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2011 chase annuity t
Annuities
| Question | Answer |
|---|---|
| annuitization (applying capital to purchase income) | deferred payments that are calculated actuarially to extend for a certain number of years or for a lifetime |
| what 3 parties are associated with an annuity | owner, annuitant, and beneficiary |
| owner | pereson, who has all rights under the contract before it it annuitized. Usually buys and makes the payments. |
| can annuities be purcahsed by 2 ppl? | yes but typically it is limited to spouses. If changes r to be made on contract both must consent. |
| Beneficiary | person names who will receive death benefit |
| owner driven annuity | pay the death benefit when owner dies. |
| annuitant driven | pay the death benefit when either owner or annuitant dies. |
| STATs | stranger originated annuity transactions - controversial practice where a 3rd party investor persuades an indiv-usually sick-to buy an annuity with a guaranteed min dealth benefit and to diesignate 3rd prty as bene. Annuity buyer is give lump sum. |
| What 2 time frames do annuites fall into | immediate and deferred |
| immediate annuity | serves as income distributuin vehicle. will pay out systmeatically usually within 30 days. |
| SPIAs | single premium immediate annuities. |
| deffered annuity | accumulated funds for a long term. Ususally held for 8-10 years. |
| accumulations stage | period during which funds are deposirted inot the contract and are credited with a certain rate of interest earnings or grow in relation to the performnce of the investments in which they are deposited. |
| whis mor popular today, immediated or deferred annuities? | deferred |
| what three ways are funds invested in an annuity? What are the 3 types | fixed, indexed, variable |
| equity indexed annuity | most indexed annuities are tied to a stock mrket index, like the S&P 500, for this reason, they are also called equity indexed annuities. |
| two tiered annuity | 2-tiered provides 2 tiers of inerest credits. higher interest if contract is maqintained and annuitized and much lower tier of interest if contract is not annuitiaed |
| who is the fixed annuited geared for? | those who are risk averse and want principal safety |
| what is the time period that fixed annuities are kept for? | 2-15 yrs |
| guaranteed living befefit riders | provide some level of guarantee of the annuity s values, to be used for accumulation, w/d, or annuitization. |
| annuity features | tax deferral, death benefits, flexible funding, diff payout opts, no contib limits, probacte avoid, life income, contact fee waivers in crisis |
| who is drawn to annuities? | higher income earners because of the tax deferral benefits. |
| what are the drawbacks to annuities? | lack of liquidity, surender chrgs, tax penalties for early w/d, fees higher than other invest, no cap gains tx of distrib funds, no step up in basis for bene, complex designs |
| what are the 2 main benfits for an annuity | provide for a tax deferred accumulation of funds for use during an indiv life and second to provide death benefits. |
| can you have both qual and non qual annuities? | yes, qual are used for funding vehicle for IRA, SEP or 403b polans |
| what is the diff between qual and non qualified annuities? | nanqual plan cannot dedut the prem deposits, but an IRa may allow you to deduct the premium pmts |
| Which annuity design is appropriate for a customer who seeks a way to accumulate funds for the future? | deferred annuity |
| Using capital to purchas income defines what? | annuitization |
| t or f a fixed annuity can be used to fund a qualified plan; a variable annuity cannot. | false |
| t or f the primary reason a consumer should purchase an annuity is to provide a death benefit to his heirs | false |
| the basis for the interest is credited to Angela's annuity is the growth of S&P 500. What kind of annuity does she have? | indexed |
| what is the primary difference between fixed and variable annuities> | the ways in which their funds are invested for growth. |
| who issues annuities? | insurance companies |
| when does an immediate annuity pay out | typically within 1 month, always w.in 1 year |
| what do the terms immediate and deferred refer to with an annuity? | when the funds will pay out |
| where do the funds go with a fixed annuity? | into the general acct |
| spread | the difference between wha the insurer earns on the invested asets and the interest rate it then credits to its fixed annuities. |
| renewal rate | typically a fixed annuity is isssued with a rate of interest to be paid for a set # of years, at the end of that period, the insurer declares a new rate that will be paid for a specified period (usually 1 yr). |
