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  4. Federal Tax Considerations

Free Federal Tax Considerations Practice Questions

Massachusetts Life exam — 25 practice questions.

Subtopics: Death benefit, Cash value growth, Annuity taxation, MEC, 1035 exchange, Death benefit taxation, Premium deductibility, Dividends taxation, Modified endowment contract, Traditional IRA, Roth IRA, Qualified plan contributions, Rollover vs transfer, 403b, Transfer-for-value rule, Estate inclusion incidents of ownership, Three-year rule, Section 79 group term, Key person policy taxation, Life policy withdrawal basis recovery, Required minimum distributions, SEP IRA, 1035 exchange life-to-life, 401k salary deferral

Read the Federal Tax Considerations study guide

Sample questions & answers

1. Life insurance death benefits paid to a named beneficiary in a lump sum are generally:

Received income-tax-free

Life insurance death proceeds paid in a lump sum are generally received free of federal income tax.

2. The growth of cash value inside a permanent life policy is generally:

Tax-deferred while it remains in the policy

Cash value accumulates on a tax-deferred basis as long as it stays within the policy.

3. When annuity payments are received the portion representing investment gain is:

Taxed as ordinary income

The gain portion of annuity payments is taxed as ordinary income while the cost basis is returned tax-free.

4. A life policy that fails the federal premium limits and becomes a modified endowment contract loses:

The favorable tax treatment of living distributions

A modified endowment contract loses favorable tax treatment on loans and withdrawals taken during life.

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Practice: Federal Tax Considerations

Take a randomized, timed-style practice test. Answer choices are shuffled and your results are scored instantly with an explanation for every question.

Practice questions are study aids generated for exam preparation and are not actual exam questions. Content is provided for educational purposes and is not legal advice. Verify current statutes, rules, and exam specifications with the Pennsylvania Insurance Department and the exam administrator before relying on it.