. C)I and IV. The separate account is NOT likely to invest in: Reference: 12.1.4.1 in the License Exam. Qualified Longevity Annuity Contract (QLAC): Definition, Taxes, and Example, Present Value of an Annuity: Meaning, Formula, and Example, Future Value of an Annuity: What Is It, Formula, and Calculation, Calculating Present and Future Value of Annuities, Present Value Interest Factor of Annuity (PVIFA) Formula, Tables. 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. 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. PGIM Fixed Income has over $900 billion in assets under management across a broad array of fixed . D) I and III. A variable annuity's separate account is: An accumulation unit in a variable annuity contract is: Distributed along a dermatome. If the annuitant should die during that time, any death benefit would be paid to a beneficiary designated by the annuitant at the time the annuity was purchased. An example would be if a life annuity with 10-year period certain contract holder died after 5 years, payments would continue for 5 more years to the beneficiary and then stop. The entire amount is taxed as ordinary income. You can learn more about the standards we follow in producing accurate, unbiased content in our. D)Any tax due is deferred. Once the contract is annuitized, monthly payments to the customer are: C) III and IV D) A 50 year old individual with $50,000 cash to invest who has already made the maximum contributions to an IRA and the 401(k) plan at his place of employment and would like to minimize some of the tax consequences of his currently high tax bracket. C) annuity units. Fixed interest rates during the payout period The value of each accumulation unit varies: Daily Variable annuities have Variable interest rates and benefits All of the following statements are true regarding the interest rate guarantees of fixed annuities, EXCEPT: None of the other investments listed here offer tax-deferred growth. Periodic payment deferred annuity. Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Claudia Bienias Gilbertson, Debra Gentene, Mark W Lehman, Eric W. Noreen, Peter C. Brewer, Ray H Garrison. A) mortality guarantee. What type of annuity has a cash value that is based upon the performance of it's underlying investment funds? B)mutual fund units. The annuity unit's value represents a guaranteed return. 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? However, because the client is not yet age 59- when making the withdrawal, he also pays a 10% penalty, or $1,000. C) such an annuity is designed to combat inflation risk. This compensation may impact how and where listings appear. The work environment characteristics are normal office conditions. A) Joint tenants annuity. D) Variable annuities. All of the following statements concerning a variable annuity are correct EXCEPT: A)number of annuity units. The number of annuity units becomes fixed when the contract is annuitized; it is the value of each unit that fluctuates. A)unsuitable because the return on something as conservative as a variable annuity tends to be low. *The most important consideration in purchasing a variable annuity is to be aware that benefit payments will fluctuate with the investment performance of the separate account. A) a lifetime withdrawal benefit (LWB) or lifetime income benefit will make a periodic payment even if the account balance falls to zero *When a variable contract is annuitized (distributed in regular payments, not as a lump sum), the number of accumulation units is multiplied by the unit value to arrive at the account's current value. A)Corporate debt securities A) Fixed annuities. C) 3800. C)annuity units. a life insurance holder lives longer than expected. C) early annuity phase-in An Immediate Annuity is designed to provide each of the following features, EXCEPT: The creation of an estate. D) Age 27, saving for first home. When the second party dies, all payments cease. The payout of an annuitized variable annuity account changes from month to month in a manner determined by which of the following? All of the following characteristics are shared by both a mutual fund and a variable annuity's separate account EXCEPT: D)I and III. Explain what is meant by positive and negative In a variable life annuity with 10-year period certain, a contract holder receives: D) reevaluate whether the recommendation for the VA contract is still suitable based on the clients proposed funding of the investment. The value of an annuity unit varies from month to month according to the performance of the separate account in comparison to the assumed interest rate. *As contributions are made with after-tax dollars, only the earnings generated are taxed on withdrawal. A registered person recommends the purchase of a variable annuity to one of his