| guaranteded mon rate of return | underlying a fixed annuity contract for its life |
| what two methods do insurers use to determine and credit declared interst rates to their fixed annuities? | portfolio based and new money based crediting |
| portfolio based interest | allocates all annuity premiums to one larege invest portfolio. Based on performance of protfolio, insurer declares interest rate for all owners. |
| New money based interest rate | insurers establish the declared interest rate to reflect interest rate enviroment at the time premiums are rec'vd rather than as a reflection of the performance of the overall portfolio Premiums are a assigned to a "bucket" when rec'vd with a certain rate |
| what are the factors that go into making up the declared interest rates? | mortality and expense results, reserve requirements, and competitive market influences. |
| t or f fixxed annuity owners do not bear any invest risk? | true - they are guaranteed a min rate of return |
| what is the most common reason ppl buy fixed annuities? | SAFETY |
| if the index is was at 1000 at beginning of contract, and then went to 1100 at the end how much will the credited to the indexed annuity? | the index increased 10% so (1100-1000)/1000 credit to the annuity is 10% |
| do indexed annuities have guaranteed min rates? | yes, however the min rate for the index annuity may be lower than the min rate that applies to the fixed annuity, and is common for index ann issuers to apply the min rate only to a portion of invest prem like 90% |
| participation rate (indexed annuity) | the amount or level of the index increase that will be creditied to the contract. example: if part rate is 80% and index increased by 11% the credit would be 8.8% (.80*.11=8.8%) |
| margins (indexed annuity) | same as a spread this is a stated percentage deducted from the percentage change in the index level before the % is applied as interest rate to the annuity funds. example: if index increases by 11$ and margin is 5% interest that is applies is 6%. |
| cap (indexed annuity) | indexed annuityues impose a cap which is the max amount of interest that will be credity during any one interest crediting period. |
| floor (indexed annuity) | the min amount of indexed linkend interest that is to be credited to a contract during any crediting period. With most index annuities it is 0. |
| what are the different types of index crediting methods? | point to point; high water mark; annual ratchet or annual reset & monthly average |
| point to point | credits an interest rae based on the increasein the index value from one defined point of time to anotehr. |
| high water mark | thes method looks at the index value at varios pts during the interst credit period, such as contract anniversary dates. the highest of the index on these dates is compared to the index level at the start of the period and the diff is cred |
| annual ratchet or annual reset | credits amt of interest based on the performance of the associated index over a year. also known as annual point to point |
| monthly average | credits an amount of interest based on the avg of the assiociated indes monthly returns over a single year or other term. |
| index call options | by purchasing call options, the insurer is guaranteed that it will have the necessary funds to credit indexed interest greater thatn the min rate guaranteed in the contract. |
| t or fal an indexed annuity is not a direct investment in the stock market | true |
| why to some insurers cal indexed annuities fixed indexed or fixed equity indexed annuities? | to empasize the fact that thes products are not securities and are not registered. |
| separate accounts | portfolios that consit of sotck, bonds, and mm accts andre are similar to mutual funds. the performance of underlying investments determins the growth of the variable annuity |
| what is the attraction to a variable annuity? | the potentiaon for higher growth |
| subaccounts | each separate account of a variable annuity has subaccts - it is not uncommon to find 30, 40 or more separate subaccts availble for a single V.A. |
| t or f as an investment option most variable annuities also offer a fixed acct fund | true |
| prospectus | each subacct in a VA is document by a prospectus. this provides detailed info about the fund, the mgmnt, invest object, risks, fees and other disclosures. |
| what happens to the premiyums when deposited to a VA? | the go to purchase accumulation units in subaccts. |
| how often do insurers revalue the accumulation units in subaccts? | often, typically daily |
| how is the subacct units valued? What formula do they use? | total value of subacct say$1000000 minus fess and expenses say $50000, divided by the # of outstand shares 79000 this would give you $12.03 per unit |
