Needs - are goal-directed forces that people experience. The number of annuity units is fixed at the time of annuitization. a variable annuity does not guarantee an earnings rate of return. D)the rate of return is determined by the underlying portfolio's value. These include white papers, government data, original reporting, and interviews with industry experts. Suppose that 20%20 \%20% of their users are United States users who log on daily. In deciding whether to put money into a variable annuity versus some other type of investment, its worth weighing these pros and cons. Reference: 12.3.2.4 in the License Exam. The figure below illustrates a six-month annuity with monthly payments. If an investor has purchased an immediate variable annuity, which of the following statements best describe the investment? Question #36 of 48Question ID: 606805 A) 2800. Question #37 of 48Question ID: 606817 When the contract is annuitized, the annuitant is credited with a fixed number of annuity units. B) payments continue until the death of the primary owner. Once the cost basis is reached, any further withdrawals are a nontaxable return of principal. As with most retirement account options, withdrawals before the age of 59 will result in a 10% tax penalty. Variable annuities must be registered with: The separate account performance compared to last month's performance. In a joint-and-last-survivor option, the annuity payment is made jointly to both parties while both are alive. B) single payment deferred annuity. 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. Because this is not guaranteed, the policyowner bears the investment risk. B) be paid to any legal heirs as recognized by the annuitant's state of domicile. A) I and III. D) Age 27, saving for first home. Annuities due are a type of annuity where payments are made at the beginning of each payment period. An ordinary simple annuity has the following characteristics: For example, most car loans are ordinary simple annuities where payments are Get Started. If the owner of a variable annuity dies during the accumulation period, any death benefit will: A)100% tax free. This factor is used to establish the dollar amount of the first annuity payment. C)I and III. He makes the following four statements, all of which are true EXCEPT "Variable Annuities: What You Should Know," Page 6. The number of accumulation units can rise during the accumulation period. The most popular type of variable annuity is a deferred annuity. A guaranteed lifetime annuity promises to pay the owner an income for the rest of their life. *Payments from a variable annuity depend on the securities' value in the separate account's underlying investment portfolio. B)II and III. A) It will be higher. *A variable annuity is a security and must be registered with the SEC, not FINRA. A 32-year-old with a company-sponsored 401k plan who will need a lump sum soon to finance graduate school tuition C) value of underlying securities held in the separate account. B)I and III. Reference: 12.2.1 in the License Exam. Reference: 12.3.3 in the License Exam. They can be classified by: Nature of the underlying investment - fixed or variable 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. B)a majority vote from the shareholders is required to change the investment objectives. Fixed Annuity, Retirement Annuities: Know the Pros and Cons. D)the safety of the principal invested. Variable annuities are designed to combat inflation risk. *As contributions are made with after-tax dollars, only the earnings generated are taxed on withdrawal. A) I and II Once annuitized, the number of annuity units does not vary. He wants to ensure that the client, in addition to meeting suitability requirements, is aware of certain variable annuity contract characteristics. B)100% taxable. Once a customer annuitizes a variable annuity, which of the following statements are TRUE? C) I and III. Question #26 of 48Question ID: 606811 Designed to protect against inflation. order now. The fees on variable annuities can be quite hefty. Your 55-year-old client invested $50,000 four years ago in a nonqualified variable annuity. Deferred Annuity Definition, Types, How They Work, What Is a Fixed Annuity? U.S. Securities and Exchange Commission. She will receive the annuity's entire value in a lump-sum payment. Explain what is meant by positive and negative A customer, who has contributed to an IRA and to an employer matching 401(k) plan continuously for many years, wants to purchase an annuity contract to add additional monthly income once retired. A)exempt from taxes Question #45 of 48Question ID: 606795 The entire amount is taxed as ordinary income. continues payments only as long as all annuitants are still alive. Reference: 12.1.2 in the License Exam. How is the distribution taxed? Her intent was to use the funds for the down payment on a house after graduation. are purchased primarily for their insurance features \hspace{10pt} Social security, 6%6\%6% on first $100,000\$100,000$100,000 of employee annual earnings The value of the customer's account is converted into annuity units if and when the customer decides to annuitize the contract. IBM is a global brand and has its presence in 170 countries and operates . D) I and IV. On an annual basis, the machine will produce 20,000 units with an expected selling price of $10, prime costs of$6 per unit, and a fixed cost allocation of $3 per unit. A)variable annuities will protect an investor against capital loss. You can buy an annuity with either a lump sum or a series of payments, and the accounts value will grow accordingly. B) The entire $10,000 is taxable as ordinary income. When the second party dies, all payments cease. *Contributions to a nonqualified variable annuity are not tax deductible. If the account is annuitized, the investor has chosen a payout option. The payout compared to last month's payout. *A periodic payment immediate annuity is a contradiction in terms. D)variable annuities. A) Fixed annuities. A) periodic payment immediate annuity. A) waiver of premium In this case, the investor is taking a lump-sum distribution before reaching age 59- and must pay an additional 10% penalty on the taxable amount. *An immediate annuity has no accumulation period. This would not align with the couple's criteria for coverage as long as they both live. D)Dow Jones Industrial Average. *The number of variable annuity accumulation units can rise during the accumulation period when additional units are being purchased. A)III and IV. C) III and IV. Before the contract is annuitized, your client, currently age 60, withdraws some funds for personal purposes. \hspace{10pt} State unemployment (employer only), 3.8%3.8\%3.8% D) Variable annuity. D)accumulation units. A) Joint tenants annuity. A variable annuity does not guarantee an earnings rate because earnings will depend on the performance of the separate account. 