Questions and Answers
Annuities are classified in all of the following ways except:
What happens if the annuitant dies during the accumulation period and before the contract is annuitized?
A death benefit equal to premiums paid and part of the interest on the premium is payable to beneficiary or to the annuitant's estate.
A premature withdrawal from an annuity can trigger a tax penalty if the distribution is not over the annuitant's lifetime.
True
What does the taxation of payments under an annuity do?
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What factors determine the return that will be earned over the life of an annuity?
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What is an annuity contract that provides income until the first of two annuitants dies called?
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A variable annuity provides retirement income that fluctuates with the underlying portfolio.
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All of the following annuities may provide benefits after the death of the annuitant except:
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What type of annuity pays income to two or more annuitants until the death of the last annuitant?
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Which of the following annuities paying a $100 monthly benefit would have the greatest purchase price?
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All statements regarding regulation of annuity sales are true.
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What is the requirement for contributions under a deferred profit-sharing plan?
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What type of retirement plan promises a monthly benefit equal to 1 percent of the average monthly salary during the individual's last three years of employment?
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What is true with respect to defined benefit and defined contribution plans?
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What type of pension plan provides a retirement benefit equal to 50% of the employee's terminal salary?
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Who are the Keogh plans designed for?
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What does an employer promise under a defined benefit pension plan?
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What do section 401(k) plans allow employees to do?
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What do savings incentive match plans for employees (SIMPLE) require from employers?
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Distributions from a qualified retirement plan before age 59 1/2 are subject to a 10% tax penalty which does not apply if the distribution is rolled over into another qualified plan or an IRA.
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Study Notes
Annuities
- Annuities are classified by various factors but not by the face amount of the policy.
- If the annuitant dies during the accumulation period, the beneficiary receives death benefits equal to premiums paid plus a portion of the interest accrued.
Withdrawals and Taxation
- Premature withdrawal from an annuity may incur a tax penalty unless the distribution is made over the annuitant's lifetime.
- Payments from an annuity are taxed by separating recovery of capital and investment income.
Annuity Returns and Structures
- The return on an annuity is influenced by the interest rate, surrender charges, and administrative expenses.
- A joint life annuity provides income to two annuitants until the death of the first.
- A join-and-survivorship annuity pays income until the death of the last annuitant.
Variable Annuities and Purchase Prices
- Variable annuities offer retirement income that varies with the performance of the underlying investment portfolio.
- The highest purchase price for a $100 monthly benefit annuity is for a single life annuity with a cash refund, especially if purchased by a female age 65.
Regulation and Pension Plans
- All statements regarding the regulation of annuity sales are true.
- Deferred profit-sharing plans do not require fixed contribution levels.
- A retirement plan that offers benefits based on 1% of the average monthly salary during the last three years of employment is called a final average salary plan.
Defined Benefit vs Defined Contribution
- In defined contribution plans, employees assume the investment risk, while defined benefit plans guarantee specific income at retirement.
- A pension plan providing a retirement benefit equal to 50% of the employee's terminal salary exemplifies a defined benefit plan.
Keogh Plans and Retirement Contributions
- Keogh plans cater to self-employed individuals and their employees.
- Section 401(k) plans enable employees to make tax-deferred contributions.
- SIMPLE plans require employers to contribute matching contributions up to 3% of employee compensation or non-elective contributions of 2% for all employees.
Penalties on Early Distributions
- Withdrawals from qualified retirement plans before reaching age 59½ are penalized with a 10% tax unless the funds are rolled over into another qualified plan or an IRA.
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Description
This quiz covers the fundamentals of annuities, including classifications, taxation, withdrawal penalties, and various types such as joint life and variable annuities. Understand how returns are calculated and the implications of early withdrawals on taxation. Test your knowledge on these essential financial instruments.
