Question 1

An immediate life annuity offers all of the following benefits EXCEPT

Accepted Answer

Immediate annuity payments are not entirely exempt from federal income tax. A portion of each payment is usually taxable as ordinary income.

Question 2

Which of the following statements is (are)true with regard to an annuity payout option that includes a cost-of-living adjustment?
I.The initial monthly payment is lower than the initial payment a fixed annuity would have provided if purchased at the same age.
II.Periodic payments to the annuitant are adjusted for inflation.

Accepted Answer

An annuity payout option that includes a cost-of-living adjustment (COLA) typically starts with a lower initial monthly payment compared to a fixed annuity purchased at the same age, because the payments are expected to increase over time to keep up with inflation. This adjustment ensures that the purchasing power of the payments is maintained, making both statements I and II true.

Question 3

Which of the following statements is (are)true concerning a joint-and-survivor annuity?
I.Under this annuity,payments begin after the first annuitant dies.
II.This annuity is often selected by married couples.

Accepted Answer

Statement I is false. Under a joint-and-survivor annuity, payments continue to the surviving annuitant(s) after the first annuitant dies.

Statement II is true. A joint-and-survivor annuity is often selected by married couples as it provides income for the lifetime of both the annuitants, ensuring that neither spouse is left without income in the event of the other's death.

Question 4

Rita is 66 years old.She earned $25,000 this year working part-time at a store and her modified adjusted gross income was $35,000.Rita is considering making a $4,000 contribution to her traditional IRA.Which of the following statements is true regarding this contribution?

Accepted Answer

Rita can contribute to her traditional IRA regardless of her age, thanks to the SECURE Act which removed the age limit for contributions as long as the individual has earned income. Her contribution is fully tax deductible because her income is below the IRS limits for deductibility for individuals who are not covered by a retirement plan at work.

Question 5

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

Accepted Answer

Traditional IRAs have minimum distribution requirements, while Roth IRAs do not. Choices A and B are false as the investment income portion of Roth IRA distributions is not taxable, and Roth IRA contributions are not tax deductible. Choice D is also false as there are limits on the tax deductibility of traditional IRA contributions regardless of age.

Question 6

The fundamental purpose of a variable annuity is to

Accepted Answer

Variable annuities are designed to provide a hedge against inflation by allowing the investment to grow based on the performance of the underlying assets, which can potentially increase the payout amount over time.

Question 7

Daryl,age 42,quit his job.His employer offered a defined contribution pension plan,and the balance in the account was $30,000 when Daryl quit.He can avoid immediate taxation of these funds by

Accepted Answer

By using an IRA rollover account, Daryl can transfer the balance of his defined contribution pension plan into an IRA account, which will allow him to avoid immediate taxation. This option also gives him more control over his investments and the flexibility to choose when to withdraw the funds. Taking a lump-sum distribution or receiving the money through installments may result in immediate taxation and penalties. Using the funds to purchase common stock issued by the former employer is risky as it puts all of Daryl's retirement savings into one company, potentially harming his diversification strategy.

Question 8

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

The answer of Juanita paid a life insurer $45,000 in...

Question 9

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

I is false. Roth IRA contributions are not tax deductible.

II is true. Roth IRA investment income accumulates income-tax free, which means that any earnings the account generates, as well as the contributions made, can be withdrawn tax-free in retirement.

Question 10

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

Statement I is false. Distributions from individual annuities are generally taxable, with certain exceptions such as when they are part of a qualified retirement plan or when they represent a return of the principal paid into the annuity.

Statement II is true. When the annuitant has recovered the amount of premiums paid into the annuity, any subsequent distributions are considered earnings and are fully taxable as ordinary income.

Question 11

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

Statement I is false, as converting a traditional IRA to a Roth IRA does have income tax consequences. The amount converted will be considered taxable income in the year of the conversion. 
Statement II is true, however, as qualified distributions from a Roth IRA after a conversion are indeed received tax-free.

Question 12

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

Accepted Answer

Traditional IRAs are not exempt from the penalty tax on premature distributions. They face a 10% penalty tax on withdrawals made before the age of 59 1/2, unless an exception applies.

Question 13

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

Statement I is false. The portion of a Roth IRA distribution that is attributable to investment income is not taxable, as long as certain requirements are met (such as being over age 59 1/2 and having held the account for at least 5 years).

Statement II is true. There are income limits that determine how much you can contribute to a Roth IRA each year. For 2021, the maximum contribution for individuals with a modified adjusted gross income (MAGI) of less than $125,000 is $6,000 ($7,000 for those age 50 and older). For individuals with a MAGI between $125,000 and $140,000, the contribution limit is gradually reduced, and above $140,000, Roth IRA contributions are not allowed.

