retirement, Rec - Retirement (5)

A school teacher is retiring after 20 years of service. During the past 10 years, she invested $10,000 in a 403(b) through a payroll deduction offered by the school. Her account is now worth $16,000. What is her cost basis?

$0 The teacher has contributed to a qualified retirement plan; therefore, all the money she has invested is pre-tax. She has not paid taxes on any of the money yet, so her cost basis is $0, and she will be required to pay ordinary income taxes on the entire amount she withdraws

TSA dist

100% taxed

Gail's minimum required distribution this year from her IRA is $5,000. If she takes $8,000, the penalty will be: A)$0. B)$1,500. C)$2,500. D)$2,000.

A)$0. There is no penalty if a participant withdraws more than the required minimum distribution.

IRA distributions ages

Earliest is after age 59.5. Must begin by April 1st of year after turning 70.5

Coverdell also known as

Education IRA

What is Coverdell

Educations saving account for kids college

Keogh contributions

Employer up to max of 20% or $53,000. Stops at 70.5.

HSA

Health savings account

TSA

Saving programs for school employees, religious orgs, and tax exempt orgs

457(b) penalty

There is no penalty for early withdrawals, it is exempt.

How long does money stay in 457(b)

Until reitrement (70.5 max) or employee terminates employment

who can make fully deductible IRA contributions

any eligible person not participating in a qualified retirement plan, or people not covered by an employer-sponsored plan

TSA cont

before tax

401k penaltiy exemption

hardships or loans

457(b) contributions taxation

not taxed because they never received the income, its deferred

457(b) contributions

pre-tax contributions go straight into it

529 plan distribution

tax-free at federal level if used for school. tax-free at state level if in state school

Coverdell distribution

tax-free if used for school

457(b) termination of employment

transfer funds into new employer's plan, or into an IRA

how much can people not covered by an employer-sponsored plan deduct when contributiong to an IRA

whole amount

Does ERISA allow covered call writing

yes

Coverdell cont taxability

Contributions are after tax

IRA contribution taxes

Contributions are deductible

roth 401k diff from roth ira

must withdraw by 70.5 and no income limitations

Does ERISA allow selling uncoveered short options

no

IRA early penalty exemptions

penalty will be waived if the distribution is due to the owner's death or disability, for medical or education expenses and first-time home ownership. Still income tax though

Savings Incentive MAtch Plans for Employees

reitrement plans for business with less than 100 employees and no other plan in place

Keogh contributions time period

stop at 70.5

IRA distributions

subject to regular income tax

Eligbility for employee (keogh)

work 1,000 hours per year. over 21. been working there for at least a year

401k penalties

10% withdrawal

If rollover from an employer plan -> own IRA, subject to

20% withold tax

ERISA eligibility

21+ , full time (1000 hours), 1 year or more of service

SEP eligibility

21, worked for them 3 of 5 years, and made a minimum amount

Lena died at the age of 50 with $100,000 in her traditional IRA account. In addition to income taxes due on the distribution, her beneficiary , who is 52,, will have to pay a premature distribution tax penalty of how much? A)$0. B)$10,000. C)$15,000. D)$6,000.

A)$0. The premature distribution tax penalty does not apply if the distribution is made after the death of the account owner regardless of the age of the owner or the beneficiary.

An employer whose 401(k) plan complies with ERISA Section 404(c) is placing investment risk with the: A)plan participant. B)Securities and Exchange Commission. C)plan fiduciary. D)Internal Revenue Service.

A)plan participant. In a 401(k) plan, a plan sponsor can shift investment risk to the employee by complying with ERISA Section 404(c) rules.

Roth IRA distribution ages

After 59.5. No late fee

529 plan contributions

After-tax, deductible, considered gifts

ROTH IRA cont

After-tax, up to set max

Benefit of SEP IRA vs normal IRA

Allow self employed people to contribute more than traditional IRA

IRA contributions must be in by _ for this year

April 15 of next year

Which of the following plans does NOT allow a catch-up contribution for individuals who are at least 50 years old? A)403(b). B)529. C)401(k). D)IRA.

