Retirement and Other Insurance Concepts
If a policy becomes a MEC, how are loans and partial withdrawals taxed under IRC rules?
Answer and explanation
Answer: C. MEC distributions (loans, withdrawals) receive LIFO treatment: gain comes out first as ordinary income, plus a 10% penalty prior to age 59.5.Source: IRS Publication 525 / IRC § 7702A — MEC LIFO Taxation
More retirement and other insurance concepts questions
- Why do insurers generally require a higher participation percentage in a contributory group life plan than in a noncontributory plan?
- A business owner buys a key-person life policy on a vital executive. Three years later, the executive resigns. If the executive dies 5 years after resigning while the business maintains the policy, who receives the death benefit?
- A client wants survivors to receive income for thirty years and does not mind if the fund is exhausted at the end. Which approach fits?
- A closely held corporation funds a buy-sell agreement so that the company itself buys a deceased shareholder's stock. What is this plan called?
- A company buys life insurance on its chief engineer to protect against the financial loss if she dies. Who is the owner, premium payer, and beneficiary?
- A corporation owns and pays for a policy on an executive's life and is also the beneficiary. When must the insurable interest exist?
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