Retirement Plans

C. the State

Section 529 Plans are established by: A. the IRS B. the SEC C. the State D. FINRA

B. by April 1st of the year following that person reaching age 70 1/2

Distributions from an Individual Retirement Account must commence: A. by April 1st of the year preceding that person reaching age 70 1/2 B. by April 1st of the year following that person reaching age 70 1/2 C. upon reaching age 70 1/2 D. upon reaching retirement

B. $40,000 The best answer is B. Keogh (HR10) contributions are based only on personal service income - not investment income. $200,000 of personal service income x 20% effective contribution rate = $40,000. Note that this is less than the maximum contribution allowed of $56,000 in 2019.

In 2019, 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: A. $20,000 B. $40,000 C. $56,000 D. $66,000

C. default risk

A customer who buys a variable life policy is most susceptible to: A. purchasing power risk B. market risk C. default risk D. exchange rate risk

D. April 15th of the calendar year after which the contribution may be claimed on that person's tax return The best answer is D. Contributions to Individual Retirement Accounts must be made by April 15th (tax filing date) of the year after the tax filing year. For example, a contribution for tax year 2019 must be made by April 15th, 2020.

Contributions to Individual Retirement Accounts must be made by: A. December 31st of the calendar year in which the contribution may be claimed on that person's tax return B. April 15th of the calendar year in which the contribution may be claimed on that person's tax return C. December 31st of the calendar year after which the contribution may be claimed on that person's tax return D. April 15th of the calendar year after which the contribution may be claimed on that person's tax return

C The best answer is C. Both Roth IRAs and Coverdell ESAs are not available to high-earning individuals. There is an income phase-out range, above which contributions are prohibited to either of these. For 2019, the top end of the income phase out range for individuals is $110,000 and for couples it is $220,000.

A single mother has 2 children, ages 5 and 9. She earns $150,000 per year and wishes to open Coverdell ESAs for each child to pay for qualified education expenses. Which statement is TRUE? A. She can open the account for each child and make an annual $2,000 tax-deductible contribution for each B. She can open the account for each child and make an annual $2,000 non tax-deductible contribution for each C. She is prohibited from opening an account for each child because she earns too much D. She is prohibited from opening an account for each child because Coverdell ESAs are only available to married couples with children

C. if the policy has sufficient cash value to pay the premium

A variable life policy will remain in force: A. for the stated term of the policy B. until the death of the insured C. if the policy has sufficient cash value to pay the premium D. as long as the insured individual does not exercise his or her nonforfeiture option

C. if the taxpayer obtained a 4 month filing extension, he can make the annual contribution up to the extension date

All of the following are true statements about Individual Retirement Accounts EXCEPT: A. the earliest a taxpayer may make an annual contribution is January 1st of that tax year B. the latest a taxpayer may make an annual contribution is April 15th of the following tax year C. if the taxpayer obtained a 4 month filing extension, he can make the annual contribution up to the extension date D. annual contributions may be made even if the person is covered by another qualified retirement plan

B. Roth IRA Since this individual does not make a lot to money, a tax-deductible Traditional IRA contribution would not produce significant tax savings. When distributions from the Traditional IRA are taken at retirement, they are taxable. A Roth IRA does not permit a deduction for the contribution, but when distributions are taken at retirement age, there is no tax due. Roth IRAs are a very good deal, but they are not available to high-earning individuals. This question states that the individual does not earn a lot of money, so this is not an issue. SEP IRAs are designed for small businesses. These are "Simplified Employee Pension" plans that do not have to comply with ERISA. The employer establishes the plan and makes deductible contributions for the employees. The employer has the flexibility to change the amount contributed each year. A sole proprietor would not use this type of plan. SIMPLE IRAs are also designed for small businesses and do not have to comply with ERISA. They are similar to 401(k) plans because the employee makes the contribution as a salary reduction. The employer must make a matching contribution (the "SIM" in SIMPLE stands for "Simplified Incentive Match") of either 2% of the salary of each employee or 3% of the salary of each employee who makes a salary-reduction contribution. Whether times are good or bad, the employer must make the match, so there is no flexibility as to the amount the employer contributes each year, as compared to a SEP IRA. Again, a sole proprietor would not use this type of 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): A. Traditional IRA B. Roth IRA C. SEP IRA D. SIMPLE IRA

D. The best answer is D. Contributions to qualified retirement plans (other than IRAs) must be made no later than the date the tax return is filed (even if it is filed with an extension). On the other hand, IRA contributions must be made no later than April 15th of the tax year after the year for which the deduction is claimed.

Contributions to Keogh Plans must be made by: A. December 31st of the calendar year in which the contribution may be claimed on that person's tax return B. December 31st of the calendar year after which the contribution may be claimed on that person's tax return C. April 15th tax filing date of the calendar year after which the contribution may be claimed on that person's tax return D. August 15th tax filing date permitted under an automatic extension of the calendar year after which the contribution may be claimed on that person's tax return

B. partial tax free return of capital and partial taxable income The best answer is B. Contributions to non-tax qualified plans, such as most variable annuities, are not tax deductible. They are made with "after-tax" dollars. Earnings accrue tax deferred. When distributions commence, the return of original capital is not taxed; the earnings are taxed.