clients. If you die before the payout phase, your beneficiaries may receive a. *The minimum guaranteed death benefit is provided by that portion of the payment invested in the insurance company's general account. The holder of a variable annuity receives the largest monthly payments under which of the following payout options? Question #27 of 48Question ID: 606818 This customer has no spouse or dependents, which negates the value of the death benefit. can be sold by someone with only an insurance license D) payments continue until age 70-. Once a variable annuity has been annuitized: *When money is deposited into the annuity, it is purchasing accumulation units. B) prime rate. C)Growth mutual funds It was a lump-sum purchase. For an investor, which of the following is the most important factor in determining the suitability of a variable annuity investment? A single lump-sum investment is made, and payments begin immediately, since the investor has purchased annuity units. B) the rate of return is determined by the underlying portfolio's value. What Are the Biggest Disadvantages of Annuities? B)FINRA. If the account is annuitized, the investor has chosen a payout option. II) It has an internal capital market wherein each division competes for funds. Consequently, the client pays taxes only on the growth portion of the withdrawal ($10,000). The payout compared to last month's payout. Based on the information given in the question, the VA recommendation would not be suitable. A) a minimum rate of return is guaranteed. A) The fact that the annuity payment may increase or decrease. During the . An investor owning which of the following variable annuity contracts would hold accumulation units? If your 60-year-old customer purchases a nonqualified variable annuity and withdraws some of her funds before the contract is annuitized, what are the consequences of this action? 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 A) partially a tax-free return of capital and partially taxable. C) II and III. D) accumulation shares. This recommendation is: D) unsuitable because her situation exposes her to surrender charges and early withdrawal penalties in exchange for insufficient benefits. Distribution can take place before or during any solicitation for sale. D)the state insurance department. If this client is in the payout phase, how would his April payment compare to his March payment? A)2800. How Are Nonqualified Variable Annuities Taxed? A) defined contribution plans. You can tailor the income stream to suit your needs. Question #33 of 48Question ID: 606832 Reference: 12.3.2.1 in the License Exam. **Because common stocks are not fixed dollar investments, they have the opportunity to keep pace with inflation. *BEST Suited for VA-Age 56, available cash to invest, maxes out IRA and 401(k) plan VA will be supplemental income, would not be suitable for cust. Universal variable life policies A)Joint tenants annuity. Before the contract is annuitized, your client, currently age 60, withdraws some funds for personal purposes. However, if you take a withdrawal during the contractssurrender period, which can be as long as 15 years, youll generally have to pay a surrender fee. Variable annuity Which of the following is characteristic of fixed annuities? Random withdrawals do not guarantee how long the money will last because large withdrawals can deplete the funds before the annuitant dies. B) accumulation units. *A variable annuity may only be surrendered during the accumulation period. A)II and IV. B) IPO. Universal variable life policies The return on a variable annuity is not guaranteed; it is determined by the underlying portfolio's value. The client agrees to purchase the contract and informs the RR that he will be cashing out a VA he purchased 2 years ago to fund the new contract and will forward the check as soon as he receives it. The investor purchased accumulation units. An annuity is a continuous stream of equal periodic payments from one party to another for a specified period of time to fulfill a financial obligation. D)II and IV. John is the annuitant in a variable plan, and Sue is the beneficiary. Reference: 12.3.1 in the License Exam. The accumulation period of a variable annuity may continue for many years. C) Tax-free municipal bonds D)I and III. The value of the customer's account is converted into annuity units if and when the customer decides to annuitize the contract. If the annuitant should die during that time, any death benefit would be paid to a beneficiary designated by the annuitant at the time the annuity was purchased. Question #11 of 48Question ID: 606816 The remainder of the premium is invested in the separate account. \hspace{10pt} Federal unemployment (employer only), 0.8%0.8\%0.8%. During the accumulation phase, the number of accumulation