B)529. The catch-up provision is for individuals who reach age 50 before the close of the taxable year. This provision allows these individuals to contribute an additional amount per year to a qualified retirement plan or IRA. A 529 plan is not a retirement plan.

An individual works for an accounting firm that does not have a retirement fund. She is paid $18,000 per year. During her spare time, she is a commercial artist and earned $16,000 doing this work last year. What is the basis for her contribution under a Keogh plan (HR-10)? A)$18,000. B)$16,000. C)$34,000. D)$0.

B)$16,000. Contributions to a Keogh must be based on self-employment income.

Under Keogh plan provisions, a full-time employee is defined as one working at least how many hours per year? A)500 hours. B)1,000 hours. C)2,000 hours. D)100 hours.

B)1,000 hours. Full time employment is defined as 1,000 hours or more per year, regardless of the number of days, weeks, or months worked.

Prohibited investments in an IRA would include all of the following EXCEPT A)gems B)municipal bonds C)stamps D)artwork

B)municipal bonds Although municipal bonds are considered to be an inappropriate investment in an IRA, they are not prohibited as are collectibles, such as the other three choices.

Although there is no specific rule requiring it, most qualified plans have an investment policy statement. For those plans that do have an IPS, it would include all of the following information EXCEPT: A)how the plan measures investment performance. B)the information in the summary plan document specified by the Department of Labor. C)the schedule for future needs of the plan. D)investment parameters to be followed by the portfolio managers.

B)the information in the summary plan document specified by the Department of Labor. Under the rules of the Department of Labor (DOL),one of the most important documents participants are entitled to receive automatically when becoming a participant of an ERISA-covered retirement plan, is a summary of the plan, called the summary plan description or SPD. The plan administrator is legally obligated to provide to participants, free of charge, the SPD. The summary plan description is an important document that tells participants what the plan provides and how it operates. It provides information on when an employee can begin to participate in the plan, how service and benefits are calculated, when benefits become vested, when and in what form benefits are paid, and how to file a claim for benefits. However, it has nothing to do with the investment policies that will be followed by the plan's advisers.

Mrs. Beech, age 52, as the sole survivor of her mother, recently inherited, among other assets, an IRA. After the account was distributed to her, she dutifully rolled over 100% of the account value into a new rollover IRA. As a result, Mrs. Beech A)should have left the funds in her mother's IRA, because she is not yet 59 ½ B)will have to declare the entire IRA value as ordinary income C)will be able to avoid taxation on the distribution until she begins to take distributions from the rollover IRA D)will only be liable for the 10% premature distribution tax penalty

B)will have to declare the entire IRA value as ordinary income When an IRA is inherited, other than from a spouse, the only way to avoid a reportable distribution is to do a trustee-to-trustee transfer. Because Mrs. Beech received the distribution, the normal rollover rules do not apply. However, Mrs. Beech will not have to pay the 10% tax penalty.

IRA penalties

Before 59.5 - 10% penalty and income tax. After 70.5 - 50%

Health savings account

Before tax contributions that grow tax free in a savings account for medical expenses. For people with high deductibles.

The type of tax-favored retirement plan that is available to nonprofit entities such as schools and hospitals and that is sometimes called a tax-sheltered annuity is a: A)SIMPLE retirement plan. B)401(k) plan. C)403(b) plan. D)simplified employee pension (SEP).

C)403(b) plan. A 403(b) plan is a special type of tax-favored retirement plan allowed for nonprofit entities. Amounts contributed to 403(b) plans are often invested in annuity contracts, so these plans are sometimes referred to as tax-sheltered annuities.

Without the need to meet any special conditions, a participant in which of the following retirement plans would be able to withdraw funds prior to age 59½ and not incur a 10% tax penalty? A)403(b) B)401(k) C)457 D)501(c)(3)

C)457 The 457 Plan allows participants to withdraw funds at any time, not just after age 59½, without incurring the 10% tax penalty. Income taxes would, of course, be due, but no penalty.

