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FINRA Series 7 General Securities Representative Exam

3. Provides Information, Makes Recommendations, Transfers Assets / Annuities: practice questions

Our FINRA Series 7 bank has 8 questions on this topic. Here are 3 of them with answers; the full mock exam draws from every topic, like the real one.

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Question 1

A 52-year-old takes a $20,000 withdrawal from a non-qualified deferred annuity with $60,000 of contributions and $30,000 of earnings. The tax result is:

  1. $20,000 long-term capital gain with no penalty
  2. $20,000 tax-free return of contributions
  3. $20,000 ordinary income plus a 10% additional tax
  4. $6,667 taxable and $13,333 tax-free with no penalty
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C. $20,000 ordinary income plus a 10% additional tax — Withdrawals before annuitization come from earnings first (LIFO) and are taxed as ordinary income; before age 59½ a 10% additional tax generally applies (IRC 72).

Question 2

A customer exchanges one variable annuity for another directly between insurers. The exchange is tax-free under IRC Section:

  1. 1035
  2. 1031
  3. 529
  4. 72(t)
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A. 1035 — A Section 1035 exchange lets annuity owners swap contracts without recognizing gain; Rule 2330 requires a suitability review of such recommendations.

Question 3

Which product is generally not a security?

  1. A fixed annuity
  2. A unit investment trust
  3. A variable annuity
  4. A variable life insurance policy
Show the answer

A. A fixed annuity — Fixed annuities guarantee a rate and the insurer bears investment risk, so they are insurance products; variable contracts are securities.

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