Practical Application 1

Mrs. Moneybaggyo comes in your office with her 24 year old grandson, Loota, and wants to invest $500,000. She wants Loota to be able to have the same power over the account, including deposits and withdrawals. Which form is needed?

• Transfer of Death

• Limited Power of Attorney

• Trust

• Full Power of Attorney

Answer explanation

FPOA has the same power over the account as the owner.

Mr. Lateindagame comes in on March 12th and has $15,500 he wants to invest for retirement. He is 52 and tells you he hates the IRS and those sons of guns "betta not touch his retirement!" He works hard and makes $44,000/year at a job with no retirement plan. What should you do?

• Put $15,500 in a fixed annuity

• Put $14,500 in a Roth IRA for 2022 & 2023

• Put $12,500 in a Roth IRA for 2022 & 2023

• Put $15,500 in a Dual Direction VA

Answer explanation

He is over 50, so you can put $7000 in for 2022 and $7500 for 2023.

Mr. and Mrs. Newlove, your life insurance clients, just had a baby. They want a college fund, but they want to control the money when the child turns 18 just in case he doesn't "ack right," and also want the option of giving it to another child because they plan to have six. What option would you suggest?

• 529 Plan

• UGMA - Uniform Gift to Minors

• Coverdell Education Savings Account

• UTMA - Uniform Transfers to Minors Act

Answer explanation

529 allows assets to remain under donor's control and accounts can be transferred to a related beneficiary.

Dr. Fixhearts is 64, has $1 million dollars to invest and does not need it for at least 6 years. He wants to get the maximum income at 70 and has a family history of descendants that lived to be 100. His son is a doctor as well and promises to help him with retirement needs in the future. What would you suggest?

• Corebridge Financial Power Advantage 7

• Equitable Standard Segment 6 Year

• Lincoln Financial Max 6 Select VA

• Brighthouse FlexChoice Access Level

Answer explanation

Lincoln pays out 8% at age 70, and reduces when account value is zero.

Mrs. Fofourfo comes to your office for advice. She has survived four husbands and has money saved that she would like to invest. She is risk adverse, and believes the market could drop and not recover for the next five years, but wants to possibly make some money. She wants to leave the money for her four children's estate. What would you recommend.

• Four 529 Plans

• Four Minor Roth IRAs

• Put $2000 each in 4 Coverdells and put rest in 529's

• Dual Direction VA

Answer explanation

Dual Direction allows her to pick a buffer to protect against losses. She can set up a trust and make the beneficiary the trust. The trust gets no less than the account value or the initial investment.

Mr. Tiedofwerkin wants to set up a retirement plan in January. He has $500/month he can invest and is sick of paying higher taxes now because he has no write-offs. He is single with no home or dependents. He does have a matching 401(k) at his job that he is not contributing to. What would you recommend?

• Put $500/month in a Roth IRA so retirement is tax free!

• Invest in his 401(k), then come see you for remainder to set up an IRA

• Put $500/month in a Traditional IRA and write $6000 off on his taxes at end of year!

• Start a small business and put $500/month in a SEP IRA!

Answer explanation

His 401(k) is a pre-tax contribution and reduces his taxable income, and the company is giving him free money for retirement.

Mrs. Bernyoeges is a self-employed cosmetologist with 2 employees, a receptionist and an assistant that doubles as a shampooer and dryer. She rents additional booths to two stylists. She wants a retirement account and is willing to contribute for employees as long as her plan costs are low. She doesn't want employees to contribute. What would you recommend?

• PDP - Payroll Deduction Plan

• SIMPLE IRA

• SEP IRA

• 401(k) Plan

Answer explanation

SEP IRA allows employers to contribute for employees and has low administration costs. Employees cannot contribute.

Your deacon and trustee board come to you because they heard you sell "surance" and do investments. You ask more questions and they tell you they want retirement plans for the staff and the pastor, but they don't want the "cherrch" to have to put in any money. You tell them you would be happy to assist with a __________ pre-tax contribution plan.

• 401(k)

• 403(b)7

• SIMPLE IRA

• PDP - Payroll Deduction Plan

Answer explanation

A 403(b)7 is designed for nonprofits, churches and schools and employers do not have to contribute. A PDP would work but a 403(b)7 allows pre-tax contributions.

Mr. Jones is expecting to be in a lower tax bracket in retirement and wants to lower his current adjusted gross income. He likes the idea of the Roth IRA better because he can get retirement income tax free. He makes $165,000 per year as a corporate executive and is single and ready to be a sugar daddy. What could you recommend?

• A Roth IRA

• A SIMPLE IRA

• A tax free bond fund

• Traditional IRA

Answer explanation

His income is over the limit for Roth IRA. He cannot contribute to a

Roth IRA but can make a full

contribution to a Traditional IRA.

Mr. Cashem Value meets with you and said he wants to get a WL policy because he can get tax free income, have guaranteed growth, and money for retirement. What do you tell him?

• Whole life does offer tax free income with no strings attached

• The WL policy has a negative return for the first 0-5 years on average, and the cash value is tax deferred, but income is not tax free

• He can get term and get guaranteed growth with you too in an investment.

• He can buy term and save the difference in his safe or the bank to avoid taxes too.

Answer explanation

WL policies and IULs have negative returns the beginning years. Although the cash value grows tax deferred, it is not tax free income unless it is borrowed from the cash value. Withdrawals up to the basis is tax free, but not the growth.