Random withdrawals do not guarantee how long the money will last because large withdrawals can deplete the funds before the annuitant dies. Your 65-year-old client owns a nonqualified variable annuity. Full-Time. Most annuities will not allow you to withdraw additional funds from the account once the payout phase has begun. *Payments from a variable annuity depend on the securities' value in the separate account's underlying investment portfolio. B)Capital gains taxation on the earnings withdrawn in excess of the owner's basis. I. A 45-year-old employed individual with no other retirement accounts in place A)II and IV. A) a lifetime withdrawal benefit (LWB) or lifetime income benefit will make a periodic payment even if the account balance falls to zero Changes in payments on a variable annuity correspond most closely to fluctuations in the: On withdrawals from a nonqualified annuity, taxes are paid only on the amount that exceeds cost basis (the amount paid into the annuity). The owner of a life annuity with 10-year period certain will receive payments for life, subject to a minimum of 10 years. Suggesting that loans or drawing equity from a home to fund VA contracts have also been targeted as abusive sales practices. A) be paid to a designated beneficiary. A) I and III. C) Tax-free municipal bonds The separate account performance compared to last month's performance. C) number of accumulation units. A) each annuity unit's value is fixed, but the number of annuity units varies with time. The funds are not liquid due to the surrender fees, and there is also a 10% penalty on withdrawals before age 59-. A. *VAs are less suitable for individuals who have not yet made maximum contributions to other retirement accounts such as IRAs and 401ks. An ordinary simple annuity has the following characteristics: For example, most car loans are ordinary simple annuities where payments are. When a partial withdrawal is made from an annuity, the earnings are considered to be taken out first for tax purposes (or LIFO). B) contact the issuer of the clients existing VA contract to facilitate the clients surrender of the contract. A)2800. D) There is no guarantee regarding the investment results of the separate account. *A joint life with last survivor contract covers multiple annuitants and ceases payments at the death of the last surviving annuitant. The holder of a variable annuity receives the largest monthly payments under which of the following payout options? Which 2 of the 4 client profiles would a VA be LEAST suitable for? B) I and III. B)mutual fund units. do not have a separate account *Variable annuity contracts were devised to help investors keep pace with inflation. B. In addition, if the customer is not at least 59-, there will be a tax penalty of an additional 10%. Therefore, ordinary income taxes will apply to the entire $10,000. What is her total tax liability? The correct answer was: partially a tax-free return of capital and partially taxable. An annuity payment is the dollar amount of the equal periodic payment in an annuity environment. Reference: 12.1.4.1 in the License Exam. Are There Penalties for Withdrawing Money From Annuities? withdraw funds without any tax consequences. C) value of underlying securities held in the separate account. e) Are From the United States and Log on every day independently? *Distributions from a nonqualified plan represent both a return of the original investment made in the plan with after-tax dollars (a nontaxable return of capital) and the income from that investment. Do homework Doing homework can help you learn and understand the material covered in class. What Are the Biggest Disadvantages of Annuities? A) Life-only annuity How to Navigate Market Volatility While Saving for Retirement, Variable Annuity: Definition and How It Works, Vs. If your customer invests in a variable annuity and chooses to annuitize at age 65, which of the following statements are TRUE? 's dividend yield was % last year. C) I and IV. are purchased primarily for their insurance features 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. D) Growth mutual funds. B)II and III. The value of the separate account is now $30,000. C) A 25year old public school teacher who would like to save enough for the purchase of her first home within the next 3 to 5 years. B) A 30 year old construction worker recently unemployed who wants to invest his severance pay amounting to 9 months salary. 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? Reference: 12.3.4 in the License Exam, Chapter 16: U.S. Government and State Rules a, Chapter 17: Other SEC and SRO Rules and Regul, Chapter 15: Ethics, Recommendations, and Taxa, Chapter 13: Direct Participation Programs, Fundamentals of Financial Management, Concise Edition, Joe B. Hoyle, Thomas F. Schaefer, Timothy S. Doupnik, Carl Warren, James M Reeve, Jonathan E. Duchac. C)complete all paper work to purchase the annuity contract and obtain the clients signature immediately. 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. Instructions\textsf{\textcolor{#4257b2}{Instructions}}Instructions 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. A 58-year-old individual near retirement who is in good health and anticipates a lengthy retirement The fixed payment that the annuitant receives loses purchasing power over time as a result of inflation. B)unsuitable because her situation exposes her to surrender charges and early withdrawal penalties in exchange for insufficient benefits. Your customer in his early 30s has received a modest inheritance from a relative. B)Two-thirds of the withdrawal is taxable as ordinary income. B)fixed in value until the holder retires. 