Retirement Plans

Payments received by the owner of a tax qualified variable annuity are

100% taxable as investment income When distributions are taken, since all of the dollars in the plan were never taxed, all of the distribution is taxable.

An ABLE account must be established before the beneficiary reaches the age of

26

Distributions from Roth IRAs are subject to a penalty if withdrawals are made within

5 years of original contribution

What type of education savings plan permits an adult donor to be the beneficiary?

529 plan

A Variable Annuity is

A non-exempt security under the Securities Act of 1933 because the purchaser bears the investment risk

Under Keogh rules, any distributions from a Keogh Plan must start no later than

April 1st of the year following the year the individual turns 72 APRIL 1, 72

Individual Retirement Account (IRA) contributions can be made with

Cash Once cash is deposited, it can be used to purchase any type of qualified investments). Contributions cannot be made with exempt or non-exempt securities.

A new customer, age 45, has been terminated from his assembly-line job of the past 20 years at an automotive parts supplier. During that time period, he has accumulated $124,000 in the company's 401(k) plan. He wishes to rollover the funds to an IRA account with your brokerage firm. This customer, who is an unsophisticated investor, has the entire 401(k) invested in a growth mutual fund and has no other investments. As the representative for this customer, your immediate concern should be

Communicating effectively with an unsophisticated customer in an understandable manner to assess financial goals and risk tolerance

T/F - HSAs are funded with non tax-deductible contributions

False HSAs are funded with tax-deductible contributions

T/F - HSAs can be established by all employers that offer health insurance plans

False HSAs can only be established by employers that have high deductible health insurance plans

Fixed Annuity vs. Variable Annuity: _________ Annuities guarantee a rate of return that is not affected by investment risk; _________ Annuity payments depend on the performance of the securities held in the underlying separate account

Fixed Annuities guarantee a rate of return that is not affected by investment risk; Variable Annuity payments depend on the performance of the securities held in the underlying separate account

An individual, age 40, earns $60,000 per year. He has no family and has $200,000 of life insurance. He contributes 6% of his salary to his company sponsored 401(k) annually. He informs his registered representative that he is getting a $5,000 raise. What should you recommend that the customer do with the raise?

Increase the 401(k) contributions by $5k per year Since any permitted 401(k) contribution is deductible, it is best to recommend that the customer max out his 401(k).

All of the following are variable annuity payment options except: Life Annuity, Life Annuity with Period Certain, Joint & Last Survivor, Joint Tenants with Rights of Survivorship

Joint Tenants with Rights of Survivorship

A variable annuity prospectus includes an AIR illustration using a 5% rate. This means that the

Return could be less than 5%

Employees of non-profit organizations are permitted to establish tax deferred retirement plans, similar to a Keogh, by making investments in a

Tax Sheltered Annuity The monies contributed are excluded from taxable income, and must be used to purchase "tax sheltered" annuities or mutual funds; direct stock investments are prohibited.

If the actual interest rate earned in the separate account underlying a variable annuity contract is higher than the "AIR" the annuity payment

Will increase AIR = assumed interest rate This is used as an illustration of the annuity payment that will be received if the separate account grows at the AIR. If the assets grow at an interest rate that is higher than the AIR, then the annuity payment will increase. Conversely, if the assets grow at an interest rate that is lower than the AIR, then the annuity payment will decrease.

Generally, if a non-spouse inherits an IRA, the beneficiary must

elect to receive the entire proceeds over the next 10 years

The separate account that the insurance company maintains for a variable annuity is

invested in designated mutual funds

A tax deduction for a contribution to a Coverdell Education Savings Account is

not permitted

If a corporation has an unfunded pension liability, this means that

the expected future value of fund assets is less than projected benefit claims An unfunded pension liability means that expected payments from the retirement plan are in excess of the expected future assets in the plan.

A variable annuity prospectus includes an AIR illustration using a 5% rate. This means that

the return could be less than 5%

Characteristics of Defined Benefit Plans

• Annual contribution amounts may vary • The annual benefit amount is fixed at retirement • The adoption of this type of plan benefits key employees who are nearing retirement • If the corporation has an unprofitable year, it must still make the contribution amount as determined by the actuary