Retirement plans

ERISA stands for:

Employee Retirement Income Security Act

High-earning parents would like to invest in equities to fund their child's higher education expenses. The best investment choice would be a: a. 529 College Savings Plan b. Coverdell Education Savings Account c. Uniform Gifts to Minors Account d. Series EE Treasury Bonds

529 College Savings Plan

to avoid penalties, funds cannot be withdrawn from a keogh retirement plan before age

59 1/2

403(b) plans are permitted to invest in all of the following EXCEPT: a. ADRs b. Mutual Funds c. Fixed annuities d. Variable annuities

ADRs

HR 10 plan aka:

Keogh plan

LGIP aka:

Local Government Investment Pool (LGIP)

Dividends and capital gains in variable annuity separate accounts must be reinvested during the accumulation phase and build tax deferred. In contrast, mutual fund distributions are taxable.

Dividends and capital gains in variable annuity separate accounts must be reinvested during the accumulation phase and build tax deferred. In contrast, mutual fund distributions are taxable.

In 2022, a doctor has earned $400,000 from her practice and another $200,000 from investments. Their maximum contribution to an HR 10 plan is:

$61,000 Keogh (HR10) contributions are based only on personal service income - not investment income. $400,000 of personal service income x 20% effective contribution rate = $80,000, however the maximum contribution allowed is $61,000 in 2022.

Tax deferred annuities for employees of non-profit organizations are known as:

403(b) Plans

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

5 years of original contribution

HR 10 Plan aka: (Keogh plan)

Please note that 100% of all distributions from Keoghs are taxable - these are tax qualified plans where all of the investment dollars were never taxed. Once distributions commence, both the original investment (that was never taxed), and the tax deferred build-up, are now taxable in full.

to sell variable annuities, salespersons must be registered with all of the following EXCEPT: a. FINRA b. State Insurance Commission c. State Banking Commission d. State Securities Commission

State banking commission

Which statement is TRUE about Roth IRAs for tax year 2022? a. the maximum permitted contribution for an individual is $3,000 b. the maximum permitted contribution for a couple is $6,000 c. If an individual contributes $6,000 to a Traditional IRA in that year, no additional contribution to a Roth IRA is permitted d. if an individual contributes $6,000 to a Traditional IRA in that year, an additional $6,000 contribution to a Roth IRA is permitted

if an individual contributes $6,000 to a Traditional IRA in that year, no additional contribution to a Roth IRA is permitted

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. The top end of the income phase out range for individuals is $__________ and for couples it is $__________.

individuals is $110,000 and for couples it is $220,000

Distributions from a Roth IRA after age 59 1/2 where the assets have been held in the account for at least 5 years are:

not subject to tax or penalty. As long as the assets in the account have been held for at least 5 years, distributions from Roth IRAs after age 59 1/2 are not taxable (but, then again, the contribution was not tax deductible, either).

__________________ calculate annual contributions based on expected future benefits to be paid. The largest benefits will be paid to high salaried employees nearing retirement, so these are the largest contributions. The smallest benefits are owed to low salary employees far away from retirement, so these are the smallest contributions. Once the benefit payments start, they are fixed in amount and do not change.

Defined benefit plan

All of the following are purchase and payout options for variable annuity contracts that may be employed EXCEPT: a. Lump sum payment; Immediate annuity b. Lump sum payment; Deferred annuity c. Periodic payments; Immediate annuity d. Periodic payments; Deferred annuity

Periodic payments; Immediate annuity

Which of the following is a characteristic of Coverdell ESAs? a. Can be transferred to any person at any time b. Transfer is limited to a family member under age 35 c. Tax free distributions are to be used only for educational purposes d. Tax free distributions can be used for any purpose that benefits the student

Tax free distributions are to be used only for educational purposes

The maximum contribution to a Keogh is effectively _____% of income (prior to taking the Keogh "deduction") or $________ in 2022, whichever is less.

The maximum contribution to a Keogh is effectively 20% of income (prior to taking the Keogh "deduction") or $61,000 in 2022, whichever is less.