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. The fixed annuities, indexed annuities, and variable annuities are some of the major types of annuities, of which one may find immediate annuities and deferred annuities. B) fixed payments for 10 years, followed by variable payments for life. When the annuitization option is selected, each payment represents both capital and earnings. Reference: 12.3.1 in the License Exam. "Variable Annuities: What You Should Know," Page 10. Life annuity has the largest payout because less risk is assumed by the insurance company; there is no beneficiary in the event the annuitant dies. *The investor has already paid tax on the contributions but the earnings have grown tax-deferred. If the contract holder dies before the period expires, the remaining payments are made to the beneficiary. The AG49-A Revisions An investor who has purchased a nonqualified variable annuity has the right to: Question #12 of 48Question ID: 606814 B)changes in common stock prices tend to be more closely related to changes in the cost of living than changes in bond prices. \hspace{10pt} \text{Office salaries} & \underline{234,000} & \hspace{10pt} \text{Medicare tax withheld} & 15,210\\ Describe. During payout, distributions will fluctuate due to performance in the separate account. D)separate account may consist of mutual funds. Reference: 12.3.3 in the License Exam. Question #33 of 48Question ID: 606832 It was a lump-sum purchase. What is the taxable consequence of this withdrawal to your client? A) Capital gains taxation on the earnings withdrawn in excess of the owner's basis. Consequently, the client pays taxes only on the growth portion of the withdrawal ($10,000). Your client has $50,000 to invest. "Variable Annuities: What You Should Know," Pages 67. A customer has an investment objective of keeping pace with inflation while assuming moderate risk. As with most retirement account options, withdrawals before the age of 59 will result in a 10% tax penalty. Sample problems from Chapter 9 . The number of annuity units becomes fixed when the contract is annuitized; it is the value of each unit that fluctuates. Question #41 of 48Question ID: 606801 The entire amount is taxed as ordinary income. have investment risk that is assumed by the investor A) variable payments for 10 years, followed by fixed payments for life. Annuities due are a type of annuity where payments are made at the beginning of each payment period. B) Life annuity with period certain While variable annuities have greater potential for earnings, since their interest rate rises and falls with their underlying investments, they can lose money. Explain what is meant by positive and negative A) There is no risk in a variable annuity. In addition, an element of risk must be present. B) It will be lower. IBM Noida, Uttar Pradesh, India1 month agoBe among the first 25 applicantsSee who IBM has hired for this roleNo longer accepting applications. An annuitant assumes the investment risk of a variable annuity and is not protected by the insurance company from capital losses. Annual depreciation on the machine is$12,000, and the tax rate of the company is 25%. D)II and IV. P=525p2+65,326p185,000E=326p+185,000P=-525 p^{2}+65,326 p-185,000 \quad E=-326 p+185,000P=525p2+65,326p185,000E=326p+185,000. An 18-year-old, unmarried high school student sought a safe investment for a $30,000 bequest until after she graduated from college. a variable annuity guarantees an earnings rate of return. Reference: 12.1.1 in the License Exam. B)each annuity unit's value varies with time, but the number of annuity units is fixed. D) 4500. D) a minimum of 10 years of variable payments, followed by additional variable payments for life. Reference: 12.1.4.1 in the License Exam. You can buy an annuity with either a lump sum or a series of payments, and the accounts value will grow accordingly. It's somewhat similar to a variable life insurance policy in that: You can choose how the product's value is invested. Question #11 of 48Question ID: 606816 Listing tax-deferred growth as an objective for retirement income, which of the following investments is most suitable? Find the per-day expense for one of these travelers who had a z-score of -1.6. c. A Bargain Times Vacation Blog writer claimed to have done this vacation for a cost of$710 per person. Every annuity has some characteristics in common. A)the yield is always higher than mortgage yields. D) Two-thirds of the withdrawal is taxable as ordinary income. 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. The tax on this is $2,800 ($10,000 x 28%). C)II and IV. Contributions to a nonqualified variable annuity are not tax deductible. B) The entire $10,000 is taxable as ordinary income. D)value of accumulation units. C) II and III. Annuities are similar to other forms of investing in that the owner invests money with the hope that it will gain in value, but annuities also come with higher fees than most mutual funds. Immediate life annuity with 10-year period certain. 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. C) single payment immediate annuity. must be filed with FINRA. An ordinary simple annuity has the following characteristics: For example, most car loans are ordinary simple annuities where payments are Get Started. What type of annuity has a cash value that is based upon the performance of it's underlying investment funds? C)with guaranteed minimum withdrawal benefits (GMWBs) the periodic payments can be monthly, quarterly or annually Classifying annuities There are many categories of annuities. However, a discussion should occur regarding the risks that are associated with a fixed annuity; purchasing power risk. Reference: 12.3.1 in the License Exam, Question #30 of 48Question ID: 606833 An investor who purchases a fixed annuity contract assumes purchasing-power risk. Typically, they allow one withdrawal each year during the accumulation phase. C) none of these. Reference: 12.3.3 in the License Exam. He earned the Chartered Financial Consultant designation for advanced financial planning, the Chartered Life Underwriter designation for advanced insurance specialization, the Accredited Financial Counselor for Financial Counseling and both the Retirement Income Certified Professional, and Certified Retirement Counselor designations for advance retirement planning. A) Fixed annuities. All of the following statements regarding variable annuities are true EXCEPT: A) variable annuities offer the investor protection against capital loss. B)Life annuity with period certain. D) variable annuities may only be sold by registered representatives. A) be paid to a designated beneficiary. Only variable annuities have payout plans