RAA RAA Tax Planning & Tax-Advantaged Strategies 2

Question 1

Which of the following best describes the tax treatment of annuity death benefits paid to a non-spouse beneficiary?

Accepted Answer

Only the gain above basis is taxable as ordinary income

Answer

Non-spouse beneficiaries must pay ordinary income tax on the portion of death benefits that exceeds the owner's cost basis in the contract.

Question 2

When must a non-qualified annuity owner begin distributions according to IRS rules if they die before annuitization?

Accepted Answer

Within 5 years or over the beneficiary's life expectancy

Answer

IRS rules require that non-qualified annuity proceeds be distributed within 5 years of the owner's death, or over the beneficiary's life expectancy if begun within one year.

Question 3

How does investing inside an annuity wrapper affect the tax efficiency of already tax-advantaged bond interest?

Accepted Answer

It adds a layer of cost without additional tax benefit

Answer

Placing tax-advantaged bonds inside an annuity adds insurance costs without an additional tax benefit, making the annuity wrapper potentially inefficient for those assets.

Question 4

A client wants to convert a lump-sum IRA into lifetime income through a qualified longevity annuity contract (QLAC). What is the maximum amount that can be invested?

Accepted Answer

$130,000 or 25% of IRA balance, whichever is less

Answer

As of current IRS limits, up to $130,000 (or 25% of the IRA balance, whichever is less) can be placed into a QLAC and excluded from RMD calculations.

Question 5

Which tax strategy allows a client to use annuity proceeds to purchase a charitable gift annuity and potentially reduce taxable income?

Accepted Answer

1035 exchange to a charitable gift annuity

Answer

A 1035 exchange can be used to move funds into a charitable gift annuity, which may generate a partial charitable deduction and provide lifetime income.

(RAA) Registered Annuity Advisor Practice Test

(RAA) Registered Annuity Advisor Practice Test

RAA RAA Tax Planning & Tax-Advantaged Strategies 2