Which of the following is a characteristic of Defined Contribution Plans? a. If the corporation has an unprofitable year, the contribution may be omitted b. The assets in the plan grow tax free c. the annual benefit varies based on length of service d. This type of plan is not subject toERISArequirements

the annual benefit varies based on length of service

For the year 2022, the maximum annual contribution to an Individual Retirement Account for a single person is:

100% of income or $6,000 whichever is less

For the year 2022, couples who are age 50 or over are permitted to make a maximum annual IRA contribution of: a. $12,000 b. $13,000 c. $14,000 d. $15,000

$14,000 For the year 2022, 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. For couples where at least 1 person works that are age 50 or older, this amount is doubled to $14,000, deposited into 2 separate accounts of $7,000 each.

maximum income limits that reduce permitted contributions do NOT apply to: a. IRAs b. Spousal Roth IRAs c. Roth IRAs d. Coverdell Education Savings Accounts

IRAs there is no income limit for making a contribution to a Traditional IRA or spousal IRA (however, if the contributor is covered by another qualified retirement plan and earns too much, the permitted contribution may not be tax deductible).

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

Roth IRA. Since this individual does not make a lot of 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.

403(b) plan

a pension plan specifically for certain tax exempt, non-profit organizations. To which an employee contributes a defined percentage to a tax deferred annuity or mutual fund. The amount contributed is always made with pre-tax dollars and is therefore a salary reduction for the employee

Which is the BEST definition of an "annuity unit"? a. An accounting measure used to determine the number of units the contract holder may purchase in the separate account b. An accounting measure used to establish the contract holder's ownership interest c. An accounting measure upon which the amount of pay out is determined d. An accounting measure used to determine the contract holder's death benefit

an accounting measure upon which the amount of pay out is determined. the fixed number of units upon which the pay-out from a fixed or variable annuity is calculated. The number of annuity units is fixed when the accumulation units are annuitized.

Which statement is TRUE when describing the "build-up" in a variable annuity separate account during the accumulation phase? a. All interest, dividends, and capital gains from the securities in the account are automatically reinvested to buy more annuity units b. All interest, dividends, and capital gains from the securities in the account are automatically reinvested and build tax deferred c. All interest, dividends, and capital gains from the securities in the account are taxable d. All interest, dividends, and capital gains from the securities in the account can either be paid to the contract holder or can be automatically reinvested to buy more accumulation units

all interest, dividends, and capital gains from the securities in the account are automatically reinvested and build tax deferred

a tax-qualified pension plan in which the employer promises to provide each covered person with a pre-set benefit amount upon retirement. Since this type of plan must pay the pre-set amount at retirement, larger contributions must be made on behalf of older employees that are close to retirement to fund their benefit; while much smaller contributions are required for younger employees who have a long time to retirement.

Defined benefit plan

1974 act which regulates for-profit employer sponsored pension plans

ERISA aka: Employee Retirement Income Security Act

Typically, accumulation units of variable annuities represent an investment interest in underlying: a. mutual fund shares b. life insurance policies c. direct participation programs d. pension fund investments

mutual fund shares

Coverdell ESAs

allow for $2,000 a year to be contributed to pay for a child's educational expenses. There is no tax deduction for the contribution and the account grows tax free, as long as funds are used to pay for school expenses. Funds must start being used at age 18 and must be depleted by age 30. Any undepleted funds at age 30 can be transferred to another family member going to school who is also under age 30. If there are unused funds at age 30 that are not transferred they are taxed.

Which statement is TRUE about the use of index option strategies by managers of pension plans subject to ERISA requirements? a. Index option trades are permitted without restriction b. Index option trades are permitted only if the options are broad based and exchange traded c. Index option trades are permitted only if such transactions conform with the objectives stated in the plan document d. Index option trades are prohibited under ERISA legislation

index option trades are permitted only if such transactions conform with the objectives stated in the plan document

A distribution from a Section 529 Plan would be subject to a 10% penalty tax if the beneficiary: a. does not go to college b. gets a full scholarship c. goes on disability d. goes to vocational school

does not go to college

Both Roth IRAs and Coverdell ESAs are not available to:

high-earning individuals

In 2022, 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:

$10,000 If an employer earns $305,000 or more and contributes the maximum of $61,000 to a Keogh in 2022, 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 $61,000 to the Keogh, the "after Keogh earnings" are based on the "cap" income amount of $305,000. $305,000 - $61,000 = $244,000 of "after Keogh deduction" income. $61,000/$244,000 = 25%. Thus, for the nurse, $40,000 of income x 25% = $10,000 contribution.