8 annuities provide a guaranteed rate of return, whereas annuities provide conservative to aggressive investments whose rates of return are not guaranteed. B) II and III Distributions from such an annuity are computed on a LIFO basis with the income taxed first. A) II and III. A customer has an investment objective of keeping pace with inflation while assuming moderate risk. *The accumulation period of a variable annuity may continue for many years. C)such an annuity is designed to combat inflation risk. Anthony Battle is a CERTIFIED FINANCIAL PLANNER professional. The number of annuity units is fixed at the time of annuitization. U.S. Securities and Exchange Commission. C) single payment immediate annuity. B) II and III. Only variable annuities have payout plans that provide the client income for life. Question: The following are characteristics of a public conglomerate: I) It is designed to operate various divisions for the long run. An individual retirement annuity is an investment vehiclesimilar to an individual retirement accountthat is offered by insurance companies. A)the number of annuity units becomes fixed when the contract is annuitized. Which is it? A) 2800. U.S. Securities and Exchange Commission. A variable annuity is both an insurance and a securities product. The amount taxed is the amount of the lump-sum payment minus the deceased's cost basis in the investment. The amount of the purchase payments that go into the account may be less than you paid because fees were taken out of the purchase payments. Question #29 of 48Question ID: 606831 The investor has already paid tax on the contributions but the earnings have grown tax-deferred. C)II and IV. C) Unit refund life option withdraw funds without any tax consequences. A rider or statement of condition that allows a variable life insured to maintain policy coverage after becoming disabled is a benefit known as Reference: 12.2.1 in the License Exam. C)III and IV 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. Sample problems from Chapter 9 . *Universal variable life policies are insurance company products that should be purchased primarily for the insurance features they offer rather than as an investment. Deal with mathematic Math is all about solving equations and finding the right answer. You can tailor the income stream to suit your needs. *The investor has already paid tax on the contributions but the earnings have grown tax-deferred. B. Distributions from such an annuity are computed on a LIFO basis with the income taxed first. *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. If in the following year, the S&P 500 declined by 5%, the annuities value would remain at $107,000 because gains are locked in each year. 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. 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. 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 *VAs are less suitable for individuals who have not yet made maximum contributions to other retirement accounts such as IRAs and 401ks. D) I and II. A)II and IV. D)Variable annuity. B)4200. Vaccine has decreased the incidence. Clusters of vesicles in various stages. Round to the nearest hundredth of a percent. Once the cost basis is reached, any further withdrawals are a nontaxable return of principal. Assuming that the payroll for the last week of the year is to be paid on December 313131, journalize the following entries: Question #20 of 48Question ID: 606808 A variable annuity is a type of annuity contract the value of which can vary based on the performance of an underlying portfolio of sub accounts. *The owner of a life annuity with 10-year period certain will receive payments for life, subject to a minimum of 10 years. By clicking Accept All Cookies, you agree to the storing of cookies on your device to enhance site navigation, analyze site usage, and assist in our marketing efforts. As of March 03, 2023, had a relative dividend yield of % compared to the industry median of %. A Variable Annuity has which of the following characteristics? Question #25 of 48Question ID: 606819 B) a variable annuity contract is not required to be sold by prospectus because it is an insurance contract D)II and III. D) II and IV. C) such an annuity is designed to combat inflation risk. C) 10% penalty plus payment of ordinary income tax on all funds withdrawn exceeding basis. C) There is no tax as the withdrawal is considered return of capital. The value of accumulation and annuity units varies with the investment performance of the separate account. D)the state insurance department. Variable annuity salespeople must be registered with FINRA and the state insurance department. D) Life annuity with 10-year period certain. B) contact the issuer of the clients existing VA contract to facilitate the clients surrender of the contract. must provide full and fair disclosure. 