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Series 7 > Retirement Plans > Flashcards

Retirement Plans Flashcards

1
Q

fixed annuity

A

the guaranteed rate of return to the investor

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2
Q

Who assumes the investment risk in a fixed annuity

A

the insurance company

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3
Q

Variable annuity

A
  • no guaranteed rate of return
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4
Q
  • if the investments funding an annuity perform better than expected
A

-the annuity performs better than expected and vice versa

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5
Q

Who assumed the investment risk in a variable annuity

A

the investor, it is considered to be a security

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6
Q

AIR

A

-Illustration of a conservative interest rate that shows the annuity that would be received if the separate account grew at this rate

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7
Q

If the actual returns are greater than 5% AIR, then

A

annuity amount increases

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8
Q

if the actual return is lower than 5% AIR, then

A

annuity amount decreases

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9
Q

Separate account

A
  • an account this is separate from the insurance company, used specifically to fund the annuity
  • portfolio run as a management company
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10
Q

During annuity, if a separate account grows at the same rate as AIR, then

A

annuity payment is unchanged

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11
Q

During annuity, if the separate account grows faster than the AIR, then

A

annuity payment increases

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12
Q

During annuity, if the separate account grows slower than AIR, then

A

annuity payment decreases

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13
Q

Accumulation unit

A

Monies paid into a variable annuity contract are used to buy accumulation units
- NAV is computed daily

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14
Q

Interest, dividend payments, and capital gains realized from a separate account ______

A
  • automatically reinvested to buy more accumulation units

- cannot be distributed until contract is complete

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15
Q

Big benefit to annuity contract holders

A

reinvested dividends and capital gains grow tax deffered

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16
Q

Variable annuities and inflation

A
  • in periods of inflation, variable annuities have a greater return potential to investors since equity prices tend to rise with inflation rate over long term
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17
Q

Life Annuity

A

Pays only for that person’s life

- largest monthly payments

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18
Q

Life Annuity - Period Certain

A

Pays for that person’s life, but if that person dies before a stated time period (say 10 years), the annuity will be paid to a beneficiary for the balance of the 10 year certain period.

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19
Q

Joint and Last Survivor Annuity

A

Pays a married couple until the second party dies.

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20
Q

Unit Refund Annuity

A

If the contract holder dies earlier than expected, the balance left in the separate account is refunded to a beneficiary.

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21
Q

People who are not gamblers, more on safer side should invest in __

A

lump sum payments/ fixed annuities

  • installment for designated period
  • installment for
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22
Q

License required to sell variable annuities

A
  • Series 7/ Series 6

- state insurance license may also be required

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23
Q

Suitability to recommend a variable annuity

A
  • customer has been informed of the material features of the product
  • customer would benefit from one or more of the features
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24
Q

GMIB

A
  • optional rider
  • Guarantees when the separate account is annuitized, if the account has not grown at the Guaranteed minimum rate, then the account will be annuitized as if it did.
  • Only applies at the annuity phase
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25
Q

Variable Annuity Mortality Guarantee

A
  • insurance company guarantees to pay the annuity for one’s life
  • if person dies later than projected mortality, payments continue
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26
Q

Variable annuity Expense Guarantee

A
  • if expense exceed a given percentage, the insurance company absorbs the excess.
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27
Q

tax qualified

A

before tax

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28
Q

non-tax qualified

A

after tax

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29
Q

Variable annuities are “___ qualified”

A

non- tax, the contribution is NOT deductible from the tax return

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30
Q

Cost basis in a variable annuity

A

the amount contributed, dollars after tax

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31
Q

Distributions from a variable annuity

A

build tax-deferred; these monies were never taxed

- payments are taxed at the amount above cost basis.

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32
Q

If a lump sum distriution is made from a plan, the IRS requires they use __ accounting

A

LIFO

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33
Q

LIFO accounting

A

the “build-up” amount comes out first since it went in last (and is 100% taxable), while the contribution amount comes out last since it went in first (and is 0% taxable).

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34
Q

Contract Surrender

A

then the customer’s cost basis is the amount invested and the sale proceeds is the amount received on redemption.
- SURRENDER FEE IS NOT DEUCTIBLE

35
Q

Contract Exchange

A

to get another variable annuity contract or a fixed annuity contract with better features or lower costs.

36
Q

ERISA Plans

A 
Profit-sharing Plans
Defined Contribution Plans
Defined benefit plans
tax- deferred annuity plans
Payroll deduction savings plans
37
Q

Tax qualified retirement plans are

A

deductible against the contributors income

  • contributions must not be taxed
  • earnings build tax deferred
  • withdrawals are taxable
38
Q

All ERISA plans are

A

tax qualified

39
Q

Non- tax qualified retirement plans are

A

non deductible

  • contributions have been taxed
  • earnings build tax deferred
40
Q

Contributions for IRAS can be made

A

until APril 15th of the following year

41
Q

If the individual is not covered by another qualified retirement plan

A

then the contribution amount is tax deductible.

42
Q

If an individual is covered by another qualified retirement plan and earns more than $76,000

A

the contribution amount is not deductible (but income in the account still builds tax-deferred).

43
Q

If both spouses are not covered by another qualified retirement plan

A

then the contribution amount is tax deductible.

44
Q

If both spouses are covered by qualified retirement plans, and their combined income exceeds $125,000

A

the contribution is not tax deductible

45
Q

If one of the spouses is covered by another qualified retirement plan

A

the contribution amount for the covered person is not deductible, while the contribution amount for the uncovered person is deductible.

