Tax Advantage Accounts and Products

What is the maximum amount of withdrawal from a Traditional IRA that a first-time homebuyer can take before age 59 ½, without having to pay a 10% penalty? A) There is no maximum B) $10,000 C) $15,000 D) $5,000

$10,000

Jack takes a $10,000 distribution from his 529 plan and uses none of the money for qualified educational expenses. $8,000 is basis and $2,000 is earnings. What penalty will he owe, in addition to regular income tax? A) $500 B) $800 C) None D) $200

$200 Can only take penalty from taxable gain which is the earnings

Tim participates in a 401(k) with a Roth account. He allocates $5,000 of his deferrals to the regular 401(k) and $3,000 to the Roth account. What is the tax treatment? A) $8,000 pre-tax B) $5,000 post-tax; $3,000 pre-tax C) $5,000 pre-tax; $3,000 post-tax D) $8,000 post-tax

$5,000 pre-tax; $3,000 post-tax

A 75-year-old customer has not yet begun taking minimum distributions from his Traditional IRA. At what rate must he pay excise tax on the amount of the distribution shortfall? A) 0.25 B) His regular income tax rate C) 0.75 D) 0.1

0.25

The deadline for taking the first Required Minimum Distribution (RMD) from an IRA falls on which day of the year? A) 1-Apr B) 31-Dec C) 15-Apr D) 30-Jun

1-Apr

An investor has made an excess contribution into a traditional IRA. What is the consequence of this excess contribution? A) A 6% penalty on the excess amount B) A 50% penalty on the excess amount C) A 10% penalty on the excess amount D) No penalty if the account has been established for at least five years.

A 6% penalty on the excess amount

Jack, age 35, wants to open an IRA and contribute to it, but he is worried that his income may be too high. In which type of IRA is high income a factor, for purposes of determining ability to contribute? A) Roth IRAs only B) Both Roth and Traditional IRAs C) Traditional IRAs only D) Neither Traditional nor Roth IRAs

A) Roth IRAs only

Which of the following is not a benefit of most types of non-qualified executive compensation plans? A) Flexibility to choose which employees participate B) Avoidance of nondiscrimination tests C) An immediate tax deduction for the company D) No limits on income that can be contributed

An immediate tax deduction for the company

If no exception applies, how much penalty must Howard pay on a $2,000 withdrawal from a Traditional IRA that he makes at age 42? A) $100 B) $200 C) $400 D) $500

B) $200 - 10% penalty

Which of the following statements is TRUE regarding the value of variable contract annuity units? A) It fluctuates based on the performance of separate account assets B) It is determined by a formula specified in the annuity contract C) It is linked to the performance of the insurance company's general account D) It is fixed at the time of the contract's annuitization

It fluctuates based on the performance of separate account assets

Direct-sold 529 college savings plans A) Incur fees which are typically higher than with an advisor-sold plan. B) Usually offer investment advice directly from the state. C) May be purchased through a primary distributor, or through state personnel. D) Can only be purchased in states approved by the IRS for this purpose.

May be purchased through a primary distributor, or through state personnel.

What is the tax treatment of non-deductible IRA contributions when they are withdrawn by an individual aged 65? A) Not taxable, no 10% penalty B) Not taxable but a 10% penalty may apply C) Taxable, but no 10% penalty D) Taxable with a 10% penalty

Not taxable, no 10% penalty

What is the defining characteristic of a "participant-directed" retirement plan? A) Participants make their own investment decisions B) All employees are eligible to participate C) All eligible employees are automatically enrolled D) All participants have access to loans

Participants make their own investment decisions

Who can make a catch-up contribution to a Traditional IRA? A) Non-working spouses B) People age 50 or over C) Social Security recipients D) People age 59 ½ or over

People age 50 or over

Contribution limits to Section 529 College Savings Plans are A) Subject to each state's individual plan contribution limits B) $2,000 per year per beneficiary C) $14,000 for an individual contributor; $28,000 for a married couple that is contributing D) There is no annual contribution limit to Section 529 College Savings Plans since unused funds will ultimately be fully taxable

Subject to each state's individual plan contribution limits

How are Interest payments from bonds held in a traditional IRA account taxed? A) Interest is received income tax-free B) Taxes are deferred until withdrawal C) Currently, as ordinary income D) Interest is partially taxable and partially tax-free on a current basis

Taxes are deferred until withdrawal

Which of the following statements regarding 529 plans is false? A) The beneficiary must be a minor. B) The funds may be used for K-12 and trade schools. C) An unlimited number of donors may contribute. D) Donors are not subject to income limits.

The beneficiary must be a minor.