that provide the client income for life. B) fixed in value until the holder retires. The figure below illustrates a six-month annuity with monthly payments. *A variable annuity payout is determined by comparing account performance with AIR, and this month's payout with last month's payout. C) Mutual fund portfolio consisting of blue chip stocks An annuity may be purchased under all of the following methods EXCEPT: \hspace{10pt} Social security, 6%6\%6% on first $100,000\$100,000$100,000 of employee annual earnings The second phase is triggered when the annuity owner asks the insurer to start the flow of income, often referred to as the payout phase. *During the payout period, payments are based on a fixed number of annuity units established when the contract was annuitized. The $30,000 contract value represents $10,000 of contributions and $20,000 of earnings. VAs, blue chip mutual fund portfolios, ETFs and ETNs are all tied to market performance in some way and have risk characteristics that would not align in terms of suitability for this client. C) taxed as ordinary income only to the extent of earnings. C) Age 40, currently unemployed Reference: 12.1.2 in the License Exam, Question #21 of 48Question ID: 606812 D) A 10% penalty plus the payment of ordinary income tax on funds withdrawn in excess of the owner's basis. B)I and III. Question #45 of 48Question ID: 606795 Question #40 of 48Question ID: 606800 C) II and IV. B) The death benefit cannot ever be more than the guaranteed benefit. D) 100% tax deferred. C) be returned to the separate account. The earnings are taxable but the cost basis is returned tax free. The LATF-adopted ILVA Actuarial Guideline has an effective date of July 1, 2024 for contracts, riders or endorsements issued on or after that date. Variable annuity salespeople must register with all of the following EXCEPT: A) FINRA. A) defined contribution plans. D) I and IV. How Are Nonqualified Variable Annuities Taxed? Question: The following are characteristics of a public conglomerate: I) It is designed to operate various divisions for the long run. D) a minimum of 10 years of variable payments, followed by additional variable payments for life In a variable annuity contract, the provision that guarantees the annuitant payments for life is called the: A trend is formed from non-repetitive actions of people. This guideline has been prepared for use by Federal agencies. Life income riders are best suited for those who anticipate a lengthy retirement and are generally not yet retired when making the VA purchase. Sub accounts and mutual funds are conceptually identical, but sub accounts don't have ticker symbols that investors can easily type into a fund tracker for research purposes. D) I and IV. A) Dow Jones Industrial Average. Reference: 12.3.3 in the License Exam. ($5,000) to a stock fund. A)defined contribution plans. B) single payment deferred annuity. B)suitable regardless of funding sources A) the investment portfolio is managed professionally. B)value of annuity units. C) with guaranteed minimum withdrawal benefits (GMWBs) a lifetime of periodic payments is guaranteed Insurance companies introduced the variable annuity as an opportunity to keep pace with inflation. Reference: 12.1.2 in the License Exam, Question #23 of 48Question ID: 901858 C) II and IV. Once annuitized, the number of annuity units does not vary. These contracts come with high surrender charges. C)Variable annuity contract with a discussion regarding interest rate risk Before the contract is annuitized, your client, currently age 60, withdraws some funds for personal purposes. Distributions from nonqualified variable annuities are: If the client, who is in a 30% tax bracket, makes a random withdrawal of $15,000, what will the tax liability to the IRS be? For this potential advantage, the investor, rather than the insurance company, assumes the investment risk. Your 65-year-old client owns a nonqualified variable annuity. the state insurance commission. B)I and IV. A universal variable life policy should be purchased primarily for its insurance features, not its investment features. Reference: 12.3.3 in the License Exam. B) variable annuities. CDs insured by the FDIC. a variable annuity does not guarantee payments for life. Question #37 of 48Question ID: 606817 With variable annuities policyholders can choose from a number of investment opportunities. If a customer is about to buy a variable annuity contract and wants to select an annuity with a payout option providing the largest possible monthly payment, which of the following payout options would be most suitable? All of the following are accurate statements to make to the client EXCEPT B) The proceeds minus John's cost basis taxed as ordinary income at Sue's tax rate. It may be used by nongovernmental . An annuitant assumes the investment risk of a variable annuity and is not protected byt he insurance company from capital losses. A) Age 56, available cash to invest, makes the maximum retirement plan contributions to an existing IRA and 401(k) plan However, the web version (cat. C) The ordinary income on the proceeds over the cost basis plus 10% of the net gain (if any) if Sue is younger than 59- years old. 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. A)Fixed annuity contract with a discussion regarding purchasing power risk B)a lifetime withdrawal benefit (LWB) or lifetime income benefit will make a periodic payment even if the account balance falls to zero B) accumulation units. Reference: 12.1.2.1.1. in the License Exam. Usually the term "annuity" relates to a contract between an individual and a life insurance company. B) be paid to any legal heirs as recognized by the annuitant's state of domicile. A) mutual fund units. He originally invested $29,000 4 years ago; it now has a value of $39,000. The client's investment objectives, tax bracket, investment experience and risk tolerance all align well with a VA recommendation. All of the following are characteristics of a variable annuity, except: a. C)earnings only and taxable When the annuitization option is selected, each payment represents both capital and earnings. 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?