| do fluctuations in the units values change the number of units that a person owns? | no - that number remains constant unless and until additional premium dollars are invested. |
| What are some common VA investment strategies? | automatice asset allocation; cost free fund transfers,; automatic prot rebalancing; interest sweeps; dollar cost averaging |
| automatic asset allocation programs | the insurer designs allocation models that align with specific invest profiles such as conservative, moderate, or mod aggressive, and aggressive. Owner select model and prem allocated accordingly |
| cost free fund transfers | VA offer their owners the option to trans funds from one subacct to another. there might be some limits like 25 per year. No fee or tax is charged. |
| automatic portfolio rebalancing | maintains the contract woner's original subaccts allocation mix as it was first created. |
| interest sweeps | the interest earned on amts invested in the fixed account or in the mm subacct is periodically tranferred or "swept" into any one of the subaccts. can be done mo, qtrly, or semann or annually. |
| dollar cost averaging | technique for VA contracts so an inverstor buys securites in a series of regular purchases instead of a single purchase. this allow for and average the pruchase price of of securites over time. |
| What are fixed annuity premium deposits invested into? | the general acct |
| Felip has annuity tied to S&P 500. He will get 90% of pos change and 0 for neg. What kind of annuity does he have? | indexed deferred annuity. |
| what are premium deposits in a variable annuiti's subaccts applied to purchase? | accumulation units. |
| When Angel bought her VA she directed $500 to Subacct A. Teh unit value at the time onf her purchase was $10. How many units did she buy? | 500/10=50 |
| t or f variable annuity principal and earnins are guaranteed by the insurer? | false - they are not guaranteed |
| when do annuity owners have limits placed on teh amount of premium they can contribute to their contracts? | when the contrac t is the funding vehicle for a qualified plan. |
| tax deferral | interest and growth on an annuity's funds accumlated on a tax deferred basis. as long as the values remain in the contract. Only when EARNINGS are w/d are they taxable. |
| DEATH BENEFIT | offered on an annuity, in the event the owner or annuitant dies before the contract has annuitized it will pay to beneficiary. |
| how is the death benefit of the VA determined? | this is one aspect of the VA that is almost always guaranteed. The amt will be the contract's value at death or the sum of the premiums paid whichever is more. |
| what happens if the spouse is the beneficiary and the owner dies? | they may be able to take ownership of the contract and maintain it in his or her own name. |
| annuitization | the contract's accuulated bvalues are converted into a stream of periodic income pmts. These pmts are guaranteed to be made for whatever length of time the owner wishes. |
| as a general rul how do fixed and index annuities pay out? | fixed unchanging income paymebnts for the duration of the annuity payout period. |
| as a general rule how do variable annuities pay out? | produces a variable income stream that rises and falls with the performanceopf the products underlying subacct investments. but owners can choose from fixed or variable most of the time |
| what are the options of the frequency of payments that annuity woners can choose from? | monthly, qtrly, semiannual, or annual |
| t or f annuitizing is an option, tyhe owner does not have to convert the contract's funds into an income stream. | true |
| what funds does the insurer use to pay commissions, opp costs, reserve requirements, & profits to the producer? | the spread - the difference between what the insurer earns on its invested assets and the itnerest rate it edits to its fixed annuity and life insur products. |
| surrender charges | the fees the insurer assesses for early w/d or contract surrenders. Could be called a w/d fee if partial and surrender if full w/d. |
| what purpose do surrender fees serve for the insurer? | help ensure that na insurer can recoup the product's sales and placement costs in the event of early terminations. Is only for a limity amount of time - the first 5, 8, 10 yrs |
| what are the 2 most common approaches to determine surrender charges used by insurers? | 1)account value method and 2) premium deposit method |
| Account value method | used by insurers to determine surrender charges it assesses a surrender charge equal to some percentage of the contracts accumulated value. |
