LLQP Segregated Funds & Annuities · Component 1.2 · 35% of the exam
A client has a tax-free account she has been using for short-term savings, withdrawing and replacing amounts within the same year. The review should warn that:
- AWithdrawals from the account are taxable when they exceed the original contributions
- BReplacing a withdrawal in the same calendar year is permitted provided the amount is identical
- Withdrawals may only be replaced in the following year, or an over-contribution penalty arises
- DThe account must be closed once a withdrawal has been made in any calendar year
Correct answer: C) Withdrawals may only be replaced in the following year, or an over-contribution penalty arises
Room from a withdrawal is restored at the start of the following year, so re-contributing earlier uses room the client does not have and attracts a monthly penalty.
Why the other options are wrong
- AWithdrawals from a tax-free account are not taxable.
- BThe amount does not matter; the year does.
- DThe account continues after a withdrawal.
Exam tip
Withdrawn room comes back next year, not this year.
Common mistake
Re-contributing a withdrawal in the same calendar year.
What this tests
CISRO competency component 1.2 — Assess the client's needs and situation — which is weighted at 35% of the Segregated Funds & Annuities module. Written against the published curriculum.
More from component 1
- The first step before recommending a segregated fund or annuity is to:
- A client's 'time horizon' for an investment is:
- 'Risk tolerance' in an investor profile refers to:
- A client says he wants 'high returns with no risk of losing money'. The agent should:
- Investment objectives are commonly classified as:
- Why is the client's marginal tax rate relevant to a segregated fund recommendation?
Practice the whole Segregated Funds & Annuities module
Timed sets weighted like the exam, and review of every question you miss. Free to start.