Chapter 7: Retirement Plans - Retirement Plans
In 2023, individuals with earned income who are age 50 or over are permitted to make an extra annual IRA contribution of:
$1,000
In 2023, a self-employed doctor contributes the maximum permitted amount to a Keogh plan. The doctor has a full time nurse earning $60,000 per year. The contribution to be made for the nurse is:
$15,000
In 2023, a self-employed person earning $100,000, who also has $100,000 of investment income, wishes to open a Keogh Plan. Their maximum permitted contribution is:
$20,000
A 65-year old individual has just retired after working for the same employer for 20 years. He will collect an annual pension benefit of $50,000, but is not yet ready to stop working. He has lined up a part-time job that will pay $3,000 this coming year. How much can he contribute to a Traditional Individual Retirement Account for his first year in retirement?
$3,000
A 55-year old individual has just retired after working for the same employer for 20 years. She will collect an annual pension benefit of $55,000, but is not yet ready to stop working.She has lined up a part-time job that will pay $4,000 this coming year. How much can she contribute to a Traditional Individual Retirement Account for her first year in retirement?
$4,000
In 2023, a self-employed person earning $200,000 also has $100,000 of investment income. This person wishes to open a Keogh Plan. Their maximum permitted contribution is:
$40,000
For the year 2023, the maximum contribution that an individual under age 50 can make to an IRA is:
$6,500
In 2023, an unmarried person under age 50 earning $83,000 a year, is not covered by a pension plan. The maximum tax deductible Individual Retirement Account contribution for this year is:
$6,500
In 2023, a self-employed individual earns $350,000 for the year. The maximum contribution that can be made to an HR10 plan for this year is:
$66,000
In 2023, a customer earns $350,000 as a self-employed doctor, and contributes the maximum permitted amount to a Keogh plan. The doctor has a full time nurse earning $30,000 per year. The contribution to be made for the nurse is:
$7,500
A husband and wife both work, earning $150,000 each. Both are age 45 and are covered by employer-sponsored qualified retirement plans. What is the maximum deductible contribution that can be made to an IRA in 2023?
0
A self-employed individual purchases variable annuity units with funds contributed to a Keogh Account. Once the contract is annuitized, the payments are:
100% taxable
Distributions after age 59 ½ from tax qualified retirement plans are:
100% taxable
Distributions from qualified retirement plans that are not rolled over into an IRA or other qualified plan are subject to:
20% withholding tax
The penalty tax applied for not taking required minimum distribution from a qualified retirement plan in a given year is:
25% of the shortfall
Distributions from Roth IRAs are subject to a penalty if withdrawals are made within:
5 years of original contribution
A person can start withdrawing from his or her Keogh Plan without penalty at age:
59 1/2
To avoid penalties, funds cannot be withdrawn from tax qualified retirement plans before age:
59 1/2
Distributions from an Individual Retirement Account must commence by age:
73
A divorced woman with 2 young children has just re-entered the workforce part time and earns $3,000 from this work. She collects another $2,400 per year in alimony payments. The woman wishes to make a contribution to an Individual Retirement Account this year. Which statement is TRUE?
A contribution can be made based only on the income earned from part-time work
In 2023, a self-employed individual earns $180,000 for the year, and contributes the maximum amount to an HR10 plan. If this individual wished to make a contribution to a self-directed Individual Retirement Account for this year, which statement is TRUE?
A maximum contribution of $6,500 is permitted, but no adjustment is allowed to that year's taxable income for that amount
A married couple, where both individuals work, earns in excess of $136,000 in year 2023. Both individuals are covered by qualified retirement plans. Which statement is TRUE regarding contributions to Individual Retirement Accounts for these persons?
A non-tax deductible contribution of $13,000 ($6,500 each) is permitted
Which statement is FALSE about Individual Retirement Accounts?
All contributions reduce the individual's taxable income
All of the following are allowed investments into an Individual Retirement Account EXCEPT:
Antiques, Art, and Other Collectibles
For an Individual Retirement Account contribution to be deductible from that year's tax return, the contribution must be made by no later than:
April 15th of following year
What is the first age at which distributions must commence from a 401(k) Plan?
April 1st of the year after reaching age 73
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 73
403(b) Plans are permitted to invest in all of the following EXCEPT:
Common stocks
Which statement is TRUE about Roth IRAs?
Contributions are not tax deductible; distributions after age 59 1/2 are not taxed
An individual who maintains a Keogh Plan is approaching the age of 73. Which statement is TRUE?
