Federal Tax Considerations for Life Insurance and Annuities
How are amounts received by a beneficiary by reason of the insured's death generally treated for income tax?
Answer and explanation
Answer: B. Amounts received under a life insurance contract by reason of the insured's death are excluded from gross income. Interest the insurer adds after the death, and certain transfers for value, are the exceptions to that treatment.Source: 26 U.S.C. § 101 — 26 U.S.C. § 101(a)
More federal tax considerations for life insurance and annuities questions
- 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?
- Why is a direct trustee-to-trustee transfer usually preferred to a sixty day rollover?
- Why must a section 1035 exchange be carried out between the two insurers rather than by the owner?
- Within what period must a distribution be rolled over to another qualified plan or individual retirement arrangement to avoid current tax?
- A death benefit is excluded from the beneficiary's income. Does that settle the position for estate tax as well?
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