Life & Health Insurance Exam Life & Health Insurance Annuities and Retirement Plans 4 — Questions and Answers
Question 1: Which of the following is a characteristic unique to a Roth IRA compared to a traditional IRA?
- Contributions are tax-deductible
- Qualified distributions are tax-free (Correct answer)
- Required minimum distributions begin at age 73
- Contributions are limited to earned income
Correct answer: Qualified distributions are tax-free
Roth IRA qualified distributions are completely tax-free because contributions are made with after-tax dollars, unlike traditional IRAs.
Question 2: What is the term for the amount an annuity owner would receive if they surrendered the contract before the end of the surrender charge period?
- Account value
- Cash surrender value (Correct answer)
- Accumulated value
- Net present value
Correct answer: Cash surrender value
The cash surrender value is the account value minus any applicable surrender charges and market value adjustments upon early termination of the contract.
Question 3: A SEP IRA is most suitable for which type of worker?
- Full-time employees of large corporations
- Self-employed individuals and small business owners (Correct answer)
- Government employees only
- Part-time workers under age 21
Correct answer: Self-employed individuals and small business owners
SEP IRAs (Simplified Employee Pension) are designed for self-employed individuals and small business owners, allowing high contribution limits.
Question 4: Which annuity payout option will typically produce the highest monthly income payment?
- Life with 20-year period certain
- Joint and 100% survivor
- Life only (Correct answer)
- Fixed period of 30 years
Correct answer: Life only
The life only option pays the highest monthly amount because there is no guarantee period or survivor benefit reducing the payment.
Question 5: Under a 457(b) plan, which employees are eligible to participate?
- Employees of private for-profit companies
- Employees of state and local governments and certain nonprofits (Correct answer)
- Self-employed individuals only
- Federal employees under FERS
Correct answer: Employees of state and local governments and certain nonprofits
457(b) plans are deferred compensation plans available to employees of state and local governments and certain tax-exempt nonprofit organizations.
Question 6: What is the 'accumulation unit' in a variable annuity during the accumulation phase?
- A fixed dollar amount credited monthly to the account
- A unit of measure tracking the owner's share of the separate account (Correct answer)
- The guaranteed minimum interest rate floor
- The total surrender value of the contract
Correct answer: A unit of measure tracking the owner's share of the separate account
Accumulation units represent the owner's proportionate interest in the variable annuity's separate account subaccounts, with their value fluctuating based on investment performance.
Question 7: Which of the following best describes a non-qualified annuity?
- Funded with pre-tax dollars inside a retirement plan
- Funded with after-tax dollars outside of a qualified plan (Correct answer)
- Subject to annual contribution limits set by the IRS
- Eligible for employer matching contributions
Correct answer: Funded with after-tax dollars outside of a qualified plan
Non-qualified annuities are purchased with after-tax money outside of any qualified retirement plan, so only the earnings are taxable upon distribution.
Life & Health Insurance Exam Life & Health Insurance Annuities and Retirement Plans 4
Which of the following is a characteristic unique to a Roth IRA compared to a traditional IRA?