Distributions from the plan must commence on April 1st following the year the individual reaches the age of 73
If a person under the age of 59 1/2 wishes to withdraw money from her IRA, which statements are TRUE? I The withdrawal is subject to income tax II The withdrawal is not subject to income tax III The withdrawal is subject to a 10% penalty tax IV The withdrawal is not subject to a 10% penalty tax
I and III
Which of the following statements are TRUE regarding contributions to 403(b) tax deferred annuities and the distributions from these plans after age 59 1/2? I Contributions are made with before tax dollars II Contributions are made with after tax dollars III Distributions are 100% taxable IV Distributions are tax free
I and III
Which of the following statements are TRUE regarding contributions to, and distributions from, tax qualified retirement plans? I Contributions are made with before tax dollars II Contributions are made with after tax dollars III Distributions are 100% taxable IV Distributions are partially tax free, with the amount above the original cost basis being taxable
I and III
A couple, earning over $136,000 in year 2023 where both are covered by qualified retirement plans, wishes to contribute to an IRA. The contributions are: I permitted II not permitted III tax deductible IV not tax deductible
I and IV
Distributions prior to age 59 1/2 from qualified retirement plans that are not rolled over into an IRA or other qualified plan are subject to: I 10% penalty tax II 20% penalty tax III 10% withholding tax IV 20% withholding tax
I and IV
For an investor who has a Keogh Plan, which of the following statements are TRUE? I The plan is a tax qualified II The plan is non-tax qualified III Once distributions commence at age 59 1/2 or later, only the tax deferred build-up is taxed IV Once distributions commence at age 59 1/2 or later, both the original investment and the build-up are taxed
I and IV
If a corporation has an unfunded pension liability which of the following statements are TRUE? I The expected payments from the retirement plan are in excess of the expected future assets in the plan II The expected payments from the retirement plan are lower than the expected future assets in the plan III The plan is in default and must be liquidated by the trustee IV The trustee must ensure that future funding is adequate
I and IV
Which of the following are characteristics of Defined Contribution Plans? I Annual contribution amounts are fixed II Annual contribution amounts will vary III If the corporation has an unprofitable year, the contribution may be omitted IV If the corporation has an unprofitable year, the contribution must still be made
I and IV
Which of the following statements about 403(b) Plans are TRUE? I Contributions are tax deductible to the employee II Contributions are not tax deductible to the employee III These plans are available to employees of any organization IV These plans are available to non-profit organization employees only
I and IV
Individual Retirement Account contributions can be made with: I Cash II Exempt Securities III Non-Exempt Securities IV Money Market Fund Shares
I only
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, you should be concerned about which of the following? I Communicating effectively with an unsophisticated customer in an understandable manner to assess financial goals and risk tolerance II Setting the investment allocation strategy that should be employed in order to provide sufficient retirement income for this individua lIII Creating a financial plan that emphasizes asset preservation and that is likely to provide a prolonged income stream for a prolonged period of retirement IV Minimizing the tax implications of any recommended transactions to increase the long-term growth potential of investments made
I, II, III, IV
Which of the following statements are TRUE regarding tax sheltered annuities for employees of non-profit organizations? I These are known as 401(k) plans II These are known as 403(b) plans III Monies contributed to this plan are excluded from taxable income IV Monies contributed to this plan are included in taxable income
II and III
Which statements are TRUE when comparing a Roth IRA to a Traditional IRA? I Anyone with earned income can open a Roth IRA II Anyone with earned income can open a Traditional IRA III Roth IRAs are not available to high-earning individuals IV Traditional IRAs are not available to high-earning individuals
II and III
403(b) Plans are: I non-tax qualified plans II tax qualified plans III plans available to "for profit" organizations IV plans available to "not for profit" organizations
II and IV
Which statements are TRUE about Roth IRAs? I Contributions must cease at age 73 II Contributions can continue after age 73 III Distributions must start after age 73 IV Distributions are not required to start after age 73
II and IV
Which statements are TRUE regarding Roth IRAs? I Roth IRAs allow for higher annual contributions than Traditional IRAs II Roth IRAs allow for the same annual contributions as Traditional IRAs III An individual can contribute up to $6,500 in 2023 to both a Roth IRA and a Traditional IRA IV An individual can contribute up to $6,500 in 2023 to either a Roth IRA or a Traditional IRA
II and IV
403(b) Plans are permitted to invest in which of the following? I Common stocks II Mutual Funds III Fixed Annuities IV Variable Annuities
II, III, IV
Which of the following statements are TRUE regarding the transfer of Individual Retirement Accounts from one trustee to another? I Each transfer is considered to be an "IRA Rollover" and thus is permitted only once per year II The funds can be transferred by having the trustee or custodian make a check payable to the account holder; who will then deposit the check with the new trustee or custodian III The transfer can be effected by wiring the funds directly between trustees or custodians IV The transfer can be effected by having the predecessor trustee or custodian make a check payable to the successor trustee or custodian
III and IV only
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 $5,000 per year
A divorced woman with 2 young children has a small trust fund that gives her $2,500 a year in income. She collects another $2,500 per year in alimony payments. The woman wishes to make a contribution to an Individual Retirement Account this year. Which statement is TRUE?
No contribution can be made based on either the alimony payments or the trust fund income
In the year 2023, a divorced woman under age 50 collects $50,000 of alimony and child support as her sole source of income. The woman wishes to make a contribution to an Individual Retirement Account this year. Which statement is TRUE?