| premium deposit method | used by insurers to determine surrender charges, it calculates the charge on the amount of the contracts invested premium, applying a % that ususally declines annually over the surrender charge period. |
| market value adjustment (MVA) | provision which applies if the contract is surrendered during the surrender charge period. The adjustmnt works to the detriment of the contract owner if interest rates increased since the contract was issued. |
| What are the most common V.A. fees? | mortality and exps (M&E), fund expense, admin svc, contract maint, contingent deferred sales charges |
| Which fee is not included in the V.A. contract amd why? | tje fimd es[emse cjarge b/c tjey vary according to which subaccts investments the owner selects, these charges are specified in the fund's prospectus. |
| Mortality and Expense (M&E) charge | the cost of a V.A. death benefit and annuity charge plus related insurer costs. This charge is assessed against the values of the sep subaccts and is deducted b4 accum units values are calculated. |
| t or f almost all contracts guarantee that the M&E cost will remain the same and will not increase over the contract's life. | true |
| What does the M&E cost cover? | the risk of death dureing the accumulation stage and the guarantee of the min annuity purchase rate when the contract is annuitized. |
| VA's fund expense charge | cost imposed on the subaccts for investment mgmt and fund expenses, the charge for the inestment co managing the protfolio of securities w/in the subacct, incl the cost of buy ans ell securities |
| VA's admin svc charge | covers admin costs associated with servicing the annuity, incl the cost of transferring funds, tracking premium deposits, issuing confirmations and statements, record deeping and cus svc. Avg cost is .16313 % of contracts assets |
| Contract maintenance fee | annual fee imposed by the insurance co to cover the admin costs of maintainint the contract. typically ranges from $25-40 epr yr but often waived for lrgr acct values >$50k. |
| contingent deferred slaes charge or (CDSC) | the equivalent of a surrender charge a fee for early contract surrenders. tend to apply for a limited time period. the firs t 5, 8, or 10 yrs. |
| No Load VA's | also know as C shares annuities. These are annuities with not surrender charges. Thay also tend to have lower M&E expenses as well. |
| L Share annuities | are those with surrender charge periods, that are much shorter than traditional VAs such as 2 - 3 yrs. L shares typically charge higher M&E fees |
| Surrender free w/ds | allows the owner to take w/ds from his or her contract without a surrender charge. |
| what are the limits on a surrender free w/d | can only be annually, a % of premium invested; % of accumulated values; % of earnings |
| what is the most common definition of a contrac'ts free w/d allowance? | 10% of the contract's accumulated value annually. |
| annuities often waive the surrender charge in the event of certain crises. What are the crisis? | death, disability, unemployment, entry into nursing home, terminal illness, RMD if the annuity is the funding vehicle for qualified plan or IRA |
| is surrender charge free the same as income tax free? Explain. | the surrender charge may be waived by a crisis but0 the income tax still applies, and a tax penalty may also apply if before the age of 59 1/2. |
| bonus credits | offered by insurer. those who buy bonus credits, will be credited with an additional amount based on some specified % of the premium deposit. can be given as % of intial prem or when contract is annuitized. |
| persistency bonus | another means of encouraging annuities to be held for longer terms. Using this bonus, at teh end of the stated contract yr--say the 7th yr--the contract may be credited with additional interest of 1% of total prem paid |
| what is the cost to bonus credits, what forms do they come in? | higher surrender charges, and longer surrender charger periods, increased M&E and other charges, lower commission rates for the agens who sell the bonus contract |
| guarantedd living benefits (GLBs) | these riders guarantee that the owner's principal will be protected, and a min level of principal will be available for income, accumulation and w/d. |
| Guaranteed min income benefit (GMIB) | guarantees that a min level of income payments will be paid if the owner decides to annuitize his or her contract, regardless of the value of the contract upon annuitization. |
| guaranteed min accumulation benefit (GMAB) | guarantees that a contract's principal will be safeguarded and will not be drawn down by poor investment performance |
| graranteed min w/d benefit (GMWB) | guarantees that the full amt of the woner's invested principal will be available for sustematice w/d's over a specified # of yrs, regardless of teh contracts's actuall values. |
