Chapter 14 Personal Finance

d

72. Employees who were born in 1960 or later can receive full Social Security benefits beginning at age A. 59½. B. 62. C. 65. D. 67. E. 70.

c

73. Julian's annual contributions to his retirement are not tax-deductible, but his earnings accumulate tax-free. He is investing in a A. 401(k) plan. B. Regular IRA. C. Roth IRA. D. SEP plan. E. Spousal IRA.

d

74. Lawrence is self-employed and wants to have an investment funded by his company. He should set up a A. 401(k) plan. B. Regular IRA. C. Roth IRA. D. SEP plan. E. Spousal IRA.

a

67. Which retirement plan specifies the benefits you'll receive at retirement age based on your total earning and years on the job? A. Defined benefit plan. B. Money-purchase plan. C. Defined contribution plan. D. Profit-sharing plan. E. 401(k) plan.

a

68. In 1974 ERISA was passed. What does ERISA stand for? A. Employee Retirement Income Security Act B. Employer Retirement Income Security Act C. Employee Retirement Investment Security Act D. Employer Retiring Investment Stock Act E. Entity Retirement Investment Security Act

a

69. Social Security A. Covers about 97% of all American workers. B. Offers full retirement benefits beginning at age 62. C. Provides benefits only for retirees. D. Provides 100% of retirement income for recipients. E. Was established in 1947.

d

70. What percentage of American workers are covered by Social Security? A. 15% B. 50% C. 78% D. 97% E. 100%

b

71. How is eligibility determined for receiving Social Security retirement benefits? A. Marital status. B. Credits. C. Family size. D. Salary. E. All of these.

e

101.A(n) ______ administers a trust. A. beneficiary B. executor C. grantor D. guardian E. trustee

a

66. Vesting is the right to receive the A. Employer's contributions to a pension plan. B. 401(k) contributions made by the employee. C. Employee's contributions each pay period. D. Portable employee benefits from a defined benefit plan. E. Employee of the month award at a company that makes life jackets.

c

114.This tax is only imposed by state governments. A. Estate tax B. Gift tax C. Inheritance tax D. Trust federal income tax E. Will tax

d

49. When thinking about retirement, which of the following is correct? A. You'll spend less money when you retire. B. Saving just a little bit won't help. C. You can depend on Social Security and a company pension plan to pay your basic living expenses. D. The earlier you start saving, the better. E. Your pension benefits will increase to keep pace with inflation.

e

50. When planning for retirement, you should review A. Housing. B. Life insurance. C. Investments. D. Assets. E. All of these.

b

51. When planning for retirement, A. A mortgage should not affect your financial planning. B. Investments should be evaluated to determine whether their income can help cover living expenses. C. Keeping your current, large house will be cheaper to maintain than a move to a smaller house. D. Life insurance should be avoided. E. All of these are true.

b

52. According to the text, which of the following will probably be your most valuable asset at retirement? A. Automobile. B. House. C. Investments. D. Life insurance. E. All of these.

d

53. What steps should be taken in retirement planning? A. Conduct a financial analysis. B. Estimate retirement living expenses. C. Exceed budget amounts for spending. D. Conduct a financial analysis and estimate retirement living expenses. E. All of these are correct.

c

54. An "average" older household spends most of its money on A. Entertainment. B. Food. C. Housing. D. Medical care. E. Transportation.

d

55. An "average" older household spends more money on A. Clothing than on housing. B. Contributions than on medical care. C. Entertainment than on transportation. D. Housing than on contributions, entertainment, and clothing combined. E. Personal insurance than on food.

a

56. When you retire, you will probably spend less money on A. Clothing. B. Health insurance. C. Medical care. D. Recreation. E. All of these.

d

57. When you retire, you will probably spend more money on A. Clothing. B. Transportation. C. Taxes. D. Health insurance. E. All of these.

c

58. When planning for retirement, inflation A. Decreases through retirement. B. Should be ignored since it will have no effect on retirement funding. C. Should be considered since income received earlier in retirement will buy more than the same amount received later in retirement. D. Is unimportant since pension income does not change in retirement. E. Should be recognized since it will increase the value of income received in retirement.

e

59. Which of the following is not a source of retirement income? A. Annuity. B. Employer pension plan. C. Personal retirement plan. D. Public pension plan. E. All of these are sources of retirement income.

