C)the yield is always higher than bond yields. B) Municipal bonds. Typically, they allow one withdrawal each year during the accumulation phase. B) prime rate. IBM is a global brand and has its presence in 170 countries and operates . An annuity may be purchased under all of the following methods EXCEPT: Suggesting that loans or drawing equity from a home to fund VA contracts have also been targeted as abusive sales practices. externalities. A) partially a tax-free return of capital and partially taxable. used to escrow late or otherwise delinquent premium payments. C) Age 40, currently unemployed Variable Annuities. How to Rollover a Variable Annuity Into an IRA. This recommendation is: D) unsuitable because her situation exposes her to surrender charges and early withdrawal penalties in exchange for insufficient benefits. Question #14 of 48Question ID: 606823 C)annuity units. D) accumulation shares. Options. What is the annual cash flow generated from the new machine? variable annuity without paying tax at the time of the transfer. B) life income For a nonqualified variable annuity, cost basis for the annuitant would use the after-tax dollars contributed. The beneficiary is taxed at ordinary income rates during the year the lump sum is received. A single lump-sum investment is made, and payments begin immediately, since the investor has purchased annuity units. an annuitant dies sooner than expected. A trend makes considerable influence or impact. Round to the nearest hundredth of a percent. Designed to protect against inflation. Future annuity payments will vary according to the separate account's performance. U.S. Securities and Exchange Commission. C)insurance companies keep variable annuity funds in separate accounts from other insurance products. D) I and II. Question #32 of 48Question ID: 606815 Skylar Clarine is a fact-checker and expert in personal finance with a range of experience including veterinary technology and film studies. A variable annuity is a type of annuity contract in which the value can vary based on the performance of an u . A)equity funds. Reference: 12.2.1 in the License Exam. When the second party dies, all payments cease. D) Age 27, saving for first home. The number of accumulation units can rise during the accumulation period. Reference: 12.3.1 in the License Exam, Question #30 of 48Question ID: 606833 B)Value of each annuity unit each month. What is the taxable consequence of this withdrawal to your client? B) 0. The money paid in will be returned tax free, but the earnings portion will be taxed as ordinary income. Contributions to a nonqualified variable annuity are not tax deductible. There are two interest rates under fixed annuities. The annuity unit's value represents a guaranteed return. The downside was that the buyer was exposed to market risk, which could result in losses. Many variable annuities invest the separate account in mutual funds. Anthony Battle is a CERTIFIED FINANCIAL PLANNER professional. A rider or statement of condition that allows a variable life insured to maintain policy coverage after becoming disabled is a benefit known as a variable annuity does not guarantee an earnings rate of return. A) Life-only annuity Transcribed image text: 6. C)III and IV. The trial of the assassins commenced on the following day; and the evidence being so clear, they were both found guilty, and condemned, to be broken alive on the wheel. Round to the nearest hundredth of a percentile. There are two elements that contribute to the value of a variable annuity: the principal, which is the amount of money you pay into the annuity, and the returns that your annuitys underlying investments deliver on that principal over the course of time. C) value of underlying securities held in the separate account. Of the 4 client profiles below, which might be the best suited for a variable annuity recommendation? When a variable annuity contract is annuitized, the number of annuity units is fixed. A) I and II. The growth portion is taxed as ordinary income. D) each annuity unit's value varies with time, but the number of annuity units is fixed. D) The fact that periodic payments into the contract may increase or decrease. B) The proceeds minus John's cost basis taxed as ordinary income at Sue's tax rate. who needs access to the sum invested at later time. A 1 The applicant and possibly the agent initial any changes made. A registered representative recommends a variable annuity with an income rider to a client. The number of accumulation units is always fixed throughout the accumulation period. Determine whether the following events are independent or dependent. These contracts come with high surrender charges. Therefore only a fixed annuity could be considered as suitable. Outgoing personality with the ability to develop relationships (i.e., "People Person") and a sincere desire to help others Fearless, positive attitude, and willingness to be accountable for results Organized, detail-oriented, and excellent time-management skills A desire for continuous learning Ideally they should be funded with readily available cash rather than using funds liquidated from existing investments. Reference: 12.3.2.1 in the License Exam. I. The earnings on dollars invested into a variable annuity accumulate tax deferred, which is why variable annuities are popular products for retirement accumulation. A) It will be higher. The growth portion is taxed as ordinary income. must precede every sales presentation. *The return on a variable annuity is not guaranteed; it is determined by the underlying portfolio's value. D) not suitable because a lifetime income rider is only for someone who is already retired. D) minimum guaranteed death benefit. B) I and