Free Federal Tax Considerations Practice Questions
South Dakota Life exam — 83 practice questions.
Subtopics: Death benefit taxation, Cash value growth, Modified endowment contract, 1035 exchange, Qualified plans, Exclusion ratio, Policy dividends, Estate inclusion, 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. Generally, a life insurance death benefit paid to a named beneficiary in a lump sum is:
Received free of federal income tax
Life insurance death proceeds paid to a beneficiary are generally received income-tax-free for federal purposes.
2. The cash value growth inside a permanent life insurance policy is generally:
Tax-deferred while it remains in the policy
Cash value generally grows tax-deferred while it stays in the policy, with no annual tax on the inside buildup.
3. When a life policy is classified as a modified endowment contract (MEC), distributions such as loans are:
Taxed gain-first, with possible penalties before age 59 1/2
MEC distributions are taxed gain-first (LIFO) and may carry a penalty if taken before age 59 and a half.
4. A properly executed Section 1035 exchange allows a policyowner to:
Exchange one policy for another without current income tax
A 1035 exchange lets an owner swap one qualifying life or annuity contract for another without recognizing gain at the time.
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.
