Federal Tax Considerations for Life Insurance and Annuities
A participant takes an eligible rollover distribution as a cheque rather than by direct transfer. What follows?
Answer and explanation
Answer: C. An eligible rollover distribution paid to the participant is subject to mandatory twenty per cent withholding, so completing a full rollover means making up the withheld amount from elsewhere and recovering it as a credit. A direct trustee-to-trustee transfer avoids the withholding altogether.Source: 26 U.S.C. § 402 — 26 U.S.C. § 3405(c)
More federal tax considerations for life insurance and annuities questions
- How does classification as a modified endowment contract change the taxation of cash value increases taken out?
- How is the interest an individual pays on personal policy loans generally treated?
- On what basis are dividends paid under a participating whole life policy?
- What is the tax effect of a properly executed section 1035 exchange?
- When a permanent policy is surrendered for cash, how is the taxable portion of the surrender proceeds calculated?
- Which of these is a permitted exchange under section 1035?
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