Distributions after age 59 ½ from non-tax qualified retirement plans are: A. 100% taxable B. partial tax free return of capital and partial taxable income C. 100% tax free D. 100% tax deferred

D. can commence at any time after reaching age 59 1/2 without being penalized The best answer is D. Unlike Traditional IRAs that require distributions to start on April 1st of the year after reaching age 70 1/2, there is no mandatory distribution age for Roth IRAs.

Distributions from Roth IRAs: A. must commence by April 1st of the year prior to reaching the age of 70 1/2 without being penalized B. must commence by April 1st of the year of reaching age 70 1/2 without being penalized C. must commence by April 1st of the year after reaching age 70 1/2 without being penalized D. can commence at any time after reaching age 59 1/2 without being penalized

The best answer is C. Health Savings Accounts (HSAs) were first authorized by Congress starting in the beginning of 2004. They are a tax advantaged medical savings account that is owned by the individual. They are established by corporate employers as part of their health insurance plans, and only plans that have a high deductible can set up HSAs for employees. More employers are adopting these high-deductible plans coupled with HSAs as a way of reducing, or slowing the growth of, their health insurance expenses. The HSA permits the employer or employee to make a deductible contribution in 2019 of up to $3,500 for a single individual; or $7,000 for a family; to the account. The contribution amount is indexed for inflation annually. The account is invested in a similar manner to an IRA. It grows tax-deferred and withdrawals to pay for qualified medical expenses are tax-free.

Health Saving Accounts (HSAs): I can be established by all employers that offer health insurance plans II can only be established by employers that have high deductible health insurance plans III are funded with tax-deductible contributions IV are funded with non tax-deductible contributions A. I and III B. I and IV C. II and III D. II and IV

D. $10,000 If an employer earns $280,000 or more and contributes the maximum of $56,000 to a Keogh in 2019, then 25% of "after Keogh earnings" is used to compute the percentage to be contributed for employees. If the employer earns $400,000 and contributes $56,000 to the Keogh, the "after Keogh earnings" are based on the "cap" income amount of $280,000. $280,000 - $56,000 = $224,000 of "after Keogh deduction" income. $56,000/$224,000 = 25%. Thus, for the nurse, $40,000 of income x 25% = $10,000 contribution.

In 2019, a customer earns $400,000 as a self-employed doctor, and contributes the maximum permitted amount to a Keogh plan. The doctor has a full time nurse earning $40,000 per year. The contribution to be made for the nurse is: A. $0 B. $2,500 C. $3,000 D. $10,000

C. A maximum contribution of $6,000 is permitted, but no adjustment is allowed to that year's taxable income for that amount The best answer is C. Any individual, whether or not he is covered by another retirement plan, can make an annual contribution to an Individual Retirement Account. However, if that person's income is high (above $74,000 in 2019 for an individual) and that person is covered by another qualified retirement plan, the contribution is not tax deductible. This person makes $180,000 per year and contributes to a Keogh plan, so the IRA contribution is not tax deductible.

In 2019, 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. A contribution is prohibited because this person is already covered under a qualified retirement plan B. A maximum contribution of $6,000 is permitted, which is an adjustment to that year's taxable income C. A maximum contribution of $6,000 is permitted, but no adjustment is allowed to that year's taxable income for that amount D. A contribution is permitted only if the HR10 contribution is reduced by the same amount

C. This person can contribute a maximum of $4,000 to a Roth IRA The best answer is C. The maximum annual permitted contribution to a Traditional IRA or Roth IRA for an individual is $6,000 total in 2019. This can be divided between the 2 types of accounts. In this case, since $2,000 was contributed to the Traditional IRA, another $4,000 can be contributed to a Roth IRA for that tax year.

In 2019, an individual earning $60,000 makes an annual contribution of $2,000 to a Traditional IRA. Which statement is TRUE? A. This person is prohibited from contributing to a Roth IRA in that year B. This person can contribute a maximum of $3,000 to a Roth IRA C. This person can contribute a maximum of $4,000 to a Roth IRA D. This person can contribute a maximum of $6,000 to a Roth IRA

D. II and IV The best answer is D. Any adult can open a Section 529 account to pay for the higher education expenses of a beneficiary. Starting in 2018, up to $10,000 per year can be withdrawn to pay for education below the college level. There is no tax deduction for the contribution; earnings build tax-deferred; and distributions to pay qualified higher education expenses are not taxable.

Section 529 plans generally permit: I tax deductible contributions by the donor II non-tax deductible contributions by the donor III taxable distributions to the recipient to pay for higher education IV non-taxable distributions to the recipient to pay for higher education A. I and III B. I and IV C. II and III D. II and IV

C. $7,000 The best answer is C. For the year 2019, the maximum annual contribution for an individual into an IRA is $6,000. However, individuals age 50 or older can make an extra "catch up" contribution of $1,000, for a total permitted contribution of $7,000.

