?

Back 20

C It has a tax benefit for both employer and employee.

Incorrect! A qualified plan is approved by the IRS, which then gives both the employer and employee benefits in deductibility of contributions and tax deferral of growth.

Front 21

7Which of the following is an example of a nonqualified retirement plan

Back 21

C Executive bonus plan

Correct! Incorrect! IRAs, profit sharing, and Keogh plans are all examples of plans that are or must be qualified by the IRS and will receive favorable tax treatment. In an executive bonus plan, the premiums paid are tax-deductible to the business as a salary expense and are taxable as income to the recipient.

Front 22

8In life insurance policies, cash value increases

Back 22

A Grow tax deferred.

Incorrect! Generally life insurance cash values are only income taxed if the policy is surrendered (totally or partially) and the cash value exceeds the premiums paid.

Front 23

9Who can make a fully deductible contribution to a traditional IRA?

Back 23

D An individual not covered by an employer-sponsored plan who has earned income.

Incorrect! Individuals who are not covered by an employer-sponsored plan may deduct the full amount of their IRA contributions regardless of their income level.

Front 24

10 If an insured surrenders his life insurance policy, which statement is true regarding the cash value of the policy?

Back 24

D It is only taxable if the cash value exceeds the amount paid for premiums.

Correct! Incorrect! The cash value of a surrendered policy is only considered to be taxable as income if the cash value exceeds the amount of premiums paid for the policy.

Front 25

11All of the following employees may use a 403(b) plan for their retirement EXCEPT

Back 25

The CEO of a private corporation.Correct! Incorrect! Not all public employees are eligible for 403(b) plans, or tax-sheltered annuities, only employees of public education (local, state, or federal), as well as employees of charitable organizations.

Front 26

12

An Internal Revenue Code provision that specifically provides for an individual retirement plan for public school teachers, for example, is a(n)

Back 26

B 403(b) Plan (TSA).

Correct! Incorrect! Under a 403(b) Plan, tax-sheltered annuities may be established for the employees of specified nonprofit charitable, educational, religious and other 501c(3) organizations, including teachers in public schools systems. Such plans generally are not available to other kinds of employees.

Front 27

13Life insurance death proceeds are

Back 27

B Generally not taxed as income.

Incorrect! Life insurance death benefits are generally not taxed as income.

Front 28

14 If taken as a lump sum, life insurance proceeds to beneficiaries are passed

Back 28

D Free of federal income taxation.

Correct! Incorrect! Life insurance proceeds to beneficiaries are passed free of federal income taxation if taken as a lump sum distribution. If the proceeds are taken as other than lump sum, part of the proceeds will be tax-free and part will be taxable. When paid in installments, part of the proceeds contains principal and some interest, so the interest portion is subject to federal income taxation.

Front 29

15

If a life insurance policy develops cash value faster than a seven-pay whole life contract, it is

Back 29

A Modified Endowment Contract.

Incorrect! Any cash value life insurance policy that develops cash value faster than a seven-pay whole life contract is called a Modified Endowment Contract. It loses the benefits of a standard life contract.

Front 30

15 If a life insurance policy develops cash value faster than a seven-pay whole life contract, it is

Back 30

A A Multiplicative Policy.

B A Modified Endowment Contract.

C An Accelerated policy.

D An endowment.