units will increase as additional money is invested. C)A 10% penalty plus the payment of ordinary income tax on all of the funds withdrawn. D) There is no guarantee regarding the investment results of the separate account. Many variable annuities invest the separate account in mutual funds. The amount taxed is the amount of the lump-sum payment minus the deceased's cost basis in the investment. C)insurance companies keep variable annuity funds in separate accounts from other insurance products. do not have a separate account The value of these units varies with the performance of the separate account. The funds in an annuity are off-limits to creditors and other debt collectors. D) be paid to the issuing company to complete the plan. B) The death benefit cannot ever be more than the guaranteed benefit. 8 annuities provide a guaranteed rate of return, whereas annuities provide conservative to aggressive investments whose rates of return are not guaranteed. C) payments continue for a pre-determined period of time. The owner of a variable annuity has all of the following rights EXCEPT the right to vote: a. for the board of trustees b. to change the separate account's investment objective c. for distributing income and capital gains d. for dissolution of the trust c. for distributing income and capital gains. Reference: 12.1.2 in the License Exam. Your customer in his early 30s has received a modest inheritance from a relative. C)earnings only and taxable A)exempt from taxes He makes the following four statements, all of which are true EXCEPT A) Ordinary income tax on earnings exceeding basis. Reference: 12.3.3 in the License Exam. Refinancing a home to draw out equity has been identified by FINRA as an abusive sales tactic regarding the sales of VAs. Ted's Bio; Fact Sheet; Hoja Informativa Del Ted Fund; Ted Fund Board 2021-22; 2021 Ted Fund Donors; Ted Fund Donors Over the Years. Contributions to an IRA may be tax deductible, depending on the individual's earnings and participation in a company-sponsored qualified retirement plan. The funds are not liquid due to the surrender fees, and there is also a 10% penalty on withdrawals before age 59-. As part of the registration requirements, a prospectus must be filed and distributed to prospective investors. When a variable annuity contract is annuitized, the number of annuity units is fixed. B)It will be lower. *The number of variable annuity accumulation units can rise during the accumulation period when additional units are being purchased. B)I and III. The downside was that the buyer was exposed to market risk, which could result in losses. The fees on variable annuities can be quite hefty. A) Money market fund. 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. D)I and III. D)II and III. A) A variable annuity IBM Noida, Uttar Pradesh, India4 weeks agoBe among the first 25 applicantsSee who IBM has hired for this roleNo longer accepting applications. In addition, an element of risk must be present. Similarly, CDs are insured, thereby eliminating risk and guaranteeing a return. Prudential Retirement Security Annuity VI is a group variable annuity (GVA) issued by Prudential Retirement Insurance and Annuity Company (PRIAC) which utilizes a Separate Account offered If the contract holder dies before the period expires, the remaining payments are made to the beneficiary. A) the investment portfolio is managed professionally. B) 0. U.S. Securities and Exchange Commission. The number of variable annuity accumulation units can rise during the accumulation period when additional units are being purchased. Of the total payroll for the last week of the year, $30,000\$30,000$30,000 is subject to unemployment compensation taxes. However, the web version (cat. However, it does guarantee payments for life (mortality). A)Fixed annuity contract with a discussion regarding purchasing power risk Who assumes the investment risk in a variable annuity contract? Sub accounts and mutual funds are conceptually. 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? C)none of these. In March, the actual net return to the separate account was 8%. C) IRAs. The number of accumulation units can rise during the accumulation period. C)I and IV. Sample problems from Chapter 9. . Facebook reports that 70%70 \%70% of their users are from outside the United States and that 50%50 \%50% of their users log on to Facebook daily. Question #25 of 48Question ID: 606819 The value of the customer's account is converted into annuity units if and when the customer decides to annuitize the contract. "Variable Annuities: What You Should Know," Page 6. a. Periodic payments are not a consideration because normally the payments into an annuity are level or in a lump sum. How is the distribution taxed? Uses in Investing, Pros, and Cons, Indexed Annuity: