Review Questions Module 3
EXECUTIVE BONUS
A the employer selects an amount of income to be paid at retirement under the plan
B it is more complex than the defined contribution approach
C the cash value of the life insurance policy at retirement determines the amount of income the executive will receive
D the employer must calculate the contribution amount level that will provide the promised retirement benefit
A the premiums paid are considered contributions to a nonqualified plan and are deductible by the employer
B plan costs are reduced because the employer need not include all employees
C there are generally no reporting or disclosure requirements that apply
D plan administration is very simple
A Benefits under the life insurance policy stop.
B The employer must continue making bonused premium payments until age 65.
C The executive may not continue paying premiums on the policy.
D None of the above
I. Loss of control over the life insurance policy
II. Inability to recover costs
III. No tax benefits for sole proprietors or S corporation owners
A I only
B I and II only
C II and III only
D I, II and III only
A he must pay income tax only on this amount
B he must pay Social Security tax only on this amount
C he must pay both income tax and Social Security tax on this amount
D there is no additional income tax liability
I. The proceeds will be included in her estate.
II. The proceeds will be excluded from her estate.
III. The beneficiary must pay income tax on the proceeds.
A I only
B II only
C I and III only
D II and III only
A The $400,000 is considered taxable income, subject to capital gains tax rates.
B The $400,000 is considered taxable income, subject to ordinary income tax rates.
C Jeff will owe no income tax on either the $500,000 or the $400,000 loan.
D none of the above are true
A LIFO accounting
B FIFO accounting
C capital gains treatment
D constructive reciept doctrine
A $180,000
B $200,000
C $220,000
D $500,000
A long-term capital gain
B ordinary income
C dividend income
D modified endowment income
A They must be ordinary and necessary expenses
B They must be paid or incurred by the employer
C They must be paid for services actually rendered
D All of the above
I. It is flexible and adapts easily to variations in premium payments
II. It provides easy access to policy cash values
III. It often produces greater cash values when compared to annuities and other types of permanent life insurance
A I only
B II only
C I and II only
D I, II, and III
A. $500,000
B. $1,000,000
C. $2,000,000
D. $2,500,000
A. A spouse
B. A trust
C. Minor children
D. The employer
What is the IRS penalty for taking a withdrawal from a life insurance policy in an executive bonus plan before the insured’s age 59½?
A. 10%
B. 15%
C. 25%
D. There is no IRS penalty associated with a withdrawal from a life insurance policy in an executive bonus plan
A. $300,000
B. $200,000
C. $175,000
D. Nothing
A. Traditional split dollar plan
B. Salary continuation plan
C. True deferred compensation plan
D. Executive bonus plan
A. Split dollar plans
B. Deferred compensation plans
C. Group carve out plans
D. Executive bonus plans
A. Executive bonus plans
B. True deferred compensation plans
C. Salary continuation plans
D. Endorsement split dollar plans
A. defined benefit pension
B. executive bonus
C. salary continuation
D. profit sharing
A. The insured
B. The employer
C. The beneficiary
D. A trust
A. taxable as ordinary income
B. tax-free
C. tax-deferred
D. taxable as a dividend
A. identify the plan participants by name
B. state that the bonus is additional compensation
C. identify each participant as a member of a select group of corporate managers
D. all of the above
A. Premium flexibility permits different bonus payments each year only
B. Universal life cash value withdrawals permit easy access to cash value only
C. Both premium flexibility and easy cash value access
D. Neither premium flexibility nor easy cash value access
A. At retirement only
B. At any time permitted by the board resolution
C. At retirement or in the case of hardship only
D. At any time
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