Question 14

Which of the following statements is (are)true with regard to IRAs?
I.Contribution limits are higher for workers aged 50 and older.
II.The minimum distribution rules after attainment of age 70.5 do not apply to Roth IRAs.

Accepted Answer

I is true, as workers aged 50 and older are allowed to make catch-up contributions to their IRAs, in addition to the regular contribution limits.

II is also true, as Roth IRAs do not have minimum distribution rules, meaning that the account holder is not required to take a certain amount of money out of the account each year after age 70.5, unlike traditional IRAs.

Question 15

Which of the following statements regarding individual retirement accounts (IRAs)is (are)true?
I.If an individual's only income during the year is from investments,he or she cannot make an IRA contribution.
II.IRA contributions can be invested in stocks,bonds,and mutual funds.

Accepted Answer

I is true because IRA contributions require earned income, not just investment income. II is true because IRA contributions can indeed be invested in a variety of financial instruments, including stocks, bonds, and mutual funds.

Question 16

All of the following are circumstances under which withdrawals from a traditional IRA may be made prior to age 59.5 without incurring a substantial penalty EXCEPT

Accepted Answer

All of the options listed (A, C, and D) are circumstances where early withdrawals from a traditional IRA can be made without penalty. However, option B is not a valid exception as using an IRA to pay living expenses after unemployment insurance benefits cease does not qualify for an exemption from the penalty.

Question 17

Donna,age 50,is single and earns $50,000 annually.She is covered under her employer's retirement plan.Donna would like to start a traditional IRA and contribute $5,000 this year.Which of the following describes her ability to establish a traditional IRA and the tax treatment of her contribution?

Accepted Answer

Donna can establish a traditional IRA regardless of her income level or participation in an employer's retirement plan. Her contribution is fully tax deductible because her income is below the IRS threshold for partial or no deductibility for single filers covered by a workplace retirement plan.

Question 18

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

Accepted Answer

Withdrawals from a traditional IRA must begin by April 1 of the year following the year the individual turns 70.5, known as the required minimum distribution (RMD) rule.

Question 19

Which of the following is a permissible IRA investment alternative?

Accepted Answer

Mutual funds are a permissible IRA investment alternative according to IRS rules. Fine art, antiques, and life insurance are not permissible IRA investments.

Question 20

Which of the following persons can establish a traditional IRA?
I.A person whose only income received is from investments.
II.A 75 year-old man who has earned taxable income.

Accepted Answer

The answer of Which of the following persons can establish...

Quiz 14: Annuities and Individual Retirement Accounts

An immediate life annuity offers all of the following benefits EXCEPT

Which of the following statements is (are) true concerning a joint-and-survivor annuity? I.Under this annuity,payments begin after the first annuitant dies. II.This annuity is often selected by married couples.

Rita is 66 years old.She earned $25,000 this year working part-time at a store and her modified adjusted gross income was $35,000.Rita is considering making a $4,000 contribution to her traditional IRA.Which of the following statements is true regarding this contribution?

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

The fundamental purpose of a variable annuity is to

Daryl,age 42,quit his job.His employer offered a defined contribution pension plan,and the balance in the account was $30,000 when Daryl quit.He can avoid immediate taxation of these funds by

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 regarding the Roth IRA? I.Roth IRA contributions are tax deductible. II.Roth IRA investment income accumulates income-tax free.

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.

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.

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

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 (are) true with regard to IRAs? I.Contribution limits are higher for workers aged 50 and older. II.The minimum distribution rules after attainment of age 70.5 do not apply to Roth IRAs.

Which of the following statements regarding individual retirement accounts (IRAs) is (are) true? I.If an individual's only income during the year is from investments,he or she cannot make an IRA contribution. II.IRA contributions can be invested in stocks,bonds,and mutual funds.

All of the following are circumstances under which withdrawals from a traditional IRA may be made prior to age 59.5 without incurring a substantial penalty EXCEPT

Donna,age 50,is single and earns $50,000 annually.She is covered under her employer's retirement plan.Donna would like to start a traditional IRA and contribute $5,000 this year.Which of the following describes her ability to establish a traditional IRA and the tax treatment of her contribution?

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

Which of the following is a permissible IRA investment alternative?

Which of the following persons can establish a traditional IRA? I.A person whose only income received is from investments. II.A 75 year-old man who has earned taxable income.