46
Q

The first distribution of an IRA must be taken by

A

April 1st

47
Q

If an individual is in a tax qualified plan, say at a corporation, and leaves the firm

A

the corporation gives the ex-employee a check for the vested pension benefit amount.
-then the distribution is subject to regular income tax plus a 10% penalty ta if not rolled over in 60 days

48
Q

IRA transfer

A

made directly from plan trustee to plan trustee.

49
Q

If a spouse inherits an IRA

A
  • Rollover into their existing account
  • Under than 72, can continue to make contributions to the account, major benefit is tax is only due when distributions happen
  • take proceed as lump sum, but entire amount is taxable
  • disclaim inheritance
50
Q

If someone other than a spouse inherits an IRA

A

Transfer the funds to an IRA Beneficiary Distribution account, distributed over the next 10 years, each distribution is taxable but no penalty if it is before 591/2

51
Q

Keogh (HR10) Plans

A

retirement plans for self-employed individuals, such as dentists and chiropracters.

52
Q

the maximum permitted contribution for Keough Plans

A
  • 20% of income, $58,000
53
Q

Defined Contribution Plan / Money Purchase Plan

A
  • specified fixed percentage of income
  • annual contribution amount is fixed
  • longer the employee remains in the plan, the greater the contribution amount and hence, the greater the pension benefit for that person
  • payment must be paid. no ifs.
  • max 25%
  • tax qualified
54
Q

Defined Benefit Plan

A

corporate sponsored plan that promises a “defined benefit” amount to each plan participant.
- tax qualified

55
Q

The “defined benefit” amount is based upon

A

the employee’s earnings just before retirement

56
Q

Definied benefit plans, benefit who

A

older employees with fewer years to retirement; since the benefit amount does not increase based upon years of service - it is based upon income prior to retirement.

57
Q

Unfunded Pension Liability

A

the excess of benefits projected to be paid at retirement over projected plan assets available at retirement.

58
Q

401k

A

tax qualified

Defined contribution money purchase plans

59
Q

Max 401k contribution 1

A

19,500

60
Q

SEP IRA

A

must be set up by the employer, with contributions made by the employer.
easier to set up than regular pension plans

61
Q

SEP IRA annual contribution

A

25% of income statutory rate; 20% effective rate, capped at $58,000 in 2021

62
Q

A major advantage of SEP IRA

A

flexibility regarding the annual contribution to be made - the employer can vary the contribution percentage each year.

63
Q

SIMPLE IRA

A

only available to small businesses with 100 or fewer employees.

  • established by employer and much simpler and cost efficient compared to others 401k
  • no flexibility, must be made in good times and bad
64
Q

Max contribution of SIMPLE IRA

A

up to 13,500

65
Q

employer must make a matching contribution to a SIMPLE IRA of

A

either 2% or 3% of the employee’s salary
2% regardless if employee invests
3% if employee invests

66
Q

403(b) plans

A

defined contribution money purchase plans established by not-for-profit entities such as universities or hospitals.

  • allowed to invest in fixed or variable annuities, mutual funds
  • tax deductible
  • established by employer, employee chooses to elect
67
Q

Max contribution for 403b Plans

A

25% of income, up to 19,500 as a salary reduction

68
Q

Section 457 Plans

A
  • deferred compensation plans for high salaried or long serving government employees
  • non qualified
  • can take distribution’s prior to 591/2
  • regular tax still
69
Q

Life cycle

A

100- minus that persons age

that number is the amount that should be invested in stocks

70
Q

Life cycle for a 30 year old,

A

70% of assets invest in stocks, 30% in bonds

71
Q

life cycle for a 70 year old

A

30% of assets invested in stocks, 30% inveted in bonds

72
Q

Coverdell ESA Max contribution

A

$2,000

73
Q

Contributions to Coverdell ESAs are

A

NOT TAX DEDUCITBLE, EARNINGS BUILD TAX DEFERRED

74
Q

Who can contribute to Coverdell ESAs

A

not high earners

75
Q

When do contributions stop to Coverdell/ When do distributions stop

A

18 and 30

76
Q

Are coverdell ESAs distributions taxable

A

no, no taxes when used for qualifying expenses

77
Q

529 Plan can be used for

A

College, and higher level

below college level, but max is 10,000

78
Q

Contributions to Coverdell ESAs are

A

NOT TAX DEDUCTIBLE, EARNINGS BUILD TAX DEFERRED

79
Q

Are 529 Plan distributions taxable

A

No, not when used for qualifying expenses

80
Q

Max contribution to 529 Plans

A

set by state and can be very high >300,000

81
Q

ABLE Accounts

A

Up to $15,000 per year (the Federal gift tax exclusion amount) can be contributed to an ABLE account, with no tax deduction. The account grows tax-deferred, and payments to pay for qualified expenses are tax-free. Qualified expenses include medical care, transportation, housing, education, and assistive technology.

82
Q

Age beneficiary must be disabled for Able acounts

A

26

83
Q

Any gifts above the annual gift tax exclusion amount ($15,000 in 2021) are subject

A

gift tax. Gift tax is paid by the donor, not the recipient.
tax benefit offered by 529 Plans is a 1-time gift that can be made into the account equal to 5 times the current gift tax exclusion, without the donor worrying about having to pay gift tax.

Series 7 (16 decks)

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