III. Distributed along a dermatome. And, unlike a fixed annuity, variable annuities do not provide any guarantee that you will earn a return on your investment. If in the following year, the S&P 500 declined by 5%, the annuities value would remain at $107,000 because gains are locked in each year. Distribution can take place before or during any solicitation for sale. C. savingsbondsGroupinsurance$198,74451,71415,21030,42045,630$341,718, Tax rates assumed: Changes in payments on a variable annuity correspond most closely to fluctuations in the: How is the distribution taxed? FINRA. No paper. B) II and IV. *The owner of a life annuity with 10-year period certain will receive payments for life, subject to a minimum of 10 years. Complete a blank sample electronically to save yourself time and money. Reference: 12.1.2 in the License Exam. B) the number of annuity units is fixed, and their value remains fixed. Fixed annuities, on the other hand, provide a guaranteed return. A) taxed at a reduced rate. A) A variable annuity With a fixed annuity, by contrast, the insurance company assumes the risk of delivering whatever return it has promised. This describes which of the following annuities? Variable annuities were introduced in the 1950s as an alternative to fixed annuities, which offer a guaranteedbut often lowpayout during the annuitization phase. IV. approve changes in the plan portfolio. C) such an annuity is designed to combat inflation risk. During the accumulation phase, you make purchase payments. \hspace{10pt} Social security, 6%6\%6% on first $100,000\$100,000$100,000 of employee annual earnings In March, the actual net return to the separate account was 8%. How is the distribution taxed? B) Ordinary income taxation on the earnings withdrawn until reaching the owner's cost basis. Question #25 of 48Question ID: 606819 A 10% penalty applies only if distributions begin before age 59-. D) Variable Annuity. They are more suitable for individuals who can fund the annuity with cash, want to supplement existing retirement benefits they have already funded, are comfortable with the market risk associated with a VA separate account portfolio and anticipate a long retirement. If an investor has a fixed-annuity contract with an insurance company, which of the following risks is assumed by the investor? vote for the investment adviser. B) variable annuities are classified as insurance products. Contributions to a nonqualified annuity are made with the owner's after-tax dollars. He wants to ensure that the client, in addition to meeting suitability requirements, is aware of certain variable annuity contract characteristics. B)cost of living. \hspace{7pt} a. December 303030, to record the payroll. Your customer, still working, informs you that she will be funding a variable annuity you have recommended from 2 sources: a refinancing of her primary home where she will be able to draw out equity that has built up since it was purchased 15 years ago, and cashing out another variable annuity that she recently purchased within the past 2 years without a lifetime income rider like the one you have recommended. \hspace{10pt} Medicare, 1.5%1.5\%1.5% D) a variable annuity contract is subject to fluctuating values due to market fluctuations of the underlying separate accounts. With regard to a variable annuity, all of the following may vary EXCEPT: "Variable Annuities: What You Should Know," Pages 67. C)such an annuity is designed to combat inflation risk. A life with period certain contract guarantees payments for a specified number of years to a named beneficiary if the annuitant dies during that time. An annuity factor is taken from the annuity table, which considers, for example, the investor's sex and age. A)II and IV. D)I and IV. A) I and III. Insurance companies introduced the variable annuity as an opportunity to keep pace with inflation. How Good of a Deal Is an Indexed Annuity? \hspace{7pt} b. December 303030, to record the employers payroll taxes on the payroll to be paid on December 313131. A) Joint tenants annuity. II. Over the past five years, 's dividend yield has averaged % per year. D) There is no guarantee regarding the investment results of the separate account. If at all you go deeper, then you will find a wide range of annuity products from a variety of companies. Variable annuities are riskier than fixed annuities because the underlying investments may lose value. II) It has an internal capital market wherein each division competes for funds. C) Unit refund life option D) variable annuities may only be sold by registered representatives. In this case, the investor is taking a lump-sum distribution before reaching age 59- and must pay an additional 10% penalty on the taxable amount. What type of annuity has a cash value that is based upon the performance of it's underlying investment funds? As the name implies, the investment performance of a variable annuity's portfolio (separate account) can vary, and the investor bears the risk of any potential decline in its value. b. For this potential advantage, the investor, rather than the insurance company, assumes the investment risk. An investor who has purchased a nonqualified variable annuity has the right to: What Are the Distribution Options for an Inherited Annuity? IV. *Since this is a nonqualified annuity (with no tax deduction), the client pays taxes only on the growth portion or, in this case, $10,000. The accumulation unit's value is used to calculate the total value of the account. While there is no guarantee on how investments in the separate account will perform, depending on its investment performance, the separate account could provide for a larger death benefit than the minimum guaranteed amount. can be sold