A participant in a 403(b) plan could use any of the following to fund the plan EXCEPT: A)CDs. B)annuities. C)life insurance. D)mutual funds.

C)life insurance. Just as in an IRA, life insurance may not be held in a 403(b) plan.

Harry Thomas has turned 19 and decided that he is going to join the Marines and postpone going to college. If Harry decides to stay in the military, the unused funds contributed to his Coverdell ESA A)must remain in the plan until Harry's 30th birthday. B)must be distributed to Harry no later than 30 days after his 21st birthday. C)may be transferred into another Coverdell ESA for Harry's 25 year-old cousin Julia. D)must be returned to the donor with tax plus a 10% penalty on the earnings.

C)may be transferred into another Coverdell ESA for Harry's 25 year-old cousin Julia. Funds that are not used for qualified education expenses may be withdrawn, but the earnings are subject to income tax plus a 10% tax penalty. To avoid this, the IRS permits the funds to be transferred into another Coverdell ESA for someone related to the first beneficiary (Harry), who is under 30 years of age. In the case of the Section 529 Plan, the transferee has no age limitations. Related parties include: immediate family members of the original beneficiary, parents, cousins, aunts and uncles, and even in-laws. If funds remain unused in the Coverdell ESA, they must be distributed to the named beneficiary on the account by 30 days after the child's 30th birthday, not the 21st. By statute, there is no age limit for the Section 529 plan, but some states set a time limit for distribution of unused funds. In either case, there would be the tax and penalty.

IRA rollover

Can go IRA -> IRA or qualified plan -> IRA, have 60 day period to do so

Under the minimum distribution rules and Uniform Table, Leslie is required to take a minimum distribution of $15,000 this year from her IRA. However, a distribution of only $10,000 has been made. What is the dollar amount of penalty that may be assessed in this situation? A)$500. B)$5,000. C)$7,500. D)$2,500.

D)$2,500. The penalty for failure to make the correct amount of required minimum distribution is 50% of the difference between the minimum required amount and the actual distribution. In this case, this would be 50% of $5,000 ($15,000 − $10,000) or $2,500.

As a general rule, loans from a 401(k) plan must be repaid within how many years? A)20 years. B)15 years. C)10 years. D)5 years.

D)5 years. Most loans from a 401(k) plan are required to be repaid within 5 years. This rule does not apply to loans taken for a home purchase.

Each of the following is a defined contribution plan EXCEPT: A)a profit-sharing plan (qualified). B)a money-purchase pension plan. C)a 401(k) plan. D)a stock option plan.

D)a stock option plan. Money-purchase pension plans, 401(k) plans, and qualified profit-sharing plans are all examples of defined contribution plans.

Which of the following statements correctly summarizes that tax advantages of qualified retirement plans?

Employer contributions are tax deferred to the employee. Employer contributions are taxed to the employee at the employee's tax rate at time of withdrawal. Employer contributions are tax deductible. All of the above are correct. All of these statements correctly state tax advantages available through qualified retirement plans.

A man is 52 years old. He is terminating his employment at a state university. He is fully vested in a 457(b) plan. If he withdraws the money from his 457 (b) plan,

He must pay income tax. He must pay income tax. There is no 10% penalty on early withdrawal from a 457(b) plan.

Hr-10 plan aka

Keogh Plans

Keogh contributions tax

Made after-tax

IRA Contributions

Max 5k pear year if under 50. Catch up allowed over 50. ONLY CASH

Coverdell contributions

Max of $2,000 per student per year until age 18

Upon termination of employment, an employee's funds from a 457(b) plan

May be transferred into an IRA. Once transferred, the funds become subject to a 10% penalty for early withdrawal. Funds from a 457(b) plan may be transferred to an IRA or other qualified plan; however once transferred the funds lose the exemption from the 10% penalty for early withdrawal.

Coverdell expiration

Must be used by age 30. If not, subject to penalty and income tax unless rollover to edu IRA for another kid

Does ERISA allow buying options

No

457(b) is a _ program

Nonqualified, salary deferral

How are funds contributed to a 403(b) treated for taxation?