Definition, How It Works, Yields, and Caps. A 45-year-old investor takes a lump-sum distribution from a nonqualified variable annuity. Immediate life annuity with 10-year period certain. C)Corporate bonds. Reference: 12.2.1 in the License Exam. What is the taxable consequence of this withdrawal to your client? Question #28 of 48Question ID: 606821 The number of annuity units becomes fixed when the contract is annuitized; it is the value of each unit that fluctuates. A) I and II. C) The investor's concerns about taxes. Because the client is older than age 59-, he does not pay 10% premature distribution penalty tax. Reference: 12.1.1 in the License Exam. Consequently, the client pays taxes only on the growth portion of the withdrawal ($10,000). The number of accumulation units is always fixed throughout the accumulation period. Word bank:Fixed, Variable Fixedannuities provide a guaranteed rate of return, whereas Variableannuities provide conservative to aggressive investments whose rates of return are not guaranteed. \end{array} Therefore, ordinary income taxes will apply to the entire $10,000. Single payment deferred annuity. This factor is used to establish the dollar amount of the first annuity payment. B) The policyowner. Reference: 12.1.2.1.1 in the License Exam. A) The entire amount is taxed as ordinary income, because it is not life insurance. Generally, a life-only contract pays the most per month because payments cease at the annuitant's death. If an investor has a fixed-annuity contract with an insurance company, which of the following risks is assumed by the investor? Question #42 of 48Question ID: 606830 B) single payment deferred annuity. The following information about the payroll for the week ended December 303030 was obtained from the records of Vienna Co.: Salaries:Deductions:Salessalaries$670,000Incometaxwithheld$198,744Warehousesalaries110,000Socialsecuritytaxwithheld51,714Officesalaries234,000Medicaretaxwithheld15,210$1,014,000U.S. C)with guaranteed minimum withdrawal benefits (GMWBs) the periodic payments can be monthly, quarterly or annually If an investor has a fixed-annuity contract with an insurance company, which of the following risks is assumed by the investor? covers more than one person. Distributions from such an annuity are computed on a LIFO basis with the income taxed first. B) Life annuity with period certain Your 65-year-old client owns a nonqualified variable annuity. B) During the accumulation period. A)not suitable Investopedia requires writers to use primary sources to support their work. Registration with FINRA is de facto registration with the SEC; no registration is required by the state banking commission. *An immediate annuity has no accumulation period. Life income riders are best suited for those who anticipate a lengthy retirement and are generally not yet retired when making the VA purchase. A) It will be higher. The client's investment objectives, tax bracket, investment experience and risk tolerance all align well with a VA recommendation. externalities. With variable annuities policyholders can choose from a number of investment opportunities. A deferred annuity is an insurance contract that promises to pay the buyer a regular stream of income, or a lump sum, at some date in the future. All of the following statements regarding variable annuities are true EXCEPT: The value of accumulation and annuity units varies with the investment performance of the separate account. The separate account is NOT likely to invest in: An important basic characteristic of common stocks that makes them a suitable type of investment for the separate account of variable annuities is: Question #37 of 48Question ID: 606817 And, unlike a fixed annuity, variable annuities do not provide any guarantee that you will earn a return on your investment. A variable annuity's separate account is: A) used for the investment of monies paid by variable annuity contract holders B) separate from the insurance company's general investments C) operated in a manner similar to an investment company D) as much a security as it is an insurance product All of the above Because they have a separate account in which the investor assumes the investment risk, they can only be sold by individuals with both insurance and securities licenses. D)an accounting measure used to determine payments to the owner of the variable annuity. D)accumulation units. Annuities due are a type of annuity where payments are made at the beginning of each payment period. For example, when paying rent, the rent payment (PMT) . Annual depreciation on the machine is$12,000, and the tax rate of the company is 25%. Changes in payments on a variable annuity correspond most closely to fluctuations in the: Accumulation Period of Fixed Annuities During this period, premiums are credited with