Question 1

Which of the following statements about the withdrawal of funds from a traditional IRA is true?

Accepted Answer

A) Withdrawals of deductible contributions between the ages of 59.5 and 65 are subject to a tax penalty unless they are withdrawn because of specified circumstances such as death or long-term disability. 
B) Amounts attributable to nondeductible contributions are fully taxable as ordinary income when received. 
C) Withdrawals must begin no later than April 1 of the year following the calendar year in which an individual attains age 70.5. 
D) Withdrawals must be taken in the form of an annuity. 
A) Withdrawals of deductible contributions between the ages of 59.5 and 65 are subject to a tax penalty unless they are withdrawn because of specified circumstances such as death or long-term disability. 
B) Amounts attributable to nondeductible contributions are fully taxable as ordinary income when received. 
C) Withdrawals must begin no later than April 1 of the year following the calendar year in which an individual attains age 70.5. 
D) Withdrawals must be taken in the form of an annuity.

Question 2

Which of the following statements is (are)true with regard to Roth IRAs?
I.The portion of a Roth IRA distribution that is attributable to investment income is taxable.
II.There is a maximum income level above which Roth IRA contributions are not allowed.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 3

Which of the following statements is true concerning traditional and Roth IRAs?

Accepted Answer

A) The investment income portion of Roth IRA distributions must be reported as taxable income. 
B) Roth IRA contributions are tax deductible. 
C) There are minimum distribution requirements for traditional IRAs. 
D) There are no limits on the tax deductibility of traditional IRA contributions once the account owner has reached age 50. 
A) The investment income portion of Roth IRA distributions must be reported as taxable income. 
B) Roth IRA contributions are tax deductible. 
C) There are minimum distribution requirements for traditional IRAs. 
D) There are no limits on the tax deductibility of traditional IRA contributions once the account owner has reached age 50.

Question 4

Life annuity payments are made up of all of the following EXCEPT

Accepted Answer

A) return of premiums. 
B) interest earnings. 
C) unliquidated principal of annuitants who live too long. 
D) unliquidated principal of annuitants who die early. 
A) return of premiums. 
B) interest earnings. 
C) unliquidated principal of annuitants who live too long. 
D) unliquidated principal of annuitants who die early.

Question 5

Traditionally,tables have been prepared showing how long IRA funds will last based on rates of return and annual withdrawal rates.These tables,however,assume constant returns over the projection period.Many financial planners are now using a technique that allows for fluctuations in market returns.A computer is programmed to estimate how long funds will last under many different return scenarios and to determine the probability that funds will last until a specified age.This technique is called

Accepted Answer

A) decision-tree analysis. 
B) sensitivity analysis. 
C) computer simulation. 
D) cost-benefit analysis. 
A) decision-tree analysis. 
B) sensitivity analysis. 
C) computer simulation. 
D) cost-benefit analysis.

Question 6

Which of the following statements is (are)true regarding the Roth IRA?
I.Roth IRA contributions are tax deductible.
II.Roth IRA investment income accumulates income-tax free.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 7

Juanita paid a life insurer $45,000 in exchange for an immediate life annuity.Juanita will receive $500 per month from the insurer,and her life expectancy is 15 years (180 months).Assume that Juanita receives 12 monthly payments of $500 the first year.How much taxable income must she report?

Accepted Answer

A) $3,000 
B) $4,000 
C) $4,500 
D) $6,000 
A) $3,000 
B) $4,000 
C) $4,500 
D) $6,000

Question 8

Which of the following statements is (are)true with respect to the cash (lump sum)annuity settlement option?
I.The taxable portion of the distribution is subject to federal and state income taxes.
II.The option results in adverse selection against the insurer as those in poor health are more likely to take cash than to annuitize the funds.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 9

Which of the following is a permissible IRA investment alternative?

Accepted Answer

A) mutual funds 
B) fine art 
C) antiques 
D) life insurance 
A) mutual funds 
B) fine art 
C) antiques 
D) life insurance

Question 10

Juanita paid a life insurer $45,000 in exchange for an immediate life annuity.Juanita will receive $500 per month from the insurer,and her life expectancy is 15 years (180 months).If Juanita is alive 20 years later,how much of the $6,000 received during the year is taxable?

Accepted Answer

A) nothing 
B) $3,000 
C) $4,500 
D) $6,000 
A) nothing 
B) $3,000 
C) $4,500 
D) $6,000

Question 11

Which of the following statements is (are)true with respect to variable annuities?
I.The price at which accumulation units can be purchased fluctuates during the funding period.
II.The value of annuity units fluctuates over time.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 12

Which of the following statements is (are)true with regard to the adequacy of IRA funds during retirement?
I.To assure lifetime income,the IRA funds can be used to purchase a life annuity.
II.The duration of IRA benefit payments depends on the rate of return earned on the invested assets after retirement and the withdrawal rate.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) Neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) Neither I nor II

Question 13

Some insurers offer a single-premium deferred annuity that does not begin paying benefits until an advanced age,such as 85.This product is called

Accepted Answer

A) endowment insurance. 
B) equity-indexed annuity. 
C) life income with guaranteed payments annuity. 
D) longevity insurance. 
A) endowment insurance. 
B) equity-indexed annuity. 
C) life income with guaranteed payments annuity. 
D) longevity insurance.

Question 14

Bridget started to fund a variable annuity.Three years later,she experienced financial difficulty.She called her agent and cancelled the contract.The insurer returned all but 4 percent of the account balance.The 4 percent kept by the insurer is a(n)

Accepted Answer

A) account administration fee. 
B) investment management fee. 
C) front-end load. 
D) surrender charge. 
A) account administration fee. 
B) investment management fee. 
C) front-end load. 
D) surrender charge.