by someone with only an insurance license A) complete all paper work to purchase the annuity contract and obtain the clients signature immediately. B) 10% penalty plus payment of ordinary income tax on all funds withdrawn. D) an accounting measure used to determine the contract owner's interest in the separate account. Her agent recommended she choose a variable annuity as a safe haven for the funds. Life Insurance vs. Annuity: What's the Difference? Variable annuity salespeople must be registered with FINRA and the state insurance department. A variable annuity is a combination of 2 products: an insurance contract and a mutual fund. The noble relatives of the Count d'Horn absolutely blocked up the ante-chambers of the regent, praying for mercy on the misguided youth, and alleging that he was insane . *This annuity is nonqualified, which means the client has paid for it with after-tax dollars and has a basis equal to the original $29,000 investment. B)Universal variable life policy. However, because the client is not yet age 59- when making the withdrawal, he also pays a 10% penalty, or $1,000. Deferred Annuity Definition, Types, How They Work, What Is a Fixed Annuity? Your client has a large sum of money to invest from the proceeds of the sale of his home. An important basic characteristic of common stocks that makes them a suitable type of investment for the separate account of variable annuities is: A)II and IV. But again, the need to designate beneficiaries is not an issue for this annuitant. Fixed Annuity: A fixed annuity is a type of annuity contract that allows for the accumulation of capital on a tax-deferred basis. As part of his profile he stresses that he has had uncomfortable experiences in the past with the stock market and is not inclined to invest in anything that is based on stock market performance and would opt for principal protection instead. C) III and IV. C) Mutual fund portfolio consisting of blue chip stocks a variable annuity does not guarantee an earnings rate of return. D)the safety of the principal invested. On withdrawals from a nonqualified annuity, taxes are paid only on the amount that exceeds cost basis (the amount paid into the annuity). Annuities: How to Find the Right One for You, How a Fixed Annuity Works After Retirement, Pros and Cons of Indexed Universal Life Insurance. He makes the following four statements, all of which are true EXCEPT B)part earnings and part cost basis A)I and IV. While there is no guarantee on how investments in the separate account will perform, depending on its investment performance, the separate account could provide for a larger death benefit than the minimum guaranteed amount. The following changes have been incorporated into Special Publication 800145, as of the date indicated - . A client has purchased a nonqualified variable annuity from a commercial insurance company. *Payments from a variable annuity depend on the securities' value in the separate account's underlying investment portfolio. C)number of accumulation units. A) Ordinary income tax on earnings exceeding basis. Fixed annuities pay a fixed monthly benefit which loses purchasing power if there is inflation. A) I and II C)II and III. John is the annuitant in a variable plan, and Sue is the beneficiary. They can be classified by: Nature of the underlying investment - fixed or variable Essential Characteristics: IBM is a global brand and has its presence in 170 countries and operates . D) a minimum of 10 years of variable payments, followed by additional variable payments for life. The number of annuity units is fixed at the time of annuitization. B)I and II A) variable annuities offer the investor protection against capital loss. B)unsuitable because her situation exposes her to surrender charges and early withdrawal penalties in exchange for insufficient benefits. D) Joint and last survivor annuity. Often used for retirement planning purposes, it is meant to provide a regular (monthly, quarterly, annual) income stream, starting at some point in the future. C)none of these. Distribution of dividends occurs during the accumulation period. D) II and IV. Therefore, ordinary income taxes will apply to the entire $10,000. Your customer is interested in a variable annuity but is unclear on some of the details regarding different specifications and riders that can be attached to the contract. D) Life annuity with 10-year period certain. In this case, the investor is taking a lump-sum distribution before reaching age 59- and must pay an additional 10% penalty on the taxable amount. can be sold by someone with only an insurance license If your client, who is in the 28% tax bracket, makes a lump-sum withdrawal of $15,000, what tax liability results from the withdrawal? A) Fixed annuities. D) each annuity unit's value varies with time, but the number of annuity units is fixed. a. an annuitant lives longer than expected. Try *Annuity death benefits are generally paid in a lump sum. The tax on this amount is $3,000. The remainder of the premium is invested in the separate account. B) The proceeds minus John's cost basis taxed as ordinary income at Sue's tax rate. \hspace{10pt} State unemployment (employer only), 3.8%3.8\%3.8% Variable Annuity Advantages and Disadvantages, Guide to Annuities: What They Are, Types, and How They Work. 10.1 This chapter addresses a number of ABS statistics relating to the economically active population which were not discussed elsewhere. *When money is deposited into the annuity, it is purchasing accumulation units. Who assumes the investment risk in a variable annuity contract? do not have a separate account An immediate annuity is designed to pay an income one time-period after the immediate annuity is bought.