What is the biggest reason a customer should carefully consider her own state's 529 plan, before starting an out-of-state plan recommended by a financial advisor? A) Advisors who sell out-of-state plans have conflicts of interest B) The home state's plan may offer favorable tax treatment for residents C) Federal tax treatment is less favorable on out-of-state plans D) Penalties may be imposed for withdrawals from out-of-state plans

The home state's plan may offer favorable tax treatment for residents

All of the following statements about annuity units are true EXCEPT A) The value of the annuity units can impact the amount of income received by an annuitant B) The number of annuity units an investor owns can increase C) They represent an interest in the separate account of an insurer D) They fluctuate in value relative to the performance of the investments in the separate account

The number of annuity units an investor owns can increase

Distributions from a Traditional IRA brokerage account must begin by what year? A) The same year the owner chooses to begin receiving Social Security B) The third year after retirement begins C) The year in which the owner turns age 75 D) The year following the year in which the owner turns age 73

The year following the year in which the owner turns age 73

What is the maximum age at which the account owner may contribute to a Traditional or Roth IRA? A) There is no age limit B) 70 ½ C) 85 D) 59 ½

There is no age limit

What is the age limit for making contributions to a Roth IRA brokerage account? A) 65 B) There is no age limit. C) 70 ½ D) 59 ½

There is no age limit.

Which withdrawals from a Traditional IRA are not fully taxable? A) Those taken for bona fide retirement income B) Those representing a plan loan C) Those representing a return of non-deductible contributions D) Those made after age 59 ½

Those representing a return of non-deductible contributions

In which case can a position in listed options be held in a Traditional IRA? A) When the IRA owner has sufficient risk tolerance B) When it is a naked put or call C) Never D) When it is part of a covered call-writing program

When it is part of a covered call-writing program

Martin opens his first Roth IRA on March 31, 2014, at age 56. What is the first date on which he can take a qualified distribution that is tax-free? A) 31-Mar-17 B) When he turns age 59 ½ C) 31-Mar-19 D) 1-Jan-19

1-Jan-19 Qualified distributions are available after meeting 2 criteria. 1) Five years after the first contribution (which is deemed to occur on Jan 1 of that year) and 2) after the account holder's 59½ birthday. In this case, five years after the first contribution is January 1, 2019 (Jan 1 2014 is year 1 and Dec 31, 2018 is the end of year 5. In 2019 Martin is also older than 59½.

What is the penalty for failure to take a Required Minimum Distribution (RMD) from a Traditional IRA? A) 25% of the RMD amount B) Forfeiture of IRA earnings for one year C) 75% of the under-withdrawal amount D) 2% of the IRA's value

25% of the RMD amount

What is the name of a participant-directed ERISA plan sponsored by a state or local government entity? A) 457(b) B) 401(d) C) 403(b) D) Government thrift savings

457(b) ERISA deferred compensation plans sponsored by state or local government entities, and also tax-exempt 501(c) organizations.

An individual who has made an initial payment for a deferred variable annuity contract owns A) Accumulation units B) Annuity units C) General account units D) Separate account shares

Accumulation units

Which of the following businesses may offer a SIMPLE IRA to its employees? A) An industrial company employing over 1,000 people B) A small law firm with 50 partners and a team of associated individuals C) An education company with 75 employees D) A social media company with outlets in the US and abroad

An education company with 75 employees needs to be under 100

An individual who has made an initial payment for an immediate variable annuity contract owns A) Separate account shares B) General account units C) Accumulation units D) Annuity units

Annuity units They skip the accumulation phase of the contract

Investors who choose a pre-paid tuition plan for college savings A) Can defer payment of tuition until the time of actual enrollment B) Must forfeit any scholarship they may have received C) May only attend a private college in the student's home state D) Can lock in future tuition payments when the plan is established

Can lock in future tuition payments when the plan is established

Which of the following statements is correct regarding Traditional IRAs? A) Contributions are usually after-tax, earnings and growth tax-deferred, and all distributions are taxed as ordinary income. B) Contributions are usually pre-tax, earnings and growth are tax-deferred, and all distributions are taxed as ordinary income. C) Contributions are usually pre-tax, earnings and growth are tax-deferred, and all distributions are taxed as long-term capital gains. D) Contributions are usually pre-tax, earnings and growth taxable each year, and all distributions taxed at a preferred rate.

Contributions are usually pre-tax, earnings and growth are tax-deferred, and all distributions are taxed as ordinary income.

In establishing a Section 529 College Savings Plan, a donor should be aware that A) There are generally no tax advantages in choosing a plan within the donor's state of residence B) Contributions can be made by multiple contributors to the account of a beneficiary C) Age based investment options become more aggressive as the beneficiary gets closer to college age D) Advisor sold plans usually have lower fees and charges than direct sold plans

Contributions can be made by multiple contributors to the account of a beneficiary

Which two of the following statements regarding variable annuities are TRUE? I. investors assume the investment risk II. The insurer assumes the investment risk III. The insurance company guarantees a rate of return IV. The insurance company attempts to reduce purchasing power risk A) II and III B) I and III C) I and IV D) II and IV

I. investors assume the investment risk IV. The insurance company attempts to reduce purchasing power risk

Which two of the following types of securities are municipal fund securities? I. VRDOs II. 529 Plans III. LGIPs IV. CLN funds A) I and II B) II and IV C) II and III D) I and III

II. 529 Plans III. LGIPs

Which two of the following statements are true about Traditional IRAs? I. The catch-up provision begins at age 55 II. The maximum contribution is $6,500 per year III. Withdrawals can begin at age 59 1/2 IV. Withdrawals can begin at age 59 1/2, with a minimum of 5 years of contributions A) I and II B) I and IV C) II and IV D) II and III

