Free Federal Tax Considerations Practice Questions
South Carolina Life exam — 80 practice questions.
Subtopics: Death benefit, Cash value growth, Modified endowment contract, Annuity taxation, 1035 exchange, Death benefit taxation, Premium deductibility, Dividends taxation, 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, Policy loan taxation, Surrender gain, Surrender calculation, Lapse with loan, Dividend interest taxation, Estate inclusion transfer, ILIT, Gift tax exclusion 2026, Estate tax exemption 2026, Marital deduction, MEC 7-pay test, MEC death benefit, MEC loans, MEC permanence, Annuity withdrawal exception, Annuity basis recovery, 1035 annuity to life, 1035 same insured, Traditional IRA limit 2026, IRA catch-up 2026, 401k deferral 2026, Super catch-up, IRA contribution earned income, IRA age limit, IRA deductibility, IRA early withdrawal, IRA penalty exceptions, Roth qualified distribution, Roth RMDs, Roth contributions basis, Indirect rollover, One rollover per year, Mandatory withholding, Inherited IRA 10-year rule, RMD failure penalty, RMD age born 1960, ERISA, Qualified plan requirements, Vesting, DC vesting schedules, Defined benefit plan, Defined contribution plan, Profit-sharing plan, SIMPLE plan eligibility, SIMPLE early withdrawal, SEP contributions, Keogh plan, 457 plan, Qualified plan loans, Employer-owned life insurance, Buy-sell premiums, Group term over 50k, Group premium deduction, Transfer for value exceptions, Life settlement taxation
Read the Federal Tax Considerations study guide
Sample questions & answers
1. How are life insurance proceeds that a beneficiary receives in one sum because of the insured's death generally treated for federal income tax?
Excluded from gross income
IRC Section 101(a) excludes from gross income amounts received under a life insurance contract paid by reason of the insured's death.
2. The growth of cash value inside a permanent life insurance policy is generally:
Tax-deferred inside the policy
Cash value generally accumulates on a tax-deferred basis as long as the gains remain inside the policy.
3. A life insurance policy that fails the federal 7-pay test is classified as a:
Modified endowment contract
A policy that is funded faster than the 7-pay test allows becomes a modified endowment contract, changing the tax treatment of distributions.
4. When an annuity is annuitized, the portion of each payment that represents the return of the owner's cost basis is:
Not taxable
The exclusion ratio determines the portion of each annuity payment that is a tax-free return of the owner's basis, with the rest taxable.
Practice: Federal Tax Considerations
Answer choices are shuffled every time, and every question comes with an explanation.
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.
