LLQP Segregated Funds & Annuities · Component 2.2 · 30% of the exam
Switching between funds within a segregated fund contract is:
- Generally not a taxable disposition, since the client holds one contract; free switches may be limited
- BAlways a taxable disposition, since each fund is a separate property for tax purposes
- CAlways subject to a new maturity date, since the guarantee restarts on the new fund
- DProhibited during the first ten years, since the guarantee is priced on the fund chosen at the time of the original deposit
Correct answer: A) Generally not a taxable disposition, since the client holds one contract; free switches may be limited
Non-taxable switching within a contract is an advantage over switching between mutual funds (which is a disposition). Guarantee dates are generally unaffected by switches.
Why the other options are wrong
- BWithin-contract switches are typically not dispositions.
- CSwitches do not reset the maturity date.
- DSwitching is permitted, subject to limits.
Exam tip
Within-contract switches: usually non-taxable; check free-switch limits.
Common mistake
Advising a client that seg fund switches trigger capital gains.
What this tests
CISRO competency component 2.2 — 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
Timed sets weighted like the exam, and review of every question you miss. Free to start.