What are the income tax benefits of a qualified plan?
Employer contributions are tax deductible and are not taxed as income to the employee. The earnings accumulate tax deferred.
SIMPLE plans are available to groups of how many employees?
No more than 100
What is the primary purpose of a 401(k) plan?
To provide retirement income.
What is the main purpose of the Seven-Pay test?
To determine if a life insurance policy is a Modified Endowment Contract.
In qualified plans, are employer contributions taxed as income to the employees?
No, employer contributions are not taxed as income to the employees.
If a retirement plan is "qualified", what does that mean?
The plan has favorable tax treatment.
Why are dividends in life insurance policies not taxable?
Dividends are not considered income for tax purposes; they are a return of unused premium.
Who would be considered a third-party owner?
An individual or an entity who is not the insured.
What qualified plan is suitable for the self-employed?
HR-10 or Keogh
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
Who may contribute to an HR-10 plan?
A self employed individual.
What is the penalty for excessive contributions to a traditional IRA?
0.06
Is the death benefit of a life insurance policy taxed to the beneficiary if it's received as a lump sum?
No, lump-sum benefits are received tax free.
When would life insurance policy proceeds be included in the insured's taxable estate?
When there is an incident of ownership at the time of death.
Who qualifies for tax-sheltered annuities, or 403(b) plans?
Employees of nonprofit organizations under Section 501(c)(3) and employess of public school systems.
Upon surrender of a life insurance policy, what portion of the cash value will be taxed?
Only the portion in excess of the premium paid.
What are the three types of Social Security benefits?
Retirement, Disability, and Survivors
How are income payments from a 406(b) plan taxed?
Contributions are excluded from the employee's taxable income, but are taxable upon withdrawal.
What is required to qualify an individual to contribute to a traditional IRA?
Earned Income
In a direct rollover, how is that money transferred from one retirement plan to a new one?
From trustee to trustee.
What is the name for an overfunded life insurance policy?
A Modified Endowment Contract (MEC)
What portion of a nonqualified annuity payment would be taxed?
Interest earned on principal.
What are the consequences of withdrawing funds from a traditional IRA prior to the age of 59 1/2?
10% Penalty
In what form of payment must the contributions to a traditional IRA be made?
In Cash
What is the general taxation rule for death benefits payable to the beneficiary of a life insurance policy?
Death benefits are generally not subject to income taxes.
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
What type of plan is 401(k)?
Qualified Profit-Sharing Plan
What are some examples of qualified plans?
IRA, 401(k) HR-10 (Keogh), SEP, and SIMPLE
According to the taxation rules of life insurance policies, how are cash value increases taxed?
Cash value growth is tax deferred.