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  4. Federal Tax Considerations

Free Federal Tax Considerations Practice Questions

New Jersey Life exam — 25 practice questions.

Subtopics: Death proceeds, Cash value growth, MEC, Annuity taxation, 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 proceeds paid in a lump sum to a beneficiary are generally:

Received income-tax-free

Lump-sum life insurance death benefits are generally received income-tax-free by the beneficiary.

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

Tax-deferred while it remains in the policy

Cash value generally grows tax-deferred while it stays within the policy.

3. A life policy funded too quickly that fails the federal premium test becomes a:

Modified endowment contract (MEC)

A policy that exceeds the federal funding limits is classified as a MEC, changing the tax of distributions.

4. When a nonqualified annuity is annuitized, the portion of each payment representing principal is:

Excluded from income under the exclusion ratio

The exclusion ratio treats the principal portion of each annuity payment as a nontaxable return of basis.

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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 Insurance Department and the exam administrator before relying on it.