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. Question #41 of 48Question ID: 606801 The beneficiary is taxed at ordinary income rates during the year the lump sum is received. D)suitable if she has enough equity in the home to fund the variable annuity without cashing out the other VA contract, Based on the information given in the question, the VA recommendation would not be suitable. A) an accounting measure used to determine payments to the owner of the variable annuity. B) I and IV. *Funding a VA contract by cashing out either life insurance policies or existing VA contracts, especially those held for a short period of time is not suitable. A) each annuity unit's value is fixed, but the number of annuity units varies with time. Annuity units are units of ownership when the contract is in the payout stage. II. C) each annuity unit's value and the number of annuity units vary with time. Registration with FINRA is de facto registration with the SEC; no registration is required by the state banking commission. C)The entire $10,000 is taxable as ordinary income. A variable annuity is a type of annuity contract, the value of which can vary based on the performance of an underlying portfolio of sub accounts. When money is deposited into the annuity, it is purchasing accumulation units. An Immediate Annuity is designed to provide each of the following features, EXCEPT: The creation of an estate. Dividing the funds available so as to fund 2 separate contracts, whether they be joint with last survivor or life income, would not be cost efficient for spouses. D)A 10% penalty plus the payment of ordinary income tax on funds withdrawn in excess of the owner's basis. Reference: 12.1.2.1.2 in the License Exam. A prospectus for a variable annuity contract: B) I and III. 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 With a fixed annuity, by contrast, the insurance company assumes the risk of delivering whatever return it has promised. A) II and IV. A fixed annuity is an insurance contract that pays a guaranteed rate of interest on the owner's contributions and later provides a guaranteed income. Bear in mind that between the numerous feessuch as investment management fees,mortality fees, and administrative feesand charges for any additional riders, a variable annuitysexpenses can quickly add up. A)accumulation shares. If the customer takes a withdrawal of $10,000, what are the tax consequences? As with all tax-deferred accounts, municipal bonds are not appropriate investments because interest earned on municipals is already tax exempt at the federal level. How does an indexed annuity differ from a fixed annuity? B) Municipal bonds. It may be used by nongovernmental . Owners of variable annuities, like owners of mutual fund shares, may vote on changes in investment policy and for an investment adviser. b. The holder of a variable annuity receives the largest monthly payments under which of the following payout options? Question #31 of 48Question ID: 606836 Your client has a large sum of money to invest from the proceeds of the sale of his home. an annuitant dies sooner than expected. C) It will stay the same. The annuity unit's value represents a guaranteed return. \end{array} continues payments as long as one annuitant is alive. B) a variable annuity contract is not required to be sold by prospectus because it is an insurance contract D)I and IV, Universal variable life policies are insurance company products that should be purchased primarily for the insurance features they offer rather than as an investment. Reference: 12.1.4.1 in the License Exam. 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. 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. C) insurance guarantee. C) Mutual fund portfolio consisting of blue chip stocks C) 3800. The value of the customer's account is converted into annuity units if and when the customer decides to annuitize the contract. No paper. 's dividend yield was % last year. The entire amount is taxed as ordinary income. Investopedia requires writers to use primary sources to support their work. This recommendation is: The holder of a variable annuity receives the largest monthly payments under which of the following payout options? Carefully look at your options when choosing an annuity. When the annuitization option is selected, each payment represents both capital and earnings. Your client owns a variable annuity contract with an AIR of 4%. B) Ordinary income taxation on the earnings withdrawn until reaching the owner's cost basis. D) expense guarantee. The value of the annuity units is fixed. 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. If at all you go deeper, then you will find a wide range of annuity products from a variety of companies. A customer has contributed $1,000 a year for 10 years to his tax-deferred nonqualified variable annuity. 10.1 This chapter addresses a number of ABS statistics relating to the economically active population which were not discussed elsewhere. It is the starting point of motivation because they generate emotions. *Once a variable annuity is annuitized, the accumulation units are converted into a fixed number of annuity units. That can adversely affect your returns over the long term, compared with other types of investments. A) variable payments for 10 years, followed by fixed payments for life. Question #42 of 48Question ID: 606830 Policyholders . Accumulation Period of Fixed Annuities During this period, premiums are credited with interest which accumulates on a yearly basis. A joint-and-last-survivor annuity is a payout option where: Sub accounts and mutual funds are conceptually. B)a minimum rate of return is guaranteed. B)Value of each annuity unit each month. III. the state insurance commission. A)number of annuity units. A variable annuity is a combination of 2 products: an insurance contract and a mutual fund. This guideline has been prepared for use by Federal agencies. A)It will stay the same. Question #38 of 48Question ID: 606798 C)III and IV. A variable annuity's separate account is: A separate account will invest in a number of different securities. no. (The exception is the fixed income annuity, which has a moderate to high payout that rises as the annuitant ages). Reasonable accommodations may be made to enable individuals with disabilities to perform the essential functions. B)It will be lower. 