II. The maximum contribution is $6,500 per year III. Withdrawals can begin at age 59 1/2

Which two of the following are likely to be included in variable annuity subaccounts, but not in the general account of an insurance company? I. Corporate bonds II. mutual funds III. ETFs IV. U.S. Treasury securities A) I and III B) II and III C) I and IV D) II and IV

II. mutual funds III. ETFs Variable accounts give opportunity for growth - aka equity secutiries

Which two of the following statements about purchase payments for variable products are TRUE? I. they are invested in an insurer's general account II. they are invested in an insurer's separate account III. they purchase units IV. they purchase shares A) I and III B)II and IV C) II and III D) I and IV

II. they are invested in an insurer's separate account III. they purchase units

During the accumulation phase of a variable annuity, dividends, interest, and capital gains A) Are taxed as ordinary income if the contract is non-qualified B) May be withdrawn with no tax implications C) May be reinvested without any current tax liability D) Are taxed as capital gains if the contract is non-qualified

May be reinvested without any current tax liability

Which regulatory agency has the authority to create rules for 529 plans? A) Municipal Securities Rulemaking Board B) Federal Trade Commission C) FINRA D) The SEC

Municipal Securities Rulemaking Board

In which case does a gain on mutual fund shares held in an IRA qualify for long-term capital gains treatment? A) Never B) When the IRA is held for more than five years C) When the shares are held for a year or more D) When one mutual fund is traded for another

Never

All of the following statements regarding the establishment of a Section 529 College Savings Plan are true EXCEPT A) Non-relatives may not establish plans for a beneficiary B) The account owner can change investment options one time per year, or when a rollover takes place C) The designated beneficiary can be changed to another family member without tax consequences D) Contributions to the plan are not tax deductible.

Non-relatives may not establish plans for a beneficiary

Which IRS table must a Roth IRA owner use to calculate Required Minimum Distributions after age 73? A) Joint Life B) Single Life C) None D) Uniform Life

None

What types of distributions from Roth IRAs are tax-free? A) All except non-deductible contributions B) Preferred C) Qualified D) All

Qualified

A distribution from a 529 plan is taxable to the extent that the distribution exceeds A) $10,000 B) The taxpayer's college expense allowance C) $18,000 D) Qualified educational expenses

Qualified educational expenses

Individuals that take withdrawals from annuity contracts prior to annuitization may be required to pay A) Mortality expense charges B) Surrender charges C) Annuitization surcharges D) Waiver of premium charges

Surrender charges

A customer that has recently purchased a variable annuity contract wishes to take an emergency cash withdrawal of 50% of the purchase payments. Which of the following statements is TRUE? A) Variable annuity contracts allow customers to withdraw funds when needed without charge B) The customer may withdraw the funds, but will be subject to surrender charges C) The customer may withdraw the funds through the policy loan provision D) This type of withdrawal is not permitted

The customer may withdraw the funds, but will be subject to surrender charges

David has set up a 529 college savings plan for his daughter Ruby. Three years after the plan is established, David takes a distribution to cover a necessary home repair. This distribution A) Will be subject to taxes but no penalty B) Would be permitted as long as IRS Form 529 is filed at least 30 days prior to the distribution being taken C) Will be subject to a penalty and ordinary income taxes as applicable D) Will subject David to an IRS audit and possible fines.

Will be subject to a penalty and ordinary income taxes as applicable

Karen made a $2,000 contribution to her Traditional IRA in November. After she looked at her 1099 wage statement the following February, showing annual compensation of $78,000, she wished that she had made a larger contribution. Can she? A) Only with the permission of her employer B) Only with the permission of the IRS C) Yes, up until her tax filing deadline D) No, it is too late

Yes, up until her tax filing deadline

Investors in Roth IRA's may make A) after-tax contributions and receive tax-free distributions. B) pre-tax contributions and receive distributions that are only taxed when retirement age is reached. C) after-tax distributions and receive distributions taxed at federal but not state level. D) pre-tax contributions and receive tax-free distributions

after-tax contributions and receive tax-free distributions.

tender offer

an offer to purchase the stock of a firm targeted for acquisition at a price just high enough to tempt stockholders to sell their shares

Coverdell ESA's can be opened for any student A) at least 18 years of age. B) under the age of 30. C) who is currently a student at an accredited institution. D) under the age of 18.

under the age of 18. the assets must be used / withdrawn by the time the individual reaches the age of 30.

Under ERISA, qualified plans must offer: A) vesting schedule for employers' contributions. B) partial vesting for employee contributions. C) minimum vacation days. D) vesting schedule for employees' contributions.

vesting schedule for employers' contributions.

An investor has started to contribute to a variable annuity through a broker-dealer. The accumulation units that are being purchased through the contract A) will provide a fixed return not to decline below the level of inflation. B) are guaranteed to provide a minimum return to the investor assuming the investment is maintained for at least five years. C) will continue to increase with ongoing contributions and change in value with the market. D) are guaranteed by the state insurance commission, who oversees all insurance and variable annuity products.

will continue to increase with ongoing contributions and change in value with the market.