a

60. All of the following are examples of defined contribution plans except A. Defined benefit plan. B. Money-purchase plan. C. Profit-sharing plan. D. Salary reduction plan. E. Stock bonus plan.

b

61. When an employer promises to set aside a certain amount of money for each employee each year, it has set up a A. Defined benefit plan. B. Money-purchase plan. C. Profit-sharing plan. D. Salary reduction plan. E. Stock bonus plan.

a

62. A salary reduction plan is also known as a A. 401(k) plan. B. Money-purchase plan. C. Profit-sharing plan. D. Salary reduction plan. E. Stock bonus plan.

e

63. When an employer's contribution is used to buy stock in the company for its employees, it has a A. 401(k) plan. B. Money-purchase plan. C. Profit-sharing plan. D. Salary reduction plan. E. Stock bonus plan.

d

64. An employer's contribution will vary according to the company's profits in a A. 401(k) plan. B. Money-purchase plan. C. Stock bonus plan. D. Profit-sharing plan. E. Salary reduction plan.

a

65. An employer may choose to match money employees invest in a A. 401(k) plan or a salary reduction plan. B. Money-purchase plan. C. Stock bonus plan. D. Profit-sharing plan. E. Individual retirement account.

b

100.A legal arrangement that helps manage the assets of your estate for your benefit or that of your beneficiaries is called a A. Formal will. B. Trust. C. Holographic will. D. Guardian. E. Statutory will.

c

102.A(n) ______ is the creator of a trust. A. beneficiary B. executor C. grantor D. guardian E. trustee

d

103.A(n) ____ allows you to end the trust or change its terms during your lifetime. A. irrevocable trust B. living will C. power of attorney D. revocable trust E. will

a

104.A(n) ____ cannot be changed or ended. A. irrevocable trust B. living will C. power of attorney D. revocable trust E. will

a

105.Gladys wants to set up a trust that is also known as a bypass trust, family trust, "residuary" trust, A/B trust, and exemption equivalent trust. She should set up a(n) A. Credit-shelter trust. B. Revocable trust. C. Irrevocable trust. D. Living trust. E. Testamentary trust.

a

106.This trust is designed to allow married couples to take full advantage of the federal estate tax exemption. A. Credit-shelter trust B. Revocable trust C. Irrevocable trust D. Living trust E. Testamentary trust

d

107.This is also known as an inter vivos trust. A. Credit-shelter trust B. Disclaimer trust C. Irrevocable trust D. Living trust E. Testamentary trust

d

108.This allows the trustor to receive benefits during his or her lifetime. A. Credit-shelter trust B. Disclaimer trust C. Irrevocable trust D. Inter vivos trust E. Testamentary trust

e

109.This trust becomes effective upon your death. A. Credit-shelter trust B. Disclaimer trust C. Irrevocable trust D. Living trust E. Testamentary trust

e

110.This is the best option if you or your beneficiaries are inexperienced in financial matters and if your estate taxes will be high. A. Revocable trust B. Disclaimer trust C. Irrevocable trust D. Living trust E. Testamentary trust

d

111.The maximum gift that can be given to another person without incurring gift taxes is A. $0. B. $1,000. C. $10,000. D. $13,000. E. $16,500.

a

112.When you die, this tax will be based on the fair market value of your investments, property, and bank accounts less an exemption (of $5.12 million in 2012). A. Estate tax B. Gift tax C. Inheritance tax D. Trust federal income tax E. Will tax

d

113.Trusts and estates must pay quarterly estimated taxes based on taxable income for their A. Estate tax. B. Gift tax. C. Inheritance tax. D. Trust federal income tax. E. Will tax.

b

75. Jill is 45 years old and thinks that her future tax rate will be lower than what she currently pays, so she wants to defer her taxes on her contributions of up to $5,000 in 2012. Which plan would allow her to meet her goals? A. 401(k) plan B. Regular IRA C. Roth IRA D. SEP plan E. Spousal IRA

e

76. Robert's wife Fiona does not work, and they file a joint tax return. Robert can contribute on behalf of Fiona into a A. 401(k) plan. B. Regular IRA. C. Roth IRA. D. SEP plan. E. Spousal IRA.

a

77. Another name for a Coverdell account is a(n) A. Education IRA. B. Regular IRA. C. Roth IRA. D. SEP plan. E. Spousal IRA.

b

78. Another name for an H.R. 10 plan or a self-employed retirement plan is a A. 401(k) plan. B. Keogh plan. C. Regular IRA. D. SEP plan. E. Spousal IRA.