Question 15

Which of the following statements about converting a traditional IRA to a Roth IRA is (are)true?
I.Such conversions can be done with no income tax consequences.
II.Qualified distributions from a Roth IRA after a conversion are received tax-free.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 16

Which of the following statements regarding the taxation of individual annuities is (are)true?
I.The exclusion ratio is the percentage of the annuity income that is taxable.
II.After the net cost of the annuity has been paid to the annuitant,the total annuity payment is taxable.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 17

The fundamental purpose of a variable annuity is to

Accepted Answer

A) provide funding flexibility to the purchaser. 
B) provide a hedge against inflation. 
C) fund the purchase of cash value life insurance. 
D) guarantee a fixed-dollar benefit throughout retirement. 
A) provide funding flexibility to the purchaser. 
B) provide a hedge against inflation. 
C) fund the purchase of cash value life insurance. 
D) guarantee a fixed-dollar benefit throughout retirement.

Question 18

All of the following statements about traditional and Roth IRAs are true EXCEPT

Accepted Answer

A) Traditional IRA contributions may be fully,partially,or not income tax deductible. 
B) Qualified distributions from Roth IRAs are received income tax free. 
C) Contributions to Roth IRAs are made with after-tax dollars. 
D) Traditional IRAs are exempt from the penalty tax on premature distributions. 
A) Traditional IRA contributions may be fully,partially,or not income tax deductible. 
B) Qualified distributions from Roth IRAs are received income tax free. 
C) Contributions to Roth IRAs are made with after-tax dollars. 
D) Traditional IRAs are exempt from the penalty tax on premature distributions.

Question 19

Which of the following statements is (are)true regarding the taxation of distributions from individual annuities?
I.Individual annuity distributions are never taxable.
II.Once the annuitant has recovered the premiums he or she paid for the annuity,the entire annuity distribution is taxable.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 20

With an equity-indexed annuity,what name is given to the method of crediting excess interest to the annuity?

Accepted Answer

A) the capitation method 
B) the indexing method 
C) the distribution method 
D) the earnings method 
A) the capitation method 
B) the indexing method 
C) the distribution method 
D) the earnings method

Exam 14: Annuities and Individual Retirement Accounts

Which of the following statements about the withdrawal of funds from a traditional IRA is true?

Which of the following statements is (are)true with regard to Roth IRAs? I.The portion of a Roth IRA distribution that is attributable to investment income is taxable. II.There is a maximum income level above which Roth IRA contributions are not allowed.

Which of the following statements is true concerning traditional and Roth IRAs?

Life annuity payments are made up of all of the following EXCEPT

Which of the following statements is (are)true regarding the Roth IRA? I.Roth IRA contributions are tax deductible. II.Roth IRA investment income accumulates income-tax free.

Juanita paid a life insurer $45,000 in exchange for an immediate life annuity.Juanita will receive $500 per month from the insurer,and her life expectancy is 15 years (180 months).Assume that Juanita receives 12 monthly payments of $500 the first year.How much taxable income must she report?

Which of the following is a permissible IRA investment alternative?

Juanita paid a life insurer $45,000 in exchange for an immediate life annuity.Juanita will receive $500 per month from the insurer,and her life expectancy is 15 years (180 months).If Juanita is alive 20 years later,how much of the $6,000 received during the year is taxable?

Which of the following statements is (are)true with respect to variable annuities? I.The price at which accumulation units can be purchased fluctuates during the funding period. II.The value of annuity units fluctuates over time.

Some insurers offer a single-premium deferred annuity that does not begin paying benefits until an advanced age,such as 85.This product is called

Bridget started to fund a variable annuity.Three years later,she experienced financial difficulty.She called her agent and cancelled the contract.The insurer returned all but 4 percent of the account balance.The 4 percent kept by the insurer is a(n)

Which of the following statements about converting a traditional IRA to a Roth IRA is (are)true? I.Such conversions can be done with no income tax consequences. II.Qualified distributions from a Roth IRA after a conversion are received tax-free.

Which of the following statements regarding the taxation of individual annuities is (are)true? I.The exclusion ratio is the percentage of the annuity income that is taxable. II.After the net cost of the annuity has been paid to the annuitant,the total annuity payment is taxable.

The fundamental purpose of a variable annuity is to

All of the following statements about traditional and Roth IRAs are true EXCEPT

Which of the following statements is (are)true regarding the taxation of distributions from individual annuities? I.Individual annuity distributions are never taxable. II.Once the annuitant has recovered the premiums he or she paid for the annuity,the entire annuity distribution is taxable.

With an equity-indexed annuity,what name is given to the method of crediting excess interest to the annuity?

Risk and Its Treatment

Insurance and Risk

Introduction to Risk Management

Advanced Topics in Risk Management

Types of Insurers and Marketing Systems

Insurance Company Operations

Financial Operations of Insurers

Government Regulation of Insurance

Fundamental Legal Principles

Analysis of Insurance Contracts

Life Insurance

Life Insurance Contractual Provisions

Buying Life Insurance

Health-Care Reform; Individual Health Insurance Coverages

Employee Benefits: Group Life and Health Insurance

Employee Benefits: Retirement Plans

Social Insurance

The Liability Risk

Homeowners Insurance,section I

Homeowners Insurance,section II

Auto Insurance

Auto Insurance and Society

Other Property and Liability Insurance Coverages

Commercial Property Insurance

Commercial Liability Insurance

Crime Insurance and Surety Bonds

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