| how are guaranteed life benefits added to annuities | they are added to V.A. for an additional fee. this can range from .5 - 1.25% or more of contract's accumulated values, deducted annually. |
| Income rider | are available for fixed annuities, primarily indexed product designs. these riders provide a way for the owner to rec'v lifetime income pmts while preserving the contracts accumulation aspect. These riders create a sep income value. |
| with the fixed annuity income rider for indexed accounts, they rider creates a separate acctount, how does this work? | THE INCOME ACCT IS CREDITED WITH A SPECIFIED RATE OF RETURN. (growth rate) at the end of the term, the owner is able to make annual w/d's of certain % such at 5, 7%. Can make w/d for life even if value is depleted. |
| long term care riders | riders are designed to provide cash benefit pmts in the event the owner needs long term care. the cost of the rider is deducted from the annuits cash value. |
| how do taxes work for long term care riders? | benefits paid under the cotnract for long-term care are not subject to taxation; thus using the contract's values for Ltc benefits avoids income taxation on the annuity's gain. |
| when are so called hybrid long-term care annuity riders used? | they are more common with fixed annuity designs rather than with V.A.s |
| Term Insuarnace Riders | provide additional life ins protection for a specified period of the lives of the cotnract owner, his or her children or tohers. Coverage on children is uusally limited to a naminal amt such a s $10k. |
| Free Look provision | allows the contract holder to return the contract withing a specified period of time. this is determined by state law, usually 10 days some states have extended periods of 30 days if purchases is 60 yrs or older |
| why would the owner be subject to risk during the free look period? | he would keep any gains and that the contract experienced during this time and would absorb any losses. Some states say they get all prem refunded. |
| Tax sheltered annuities (TSA's) | retirment plans for the public schools and certain tax-exempt orgs. |
| Can you take a loan out on an annuity? | no, unless it is a TSA. |
| What are the requirements to take a loan out on a TSA? | except for home loan, plan must be repaid w/in 5 yrs, must make substantial repayments at least qtrly, cannot exceed $50k or 1/2 of vested value |
| t or f annuities are contracts and are subject ro probate? | false. they are payable to a named beneficiary and pass directly to them. |
| Mary bought a VA for $50k. Upon her death 10 yrs ltr, it was worth $115k. What does her bene rec'v with standard death benefit? | $115k |
| t or f interest credited to deferred annuity contracts is never subject to income taxation. | false |
| when is a varialb annuity CDSC charge imposed? | when a withdrawal is made during the surrender period |
| Sal owns a fixed annuity he paid $28k for. 3 yrs into the contract itis worth $32k. He wants to take a w/d. How much can he take with normal provisions with no surrender charge? | 32000*.10=$3200 |
| Which is not waived as a common annuity surrender charge: financial hardship, death, entry into nursing home, disability? | financial hardship |
| What is an annuity desgned specifically for? | to ensure that a retiree's income will last as long as he does and ensure a vibrant, secure lifestyle |
| annuitization | converting an annuity contract's accumlated funds into income stream |
| what does annuitized incoe consist of? | both principal and interest |
| Annuity purhase rate | the amount of monthly income that each $1000 of the contract's values will generate based on specified rates of interslt and the annuity payout option. |
| what are teh annuities payout options | term (certain # of yrs), straight life (for life), or joint life (life for more than 1 person) |
| what is the primary benefit of annitzation? | the guarantee that the income stream will contine and income will be paid for as long as the owner wishes. gives 2 things: 1) reg cash flow, 2) peace of mind |
| when is the payout option or also called a sttlement option selected? | when annuitized |
| term certain payout option | pays out over a certain # of yrs, could be 10, 15, 20 yrs, if owner dies before end, bene gets remaining pmts |
| life income payout option | payout for the duration of annuitants life. As long as they live, stops at death |
| joint and survivor income payout option | payout for the duration of jt's annuitan's lives. pays income stream as long as either of the 2 are alive. When 1st dies, pmts continue to survivor until death. the amount after death is some portion smaller as set in contract such as 1/2, 2/3 or 100% |