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. If the contract holder dies before the period expires, the remaining payments are made to the beneficiary. D) I and II. C)II and IV. Which of the following statements regarding variable annuities are TRUE? && \hspace{10pt}\text{Group insurance} & \underline{45,630}\\ Fixed annuities typically earn at a lower, stable rate. can be sold by someone with only an insurance license A) The fact that the annuity payment may increase or decrease. The number of annuity units becomes fixed when the contract is annuitized; it is the value of each unit that fluctuates. A) Age 56, available cash to invest, makes the maximum retirement plan contributions to an existing IRA and 401(k) plan Travel Times Journal found that the average per person cost of a 10-day trip along the Pacific coast, per person, is $1,015. Your customer in his early 30s has received a modest inheritance from a relative. B) value of annuity units. The company's well-known Rock symbol is an icon of strength, stability, expertise and innovation that has stood the test of time. B)I and IV. D)variable annuities offer the investor protection against capital loss. PGIM Fixed Income has over $900 billion in assets under management across a broad array of fixed . B)Two-thirds of the withdrawal is taxable as ordinary income. Distributions to the annuitant will fluctuate during the payout period. D) The fact that periodic payments into the contract may increase or decrease. If this client is in the payout phase, how would his April payment compare to his March payment? a life insurance holder lives longer than expected. 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. A) 4000. Variable annuities are riskier than fixed annuities because the underlying investments may lose value. A) partially a tax-free return of capital and partially taxable. Life with period certain will produce a smaller check for life because the insurance company will guarantee payments to a beneficiary for a certain period of time designated in the contract should the annuitant die within that period. A) I and II Expert Answer. Are There Penalties for Withdrawing Money From Annuities? Practice all cards. 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. A) I and II. *With guaranteed minimum withdrawal benefits (GMWBs) a lifetime of periodic payments is not guaranteed because payments stop when the annuitant has received an amount equal to the principal account value or the contract term ends. The number of annuity units is fixed. a) What percentage of Facebook's users are from the United States? The number of annuity units rises once annuitization begins. D) the number of annuity units becomes fixed when the contract is annuitized. C) early annuity phase-in A) mutual fund units. D)money market funds. Refinancing a home to draw out equity has been identified by FINRA as an abusive sales tactic regarding the sales of VAs. The number of accumulation units is always fixed throughout the accumulation period. What Are the Distribution Options for an Inherited Annuity? A passion for serving customers and a personal commitment to following through in a dynamic, fast-paced environment. A) Fixed Annuity When may a variable annuity account be surrendered? d) What is the probability that a user is from the United States, given that he or she logs on every day? C) III and IV. C) The portion of the premium invested in the insurance company's general account is used to provide for the minimum guaranteed amount of the death benefit. D) III and IV. A security is any investment for profit with management performed by a third party. What is the taxable consequence of this withdrawal to your client? Here is how guaranteed lifetime annuities work. III) A hierarchy of corporate staff evaluates divisions' plans and performance. The amount taxed is the amount of the lump-sum payment minus the deceased's cost basis in the investment. Usually the term "annuity" relates to a contract between an individual and a life insurance company. B) The proceeds minus John's cost basis taxed as ordinary income at Sue's tax rate. Variable annuities grow tax-deferred, so you dont have to pay taxes on any investment gains until you begin receiving income or make a withdrawal. Before the contract is annuitized, your client, currently age 60, withdraws some funds for personal purposes. Instructions\textsf{\textcolor{#4257b2}{Instructions}}Instructions The payout compared to the initial payout upon annuitization. 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. An immediate annuity is designed to pay an income one time-period after the immediate annuity is bought. B)I and II B) IPO. Life income riders are best suited for those who anticipate a lengthy retirement and are generally not yet retired when making the VA purchase. How Good of a Deal Is an Indexed Annuity? Because the client is older than age 59-, he does not pay 10% premature distribution penalty tax. B) During the accumulation period. U.S. Securities and Exchange Commission. A)not suitable Changes in payments on a variable annuity correspond most closely to fluctuations in the: Premiums made into the annuity purchase accumulation units. Classifying annuities There are many categories of annuities. 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) Ordinary income tax on earnings exceeding basis. IBM Noida, Uttar Pradesh, India4 weeks agoBe among the first 25 applicantsSee who IBM has hired for this roleNo longer accepting applications. All of the following are accurate statements to make to the client EXCEPT Inflation-hedging, using both tax deferral combined with market growth potential, is made possible by variable annuities #. 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. All of the following are characteristics of a variable annuity, except: a. Which of the following recommendations would best meet the customer profile? B) the client may vote for the board of directors or board of managers. Annuities are complicated products, so that may be easier said than done. C) with guaranteed minimum withdrawal benefits (GMWBs) a lifetime of periodic payments is guaranteed
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