interest which accumulates on a yearly basis. Reference: 12.1.4.1 in the License Exam. Following the transition to T+1 in the U.S. markets, Commission staff will continue to work with industry leaders, public interest advocates, investors and other regulators to assess the future feasibility of a T+0 settlement standard cycle, and seek to identify ways to overcome the challenges associated with such a move, as articulated in the . & \underline{\underline{\$1,014,000}} & \hspace{10pt} \text{U.S. savings bonds} & 30,420\\ The time period depends on how often the income is to be paid. B) be paid to any legal heirs as recognized by the annuitant's state of domicile. A) periodic payment immediate annuity. Question #17 of 48Question ID: 606802 Here is how guaranteed lifetime annuities work. B) the client may vote for the board of directors or board of managers. II. Typically, they allow one withdrawal each year during the accumulation phase. When the first party dies, the annuity payment is made to the survivor. If an investor has purchased an immediate variable annuity, which of the following statements best describe the investment? *Contributions to a nonqualified variable annuity are not tax deductible. IBM Noida, Uttar Pradesh, India1 month agoBe among the first 25 applicantsSee who IBM has hired for this roleNo longer accepting applications. During the accumulation phase, you make purchase payments. D) III and IV. Cashing out life insurance policies or VAs where steep surrender charges are likely to exist, particularly in the earlier years of those contracts, is also considered abusive. a variable annuity does not guarantee an earnings rate of return. Reference: 12.3.3 in the License Exam, Question #34 of 48Question ID: 606834 The number of accumulation units can rise during the accumulation period. A)II and III. D) 4200. Which of the following is not a characteristic of a program module? Are Variable Annuities Subject to Required Minimum Distributions? C) number of accumulation units. D)Variable annuity contract with a discussion regarding legislative risk, A VA with its investments in the separate account subject to market risk would not align with the customer's objective. The growth portion is taxed as a capital gain. 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. Fixed Annuity: A fixed annuity is a type of annuity contract that allows for the accumulation of capital on a tax-deferred basis. All of the following statements regarding variable annuities are true EXCEPT: A) variable annuities offer the investor protection against capital loss. A)a lifetime withdrawal benefit (LWB) or lifetime income benefit is generally in the form of a rider attached to the contract which will come at a cost to the annuitant is required by the Securities Act of 1933. C) taxed as ordinary income only to the extent of earnings. A) taxed at a reduced rate. If an insurance holder dies sooner than expected, the insurance company will have to pay the death benefit sooner. The value of accumulation and annuity units varies with the investment performance of the separate account. During the payout period, payments are based on a fixed number of annuity units established when the contract was annuitized. D)separate account may consist of mutual funds. D) the payout plans provide the client income for life. The holder of a variable annuity receives the largest monthly payments under which of the following payout options? B)part earnings and part cost basis Which of the following statements regarding variable annuities are TRUE? D)suitable due to the relative safety of the investment. D) II and IV. Among annuities, variable annuities differ from fixed annuities, which provide a specific and guaranteed return. Which Earns More: Variable or Fixed Annuities? C)the yield is always higher than bond yields. Question #38 of 48Question ID: 606798 an annuitant dies sooner than expected. The paper publication will not be rereleased. For example, when paying rent, the rent payment (PMT) When the annuitization option is selected, each payment represents both capital and earnings. The tax on this amount is $3,000. On withdrawals from a nonqualified annuity, taxes are paid only on the amount that exceeds cost basis (the amount paid into the annuity). Every annuity has some characteristics in common. D) I and III. Since the client is older than 59 at the time of distribution, the additional 10% penalty tax is not incurred. Reference: 12.1.1 in the License Exam. D) not suitable because a lifetime income rider is only for someone who is already retired. A) waiver of premium Contributions to an IRA may be tax deductible, depending on the individual's earnings and participation in a company-sponsored qualified retirement plan. B)I and III. 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