Not included as income for the employee, but are taxable as income upon distribution

IRA distribution before 59.5

Regular income tax + 10% early penalty

A 50-year-old individual needs $20,000 for his child's education, and wishes to withdraw the necessary funds from his IRA. Which of the following statements is true concerning taxation on the withdrawal?

Regular income tax on withdrawals in excess of his basis will apply, but no penalty tax. Withdrawals from an IRA are subject to regular taxation. In addition, a 10% premature withdrawal penalty is assessed on anyone withdrawing the money under age 59½. However, the penalty will be waived if the distribution is due to the owner's death or disability, for medical or education expenses and first-time home ownership.

SEP IRA

Simplified Employee Pension plans

An employer wants to begin a pension plan for its employees but does not want the obligation of annual contributions because of wide cash flow swings due to growth and plans for expansion. Which plan allows flexibility and still provides immediate vesting on contributions?

Simplified employee pension plan The simplified employee pension plan (SEP) allows flexibility of contributions and still provides immediate vesting.

Roth IRA funds grow

Tax deferred

401k dist

Tax free after 5 years and 59.5

Roth IRA dis

Tax free if account held for 5 years and over 59.5

403-b

Tax sheltered annuities

529 plan

Used for college savings

Roth 401k cont

after-tax. matched by employer, but their cont goes to a traditional ira.

Simplified Employee Pension plans apply to

easy way for self employed or small business owners to set up employee pension plans

SMILE cont

employee makes pre-tax, employer matches

457(b) is for

employees of public institutions, liek state/local gov and private nongov tax exempt orgs

SEP contributions

employer contributes up to max percent to employee account, gets a deduction. Employee doesn't contribute anything. employer can contribute when they want

457(b) penalty exemption - lost if

if funds are transferred to a qualified plan, like 401k 403b, or IRA

TSA penalties

10% before 59.5

Roth IRA penalties

10% penalty if withdraw before 59.5. Waived if for first home purchase.

A widower wants to fund a Section 529 plan for his daughter. What is the maximum amount he may initially contribute in 2015 without having to pay gift taxes? A)$70,000 B)$14,000 C)$140,000 D)An unlimited amount since a gift occurs only when he irrevocably changes the beneficiary

A)$70,000 A special rule under Section 529 allows the donor to load front-end load contributions and avoid paying gift taxes. Five years worth may be used under this method (5 × $14,000 = $70,000). If he remarries, his wife may also consent to gift split, thereby doubling this amount to $140,000. Please note: The annual exclusion was increased to $14,000 effective January 1, 2013.

In a qualified plan, if the employer makes all of the contributions, the employee's cost basis is: A)0. B)the increase in value only. C)½ of the contributions made. D)the value of the contributions.

A)0. Because the employee has not made any contributions, the cost basis is zero. In any qualified plan, if all of the contributions are in pretax dollars, the cost basis is zero no matter who contributes the money.

A customer who is changing jobs has how many days to roll over a lump sum from a qualified pension plan into an IRA? A)60 days. B)15 days. C)90 days. D)30 days.

A)60 days. Rollovers must be completed within 60 days of the distribution date to avoid unfavorable tax consequences.

A grandparent wishes to contribute funds to an account for the benefit of the college education of a grandchild. In which of the following does the donor have the greatest amount of control over the assets in the account? A)A Section 529 plan B)An UTMA account C)A Coverdell ESA D)An UGMA account

A)A Section 529 plan It is the Section 529 plan that offers the greatest amount of control to the donor. In the case of the ESA, on the IRS form used to open the account, it states: "The 'responsible individual"' named by the depositor shall be a parent or guardian of the designated beneficiary." Unless we are told that the grandparent has been appointed as legal guardian, there is a lack of control. And, even then, one thing the "responsible individual" cannot do that the donor to a 529 plan can is take the money back. Although the grandparent could be named the custodian of the UGMA or UTMA account, the only authority there is to make the investment decisions and disbursements until the termination age of the account.