| Life contingency with term certain | produce an income stream for the annuitan's life but would guarantee pmt for certain number of yrs. If annuitant had life with 20 yr certain and dies at yr 10, the policy would continue to pay for 10 yrs to bene. |
| fixed annuitization | fixed steady income pmts for an agreed apon amount of time. |
| variable annuitization | pmts are tied to performanceof the contract's underlying investments. |
| assumed interest rate (AIR) | the rate of investment return or growth that the contract is assumed to project to experience during the annuitization stage, and is the benchmark all funds will be measured |
| How does the AIR work | *if actual net returns are > than AIR, pmts will increase. *If net returns are < AIR, pmts decrease, If same as AIR, then no change. |
| how is AIR selected? | the contract owner can have the choice to to choose AIR between 3-7%. Selecting a high AIr will produce larger pmts but will also set a a higher benchmark for future. typically it is set in contract very conservative 4-5%. |
| annuity units | once the intial payment from each subacct has been made, those amounts are converted to annuity units. the # and valuation of units determine the amt of the secound and following pmts. |
| t or f the number of annuity units credited to a contract upon annuitization does not change no matter what? | true - throughout the annuitization period, the number of units assicieated witht each sub acct remains constant. What does change is the unit value. |
| what is the formula for determining if the VA pmts will change or remain the same? | (1+actual investment performanc)-(1+AIR)/1+AIR (Chap 4, pg 67) |
| is annuitization irrevocable? | traditionally yes, however, recently, some insurers have begun ro re-engineer their structures to provide more liquidity during payout phase. This includes: w/d's during annuitzat; advances of given % of income & can stop annuitization and take remainder |
| commutation | halting annuitizaiton and taking the contract's remaining balance as a lump sum. |
| split option | a portion of the annuity funds can be used to purchase an immediate annuity to produce income while the balance remains invested in the deferred annity to grow back the orig amount over the same period |
| what are disadvantages to annuitization? | normally irrevocable, |
| alternatives to annuitization | after surrender period isover, can take accumlated values as a lump sum or in amount when the owner wishes. 2 ways are most popular: systematic w/d and lifetime income w/d |
| systematic w/d's instead of annuitzation | taking distributions from an annuity on a programmed basis. Mo, qtrlt, semiann, or annually according to the terms. w/d are taken from earnings and principal continues to grow. (both for Fixed and VA) |
| how are systmatic w/d start and stopped? | at the owner's discretion. |
| How are systematic w/d's taxed? | unlike annuitization, the w/d do not recieve the same tax treatment. Ea. w/d is considered to consist fully of interest earnings until all interest earned is depleted. |
| what are the 2 drawbacks to systematic w/d's? | taxation & no guarantee of lifelong funds. |
| lifetime income or w/d instead of anniutization | this is a rider that can be added to fixed or VA. when added they then guarantee that the w/d or income will be available for as long as the annuitant lives. As w/d are taken interest is still gained and the value remains avaialble to owner at all times. |
| Why is annuitization not very popular? | accumlation mindset-programmed to save; lack of understanding; liquidity concerns-irrevocable; bequest motivations-wanting to leave money to heirs |
| what is an annuity purchase rate? | the amount ofmonthly income that each $1000 of the contract's values will generate |
| may, 65,annuitized her $150k VA strt life, AIR is 5% and gives initial pmt of $950. If the values in her contract net 5% nxt mo what will the pmt be? | $950. |
| t or f Clyde had 100 annuity units in his sub acct at annuitiation. The market went sown, to recalculate the current valeu the insurer will reduece the number of units associated with the subacct? | false |
| t or f one of the djisadvantages to annuity contracts is that they require the full value of the contract to be annuitized if the owner elects annuitization | false |
| Franklin is using his variable annuity to spt his income. Every qurter, 20 accumulation units are taken from his contract and tehn convert into cash at their then current value. what kind of distribution is this? | systematic w/d |
| why are annuities favorable for those of higher income backets? | they accumulate savings tax deferred and can sometimes anticipate being in a lower tax bracket at the time of retiremement. |