c

79. If you have fully funded your 401(k) and profit-sharing plans, you may choose to enhance your retirement savings by using this plan that allows you to withdraw money from the account tax-free and penalty-free after five years. A. Annuity B. Keogh plan C. Roth IRA D. SEP plan E. Spousal IRA

e

80. When planning for retirement, you should consider all of the following except A. Checking that you are receiving all income to which you are entitled. B. Evaluating all assets or valuables that you might be able to convert to cash or sources of income. C. Receiving special discounts because of your retiree status or age. D. Working during retirement. E. Withdrawing all retirement savings within five years of retirement.

d

81. Estate planning is an essential part of A. Retirement planning. B. Financial planning. C. Vacation planning. D. Both retirement and financial planning. E. Both financial and vacation planning.

c

82. An estate consists of A. Home, vehicle, and retirement accounts only. B. Furniture, home, and collections only. C. Everything you own. D. Everything you own except your home if you hold a mortgage on it. E. None of these.

e

84. Sean's estate planning should A. Be built by acquiring assets using debt. B. Be distributed first to his cousin, then whatever is left should go to his wife. C. Ignore his beneficiaries. D. Consist primarily of a will. E. Take the needs of his wife and children into account.

e

85. Which of the following is not a document associated with estate planning? A. Birth certificate. B. Legal name change. C. Insurance policy. D. Will. E. All of these are documents associated with estate planning.

d

86. Intestate is A. The process of validating a will. B. A written will. C. A type of trust. D. Dying without a valid will. E. The selection of a trust.

c

87. Jacob is updating his estate planning and wants to set up the legal document to leave everything to his wife. He is writing a(n) A. Exemption trust will. B. Guardian will. C. Simple will. D. Stated amount will. E. Traditional marital share will.

a

88. William is updating his estate planning and wants to set up the legal document to leave all of his assets except a specific amount to his wife. He is writing a(n) A. Exemption trust will. B. Guardian will. C. Simple will. D. Stated amount will. E. Traditional marital share will.

a

89. Cookie is updating her estate planning and wants to write a legal document that will allow all of her assets to go to her spouse except for a certain amount that will be set up in a trust. The trust (plus interest) can provide her spouse lifelong income that will not be taxed. She is writing a(n) A. Exemption trust will. B. Guardian will. C. Simple will. D. Stated amount will. E. Traditional marital share will.

d

90. Darlene is updating her estate planning and wants to set up the legal document to leave $5.1 million to her husband. She is writing a(n) A. Exemption trust will. B. Guardian will. C. Simple will. D. Stated amount will. E. Traditional marital share will.

e

91. Jason is updating his estate planning and wants to set up the legal document to leave half of the adjusted gross estate to his wife. He is writing a(n) A. Exemption trust will. B. Guardian will. C. Simple will. D. Stated amount will. E. Traditional marital share will.

c

92. A handwritten will is known as a(n) A. Formal will. B. "I love you" will. C. Holographic will. D. Ordinary will. E. Statutory will.

a

93. A will that is usually prepared with the help of an attorney is known as a(n) A. Formal will. B. "I love you" will. C. Holographic will. D. Ordinary will. E. Statutory will.

e

94. A will prepared on a preprinted form is called a(n) A. Formal will. B. "I love you" will. C. Holographic will. D. Ordinary will. E. Statutory will.

b

95. Your will must be signed by A. The lawyer who prepares it. B. You. C. Three unbiased witnesses. D. One beneficiary. E. All of these.

b

96. If you have children and are writing your will, you need to do all of the following except A. Select a guardian. B. Write the will with the help of an attorney. C. Select an executor. D. Sign the will in front of two witnesses. E. Select beneficiaries.

a

97. A codicil is A. A document that explains, adds, or deletes provisions in an existing will. B. A handwritten will. C. Another name for the first will an individual writes. D. A will written in legal code. E. None of these.

c

98. Multiple copies of a ______________ should be distributed to those closest to you as well as your family doctor. A. formal will B. guardian C. living will D. power of attorney E. trust

e

99. The letter of last instruction is A. Another name for a will. B. Legally binding. C. Another name for a trust. D. A document that identifies whether you want to be kept alive by artificial means if you become terminally ill and unable to make such a decision. E. A non-legally binding document that provides information regarding your death such as funeral arrangements.