LLQP Segregated Funds & Annuities · Component 2.4 · 30% of the exam
An employee asks why contributing through payroll to a group plan feels better than contributing personally and claiming a deduction later. The agent should explain that payroll contributions:
- reduce tax withheld at source, so the benefit arrives with each pay rather than as a refund
- Bare exempt from income tax entirely rather than merely deductible against other income
- Care matched by the federal government in addition to whatever the employer contributes
- Dgenerate a larger deduction than the same amount contributed personally would generate
Correct answer: A) reduce tax withheld at source, so the benefit arrives with each pay rather than as a refund
When contributions come off payroll, the employer reduces the tax withheld immediately. The total deduction is the same as a personal contribution, but the cash flow benefit is felt every pay period instead of once a year.
Why the other options are wrong
- BThe contribution is deductible, which is not the same as being exempt from tax.
- CThere is no federal match on group retirement savings contributions.
- DThe size of the deduction depends on the amount contributed, not on the method used.
Exam tip
Payroll deduction changes the timing of the tax relief, never its amount.
Common mistake
Telling a member that payroll contributions produce a bigger tax saving overall.
What this tests
CISRO competency component 2.4 — Analyze the available products that meet the client's needs — which is weighted at 30% of the Segregated Funds & Annuities module. Written against the published curriculum.
More from component 2
- A segregated fund's 'guaranteed amount' after a partial withdrawal under proportional reduction is:
- A distinctive estate advantage of a segregated fund over a non-registered mutual fund held jointly with a child is:
- Segregated fund guarantees are most valuable relative to their cost when:
- A segregated fund's annual statement reports:
- Compared with a segregated fund, an exchange-traded fund (ETF) generally offers:
- A segregated fund's 'automatic death benefit reset' feature:
Practice the whole Segregated Funds & Annuities module
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