| FIFO | first in first out treatment. used before 1982. amounts first put into the contract (premiums) were considered first to be withdrawn. Because principal is not subject to tax any w/d were not taxed unless principal was exceeded. |
| LIFO | last in first out. treatment of annuity tax after 1982 and TEFRA. Last in - interest - deemed first to be w/d'n. |
| how are annuities purchased prior to 1982 TEFRA treated and taxed today? | they are grandfathered under the old law of FIFO. (be careful at exchanging thispolicies) |
| TEFRA | Tax equity and fiscal Responsibility Act. changed law from FIFO to LIFO taxation of annuities and also changed the penalty from 5% to 10% if w/d funds before age of 59 1/2 |
| t or f neither taxes nor penalties apply to invested premium when w/d's are taken | true |
| under what circumstances is the early w/d (before 59 1/2) fee waived? | death, disablility, and annuitization |
| what is the exlusion ratio used for? | annuitized income is taxed in such a way as to exclude principal and tax the balance |
| Fixed exclusion ration | investment in contract (prem)/total amount of expected return for all yrs combined(pg 81) |
| VA income exclusion formula | investment in contract (prem)/number of anticipated pmts |
| How much of the annuity is taxable to the beneficiary? | unlike life insurance, $$ is not tax free. The taxable amount is the amount that exceeds the contract's invested premium. |
| what are the 3 ways an annuities death benefit can be taken? | lump sum, annuitized over the life of beneficiary, or distributed fully within 5 years of owner's death. If bene is a spouse, the tax rules allow the spouse to take ownership of annuity as their own. |
| how does estate taxation work? | an annity's value is included in the oners gross estate. If owner des b4 annuitizat, the full value of annuity is in estate, if after, remaining values are left to be paid to the beneficiary. |
| 1035 exchange | address exchanges of life insur, annuities and qualified long-term care contracts. Certain exchanges of these types are not taxable. |
| What can be exchanged under 1035 exchange rules? | life ins for life ins, life ins for ann, endow for ann, ann for ann, life ins for qual long-term care, ann for qual long-term care, long term care for LTC |
| what are the rules to 1035 exchanges? | must be both nonqual, same owner, same annuitant, When owner exchanges one for another, they may NOT TAKE OWNERSHIP OF THE FUNDS. Not even for a little while. |
| partial exchanges | what part do you exchange, principal or interest? Ruling 2003-51. states that partial annuity exchanges would be considered tax free exchanges. |
| what happens to funds when partial exchange is done? How are the new funds and old funds established at princ and interest | all values retain the same proptortion of principal to earnings. |
| revenue procedure 2008-24 | IRS imposes a 12 mo moratorium on any further w/ds or surrenders from contracts involved in a partial annuity exchange, both orig and new contract. (pg 86) |
| exceptions to moratorium rule | contract owner reaches 59 1/2, owner dies, or woner becomes disabled, owner divorced, unemployed, or distributuion is required as part of settlement or other life event determined by IRS |
| rollover | the movement of qualified money from one plan to another can be accomplished through a rollover. qualified means from one qual acct to another. |
| t or f when a qualified plan is annuitized, the full amount is taxable and the exlusion ratio does not apply? | true-the funds have been contributed under a qualified plan and were deducted when they were contributed on a pre-tax basis they are fully subject to tax when annuitized. |
| t or f all nnuities contain a provision that waives surrender charges for required min distributions? | false-some do, however others do not. |
| what system is used for the current tax treatment of annuity w/d | LIFO-interest taxed first |
| at what point are an annuity's earnings subject to income tax? | when w/d'n |
| the annuitization of a nonqualified annuity's funds is subject to taxation in accordance with what ratio? | the exclusion ration |
| 70 y/o Patrice elects to annuitize her VA under Strt life. She invest $25k and it's now worth 80k. she will life for 16 yrs, her first yr is $6800 how much is taxable | ($25k/16yrs)=$1563 (this is principal income); 6800(total income) - 1563(principal income) =interest earnings. |
| t or f nonqualified annuities can be exchanged for qualified long-term contracts under the tax-free exchange rules of section 1035 | true - as of 2010 life ins and nonqualified ann contracts can be exchanged tax free for qual long term care contracts. |
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delorya
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