premature distribution plans from an individual retirement account or Keogh plan are subject to a ________ % penalty tax prior to the age of ___________

10% penalty tax prior to the age of 59 1/2

A parent has contributed to a 529 Plan to fund her child's college education. The child gets into her preferred college and is granted a full scholarship. The parent does not need the funds in the 529 account to pay for college anymore and wants to withdraw the money and use it as a down payment on a second home. Which statement is TRUE about this? a. The funds cannot be withdrawn from the account because they become the property of the new adult at legal age b. The funds can be withdrawn from the account, with any build-up subject to ordinary income tax plus a 10% penalty tax c. The funds can be withdrawn from the account, with any build-up subject to ordinary income tax only d. The funds can be withdrawn from the account, with any build-up subject to a 10% penalty tax only

The funds can be withdrawn from the account, with any build-up subject to ordinary income tax only. If funds are withdrawn from a 529 Plan to pay for qualified education expenses, then the withdrawals are tax free. If they are withdrawn to pay for anything else, then they are subject to ordinary income tax and a 10% penalty tax - BUT ONLY ON THE BUILD-UP PORTION OF THE ACCOUNT. If a child gets a scholarship, then funds can be withdrawn from the account up to the amount of the scholarship and used for another purpose. They are only subject to ordinary income tax on the build-up and there is no 10% penalty tax

A 529 Plan is set up for a child in state A. The child attends a college in state B. Which statement is TRUE? a. The funds in the 529 Plan are not portable and can't be used to pay for college in state B b. The funds in the 529 Plan are portable and can be used to pay for college in state B c. The funds must be transferred into a 529 Plan in state B if they are going to be used to pay for college in state B d. The child must renounce his or her residency in state A and become a resident of state B in order to use the funds in the 529 Plan for college in state B

The funds in the 529 Plan are portable and can be used to pay for college in state B As long as the funds are used to pay for college, 529 Plans are completely portable - the money can be used to pay for college in any state.

An individual who has completed college has been working for 9 years and is now 30 years old. He is thinking about returning to school in a few years to complete his masters degree and wants to set up a 529 Plan with himself as the beneficiary. Can he do this?

Yes. An unusual feature of 529 Plans is that the donor and the beneficiary can be the same person. There is no age limit on who can be the account beneficiary. This individual can open a 529 Plan for himself and be both the donor and beneficiary.

A variable annuity is a(n): a. security regulated under the investment company act of 1940 b. insurance product that is not regulated under the Investment Company Act of 1940 c. security but it has no prospectus delivery requirement d. insurance product that has no prospectus requirement

a security regulated under the investment company act of 1940

529 plans

a state-sponsored education savings plan that are not federally tax-deductible, but the earnings grow tax-deferred, and distributions to pay for qualified higher education expenses are not taxable. Maximum annual contributions and funding are set by each state

the "death benefit" associated with a variable annuity contract applies during the _________________ phase.

accumulation phase. if the contract holder dies, a beneficiary will receive at least the amount invested in the contract

What will change the cash value of a variable life policy? a. changes in expenses b. changes in market value c. changes in death benefit d. changes in beneficiary

changes in market value

LGIP

investment fund set up under STATE law that is only offered to local municipal governmental entities in the state

All contributions into a 401(k) plan are made with _____________

pre-tax dollars

LGIPs marketed by broker-dealers are: regulated by:

regulated by the MSRB

In 2022, a self-employed individual has an adjusted gross income of $100,000 per year. This person has no other retirement plan and contributes $6,000 to an Individual Retirement Account. Which statement is TRUE? a. the contribution is fully tax deductible b. The contribution is partially tax deductible c. The contribution is not tax deductible d. The contribution is prohibited because income limitations are exceeded

the contribution is fully tax deductible. If a person is not covered by another retirement plan, contributions to an IRA are tax deductible, without any income limitation. If the person is covered by another plan, as that person's income rises, the tax deduction for the IRA contribution phases out.

Which statement is TRUE regarding a defined benefit plan? a. the smallest contributions are made for those individuals who are far away from retirement b. The smallest contributions are made for those individuals who are nearing retirement c. The benefit amount to be paid increases the longer the individual remains employed at that firm The benefit amount paid at retirement will vary from year to year

the smallest contributions are made for those individuals who are far away from retirement