No contribution can be made because the woman does not have earned income
A smaller company with 75 employees wishes to establish a retirement plan. Some of the employees are highly paid, but most are part-time low wage earners. The company would like to maximize contributions for the highly-paid employees to keep these talented individuals. The company has erratic cash flow but is profitable overall. What type of retirement plan would be the best for the company?
Profit Sharing Plan
An individual owns a bicycle repair business as a sole proprietorship. He does not make a lot of money, but he does have $5,000 available for investment this year. The BEST recommendation for this individual is to make a $5,000 contribution to a(n):
Roth IRA
All of the following retirement plans require that minimum distribution amounts be taken once the participant reaches the age of 73 EXCEPT:
Roth IRAs
The type of retirement plan that gives the employer flexibility as to the amount contributed annually is a(n):
SEP IRA
Which statement is TRUE regarding a 28-year old woman who inherits her grandfather's IRA?
She must take distributions that deplete the account over the next 10 years
A money purchase retirement plan would invest in all of the following securities EXCEPT:
Tax Free Municipal Bonds
Contributions to qualified retirement plans, other than IRAs, must be made by:
The date on which the tax return is filed with the Internal Revenue Service
A 50-year old man becomes totally disabled. He wishes to take a lump sum distribution from his Individual Retirement Account to pay for medical and living expenses. Which statement is TRUE?
The distribution is subject solely to regular income tax
Which statement is FALSE about a SIMPLE IRA?
The maximum annual contribution is the same as for a Traditional IRA
Which statement is FALSE about a SIMPLE IRA?
The maximum contribution amount is the same as for a SEP IRA
Which statement is TRUE about transfers of Individual Retirement Accounts?
There is no limit on transfers
In 2023, an individual earning $60,000 makes a contribution of $2,000 to a Traditional IRA. Which statement is TRUE?
This person can contribute a maximum of $4,500 to a Roth IRA
A customer who is age 75 has been taking RMDs (Required Minimum Distributions) each year from his Traditional IRA in cash. This year, he asks his representative if he can take the distribution in the form of shares of a mutual fund position in his account. He tells the representative that because it has been a bear market, the share price is depressed and rather than liquidate, he would like to take the shares into his cash account at the firm, awaiting a market rebound. You should tell him that the RMD can:
be taken in securities, but the entire amount of the RMD will be taxable without receiving any cash to pay the tax bill
Distributions from Roth IRAs:
can commence at any time after reaching age 59 1/2 without being penalized
All of the following statements are true about non-contributory defined benefit retirement plans EXCEPT:
contribution amounts remain fixed based regardless of age
ERISA legislation was enacted to protect:
employee retirement funds from employer mismanagement
In an Individual Retirement Account, a 6% penalty tax will be imposed for:
excess contributions to an Individual Retirement Account
A defined benefit plan:
gives the greatest benefit to high salaried employees close to retirement age
All of the following are true statements about Individual Retirement Accounts EXCEPT:
if the taxpayer obtained a 4 month filing extension, he can make the annual contribution up to the extension date
Payments received by the owner of a non-tax qualified variable annuity are:
only taxable to the extent of earnings above the holder's cost basis
A person, age 55, wishes to withdraw $25,000 from a Keogh plan. The tax will be:
ordinary income tax + 10% penalty tax on the amount withdrawn
A 45-year old man earns $160,000 per year and is covered by his employer's 401(k) Plan. He quits his job and moves to a new company that has no retirement plan, but will also pay him $160,000 per year. He should be advised to:
roll his 401(k) Plan into a Traditional IRA and continue to make annual contributions to the Traditional IRA
Generally, in order to defer taxation on an IRA that is inherited from a deceased spouse for the longest time period, a much younger surviving spouse can:
roll over the IRA proceeds into an existing IRA owned for the benefit of the surviving spouse
A company has decided to terminate its retirement plan and is going to make lump sum distributions to its employees. In order to defer taxation on the distribution, the employee may:
roll over the funds into an Individual Retirement Account within 60 days
Your customer, age 68, who has an IRA account at your firm valued at $500,000, passes away. The customer leaves the account to his wife, age 62, who does not work. She needs current income and wishes to receive payments over the longest time frame possible. You should advise the spouse to:
roll the funds over into a new IRA in the spouse's name
ERISA requirements regarding the investments that are suitable for a retirement account stress:
safety of principal
If a corporation has an unfunded pension liability, this means that:
the expected future value of fund assets is less than projected benefit claims
All of the following statements are true regarding the transfer of Individual Retirement Accounts from one trustee to another EXCEPT:
the funds can be transferred by having the trustee or custodian make a check payable to the account holder; who will then deposit the check with the new trustee or custodian
For a qualified retirement plan contribution to be deductible from that year's tax return, the contribution must be made by no later than:
the tax filing date of the following year