The maximum contribution in the year 2019 into an IRA for an individual, age 50 or older, is: A. $1,000 B. $6,000 C. $7,000 D. $9,000

A. 6% of the excess contribution The best answer is A. Excess contributions to an Individual Retirement Account are subject to a 6% penalty tax. Do not confuse this penalty with that imposed on a premature distributions from an IRA. Premature distributions (prior to age 59 1/2) are subject to a 10% penalty tax.

The penalty for making an excess contribution to an Individual Retirement Account is: A. 6% of the excess contribution B. 10% of the excess contribution C. 20% of the excess contribution D. 30% of the excess contribution

C. fact that the contribution might be deductible at the state level The best answer is C. 529 plans are state-sponsored college savings plans. Any dollar limit on 529 plan contributions is set by the state and the contribution may be deductible from state income tax (but not from federal income tax). This is the point that must be disclosed of the choices offered. There are no income phase outs on who can contribute to a 529 plan; the donor retains control of the assets at all times; and an account can be opened for an adult who wants to save for higher education (and the donor and beneficiary can be the same person, so you can open a 529 plan for yourself!).

When recommending a 529 plan to a client, the registered representative should inform the customer about the: A. income-phase outs that restrict who can contribute funds to the account B. right of the beneficiary to take control of the assets in the account at the age of majority C. fact that the contribution might be deductible at the state level D. fact that the beneficiary of the account can only be a minor

C. Joint and Last Survivor Annuity

Which of the following annuity payment options will continue payments to another person for their life after the annuitant dies? A. Life Annuity B. Life Annuity with Period Certain C. Joint and Last Survivor Annuity D. Unit Refund Annuity

B. I and IV The best answer is B. 403(b) plans are only available to non-profit organization employees, such as school and hospital employees. These are tax qualified annuity plans, where contributions made by employees are tax deductible. Earnings in the plan grow tax deferred. When the employee retires, he or she may take the annuity, which is 100% taxable as ordinary income as taken.

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 A. I and III B. I and IV C. II and III D. II and IV

D. II and IV The best answer is D. Roth IRAs, unlike Traditional IRAs, do not permit a tax deduction for the amount contributed. On the other hand, when distributions are taken, unlike a Traditional IRA, the distributions are not taxable (given that the investment has been held for at least 5 years). The maximum contribution cannot be made to both a Traditional IRA and a Roth IRA in the same year. But the amount can be divided between the 2 types of accounts: one half of the amount contributed to a Traditional IRA, and the other half contributed to a Roth IRA for that tax year.

Which of the following statements are TRUE regarding Roth IRA? I Contributions are tax deductible II Contributions are not tax deductible III Distributions are taxable IV Distributions are not taxable A. I and III B. I and IV C. II and III D. II and IV

A. I and III The best answer is A. Contributions to tax qualified retirement plans are tax deductible. They are made with "before-tax" dollars, hence those funds were never taxed. When distributions commence, since no tax was paid on the entire amount, the distribution is 100% taxable.

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 A. I and III B. I and IV C. II and III D. II and IV

C. II and III The best answer is C. For 2019, the maximum permitted annual contribution to a Roth IRA is $6,000 for an individual. If the full $6,000 contribution is made to a Traditional IRA, no Roth contribution is permitted. If the full $6,000 contribution is made to a Roth IRA, no Traditional IRA contribution is permitted.

Which statements are TRUE about Roth IRAs for tax year 2019? I The maximum permitted contribution for an individual is $3,000 II The maximum permitted contribution for an individual is $6,000 III If an individual contributes $6,000 to a Traditional IRA in that year, no additional contribution to a Roth IRA is permitted IV If an individual contributes $6,000 to a Traditional IRA in that year, an additional contribution to a Roth IRA is permitted A. I and III B. I and IV C. II and III D. II and IV

The best answer is D. Unlike Traditional IRAs, Roth IRA contributions can continue after age 70 1/2, as long as that person has earned income. And unlike Traditional IRAs, there are no required minimum distributions after age 70 1/2 for Roth IRAs.

Which statements are TRUE about Roth IRAs? I Contributions must cease at age 70 1/2 II Contributions can continue after age 70 1/2 III Distributions must start after age 70 1/2 IV Distributions are not required to start after age 70 1/2 A. I and III B. I and IV C. II and III D. II and IV

D. II and IV

Which statements are TRUE regarding the annuitization of a variable annuity contract? I A Life Annuity payout option must be elected by the policy holder II Life Annuity-Period Certain may be elected by the policy holder III The number of annuity units will vary IV The annuity payment will vary A. I and III B. II and III C. I and IV D. II and IV

B. I and IV

Which statements are TRUE when comparing UTMA Custodian Accounts to Coverdell Education Savings Accounts? I Earnings in UTMA accounts are subject to Federal income tax II Earnings in UTMA accounts are not subject to Federal income tax III Earnings in Coverdell Education Savings Accounts are subject to Federal Income tax IV Earnings in Coverdell Education Savings Accounts are not subject to Federal Income tax A. I and III B. I and IV C. II and III D. II and IV