Free Federal Tax Considerations Practice Questions
North Carolina Life exam — 79 practice questions.
Subtopics: Death benefit, Cash value growth, 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, 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 in a lump sum to a named beneficiary are generally:
Received income-tax-free
Life insurance death proceeds paid because of the insured's death are generally received income-tax-free by the beneficiary, though estate tax can apply in some cases.
2. The growth of cash value inside a permanent life insurance policy is generally:
Tax-deferred while it remains in the policy
Cash value generally accumulates on a tax-deferred basis; taxation may arise on amounts withdrawn or surrendered above the cost basis.
3. When a deferred annuity is annuitized, the portion of each payment representing the owner's contributions is:
Returned tax-free as a return of basis
Through the exclusion ratio, the part of each annuity payment representing the cost basis is returned tax-free, while the earnings portion is taxable as ordinary income.
4. A Section 1035 exchange allows a policyowner to:
Swap one policy for another without current tax
A 1035 exchange permits a tax-free transfer between like contracts (for example, life-to-life or annuity-to-annuity), preserving the original cost basis.
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.
