MICHIGAN VARIABLE
ANNUITIES EXAM
Are personal life insurance dividends taxable? - ANSWERS-No, but
if you decide to keep the dividends in the account to earn interest,
interest earned is taxable and not tax-deferred
When a life insurance policy is surrendered for its cash value, what
part is taxable? - ANSWERS-the gain (cash value minus the policy's
cost basis)
If a withdrawal is for $12,000 and the policy's cost basis is $10,000,
how much is taxable? - ANSWERS-$2,000
if the prems paid for a policy totaled $5,000 and a $4,000 withdrawal
was taken, what would be the policy's cost basis? - ANSWERS-
$1,000
if a life insurance policy has been sold (or _____-__-_____) to
another party by the policy owner, the death benefit is taxed like a full
surrender (any gain minus the cost basis is taxable as income) -
ANSWERS-transfer-for-value (exceptions: collateral assignments,
transfer from 3rd party to the insured, viatical settlements, and
business partners)
,exclusion ratio - ANSWERS-method of determining which part of an
annuity payment is taxable, and which part represents the tax-free
return of the annuitant's after-tax cost basis.
annuity's cost basis/total expected return
what is the penalty tax % for individuals who contribute more to their
IRA than they are allowed to each year? - ANSWERS-6% penalty tax
on the excess amount for each year that it stays in their IRA
IRA Rollover Rules (that do not apply to transfers) - ANSWERS-1.
The money must be deposited in the new IRA within 60 days of its
receipt by the owner, or any gain becomes taxable.
2. Any potentially taxable amount of the rollover is subject to
withholding tax at a rate of 20%.
3. An IRA may be rolled over only once in any 12-month period
Section 1035 Exchanges - ANSWERS-deals with life insurance,
annuities, endowments, and qualified long-term care insurance
any of these four can be exchanged for the same type of product (ex.
life insurance for life insurance), but only the following certain
exchanges are also allowed:
>life insurance policy for any of the other 3, but not the other way
around
, >any of the other 3 for a quailfiied long-term care insurance policy,
but qual lt care can only be exchaged for itself
>endowment for annuity, but not other way around
Money Purchase Plan - ANSWERS-Defined contribution plan that
uses a fixed percentage of employee earnings to defer compensation.
It works well for organizations with relatively stable earnings from
year to year because the percentage is fixed, and, once established,
contributions must be made every year. The contribution limits are the
same as for profit-sharing plans.
Section 457 Plans - ANSWERS--deferred compensation plan (yearly
deduction for deferred amount)
-for employees of state, political subdivision of state, and any agency
of a state
-also allowed for hospitals, charities, unions etc
-NOT allowed for churches
Key Points:
-exempt from ERISA, no NDR
-Tax-exempt organizations: only highly compensated persons
-Governmental: any employee/contractor may participate
-distributions may NOT be rolled into an IRA
-NO 10% early withdrawal penalty
-Can have 457 and 403(b) and make max contr. to both
ANNUITIES EXAM
Are personal life insurance dividends taxable? - ANSWERS-No, but
if you decide to keep the dividends in the account to earn interest,
interest earned is taxable and not tax-deferred
When a life insurance policy is surrendered for its cash value, what
part is taxable? - ANSWERS-the gain (cash value minus the policy's
cost basis)
If a withdrawal is for $12,000 and the policy's cost basis is $10,000,
how much is taxable? - ANSWERS-$2,000
if the prems paid for a policy totaled $5,000 and a $4,000 withdrawal
was taken, what would be the policy's cost basis? - ANSWERS-
$1,000
if a life insurance policy has been sold (or _____-__-_____) to
another party by the policy owner, the death benefit is taxed like a full
surrender (any gain minus the cost basis is taxable as income) -
ANSWERS-transfer-for-value (exceptions: collateral assignments,
transfer from 3rd party to the insured, viatical settlements, and
business partners)
,exclusion ratio - ANSWERS-method of determining which part of an
annuity payment is taxable, and which part represents the tax-free
return of the annuitant's after-tax cost basis.
annuity's cost basis/total expected return
what is the penalty tax % for individuals who contribute more to their
IRA than they are allowed to each year? - ANSWERS-6% penalty tax
on the excess amount for each year that it stays in their IRA
IRA Rollover Rules (that do not apply to transfers) - ANSWERS-1.
The money must be deposited in the new IRA within 60 days of its
receipt by the owner, or any gain becomes taxable.
2. Any potentially taxable amount of the rollover is subject to
withholding tax at a rate of 20%.
3. An IRA may be rolled over only once in any 12-month period
Section 1035 Exchanges - ANSWERS-deals with life insurance,
annuities, endowments, and qualified long-term care insurance
any of these four can be exchanged for the same type of product (ex.
life insurance for life insurance), but only the following certain
exchanges are also allowed:
>life insurance policy for any of the other 3, but not the other way
around
, >any of the other 3 for a quailfiied long-term care insurance policy,
but qual lt care can only be exchaged for itself
>endowment for annuity, but not other way around
Money Purchase Plan - ANSWERS-Defined contribution plan that
uses a fixed percentage of employee earnings to defer compensation.
It works well for organizations with relatively stable earnings from
year to year because the percentage is fixed, and, once established,
contributions must be made every year. The contribution limits are the
same as for profit-sharing plans.
Section 457 Plans - ANSWERS--deferred compensation plan (yearly
deduction for deferred amount)
-for employees of state, political subdivision of state, and any agency
of a state
-also allowed for hospitals, charities, unions etc
-NOT allowed for churches
Key Points:
-exempt from ERISA, no NDR
-Tax-exempt organizations: only highly compensated persons
-Governmental: any employee/contractor may participate
-distributions may NOT be rolled into an IRA
-NO 10% early withdrawal penalty
-Can have 457 and 403(b) and make max contr. to both
