Free Federal Tax Considerations Practice Questions
Minnesota Life exam — 80 practice questions.
Subtopics: Death benefit taxation, Cash value growth, Modified endowment contract, Annuity taxation, Section 1035 exchanges, 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. Life insurance death benefits paid to a named beneficiary in a lump sum are generally treated how for federal income tax?
Generally received income tax free
Life insurance death benefits paid as a lump sum to a beneficiary are generally received free of federal income tax.
2. The growth of cash value inside a permanent life insurance policy is generally treated how while it remains in the policy?
It accumulates on a tax-deferred basis
Cash value generally grows on a tax-deferred basis while it remains inside the policy, with taxation deferred unless the policy is surrendered or becomes a MEC.
3. A life policy funded too quickly so that it fails the federal premium limits is classified as what?
A modified endowment contract
A policy that exceeds the federal 7-pay premium limits is a modified endowment contract (MEC), changing the tax treatment of living distributions.
4. The portion of each annuity income payment representing the return of the owner's cost basis is generally treated how?
Excluded from income under the exclusion ratio
Under the exclusion ratio, the part of each annuity payment representing return of the owner's cost basis is excluded from taxable income.
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.