Suzy Stanton's wealthy Uncle Ray is a client of yours and is asking for some advice on funding a program to save for Suzy's college education with the lowest possible tax impact. Uncle Ray tells you that he set up an UGMA account for Suzy's older brother, Sammy; but, when Sammy turned 18, he took the money, bought a motorcycle, and joined a commune. Uncle Ray wants to avoid seeing something like that happen again. What would probably be the best suggestion to help Uncle Ray meet his objectives? A)A Section 529 plan B)A living trust C)A Roth IRA for Suzy with Uncle Ray's name as co-owner D)An UTMA account

A)A Section 529 plan The Section 529 plan will give Uncle Ray both tax savings and, because in this plan the assets remain under the control of the donor, the ability to retain the funds if Suzy does not use them for higher education. There is no such thing as a co-owner for an IRA of any kind. Although in many states the age at which UTMA funds become available to the beneficiary is higher than an UGMA account, there are no particular tax benefits, especially if the amount contributed is large and generates significant income. A living trust would be important for Uncle Ray's personal assets but wouldn't apply specifically to the needs described here.

In which of the following retirement plans would there be mandatory withdrawal requirements once you are past age 70½? A)A Traditional IRA. B)An annuity, but you are still working. C)A Roth IRA. D)A qualified plan while you are still working for that employer.

A)A Traditional IRA. A traditional IRA requires minimum distributions (RMDs) once the owner has passed age 70½. The same is true for qualified plans (401(k), pension, etc.), except when the employee is still employed with the sponsor. A non-qualified annuity (unless it says "qualified", assume it is not), never has distribution requirements and one of the great benefits of the Roth IRA is that, not only are there no RMDs, but contributions may be accepted after age 70½.

Jason, a recently divorced individual, is currently 55 years old and has built up approximately $400,000 in several initially funded and rollover individual retirement accounts (IRAs). He now wants to take an early distribution from one of these IRAs. Which one of the following distributions will escape the imposition of a tax penalty for early withdrawal? A)A distribution made in payment for higher education costs of Jason's granddaughter. B)A distribution made to Jason's ex-wife under a qualified domestic relations order (QDRO). C)A distribution made upon separation of service from Jason's current Employer. D)A distribution made on account of financial hardship as determined by Jason's financial planner.

A)A distribution made in payment for higher education costs of Jason's granddaughter. Jason can take a distribution from any of his IRAs without imposition of a tax penalty as long as it is made in payment of higher education costs (tuition, fees, books, supplies, and equipment) for his granddaughter. QDROs do not apply to IRAs. Separation from service will not affect Jason's ability to take a distribution from his IRA. A distribution due to financial hardship is always subject to the early distribution tax penalty if the participant is not yet age 59½.

If Gerald turned age 70 on November 15, 2011, when was he required to take his first IRA distribution? A)April 1, 2013. B)April 1, 2012. C)December 31, 2011. D)December 31, 2012.

A)April 1, 2013. Because his birthday is late in the year, Gerald did not attain age 70-½ until May 15, 2012, so his required beginning date was April 1, 2013 (the year following the date Gerald attains age 70-½).

What term is used to describe which employees will be covered by a pension plan? A)Eligibility. B)Vesting. C)Funding. D)Party in interest.

A)Eligibility. Pension plans must have a uniform nondiscriminatory eligibility program. All employees must be covered when they become eligible, which means reaching one year of service working full time and age 21.

Mr. Adam Samuels suffers a massive heart attack and dies at the age of 62. As part of his estate, there is an IRA with a current value of $170,000. A review of the IRA documents reveals that Mrs. Eve Samuels, the wife, is the primary beneficiary and their two children have been named as contingent beneficiaries. Eve is 50 years old and does not need the income from the IRA and would like to preserve the IRA for her children to inherit. Which of the following steps would you recommend Mrs. Samuels take? A)Execute a rollover into an IRA in her name. B)Execute a rollover into an inherited IRA. C)Disclaim the IRA and let it pass to the contingent beneficiaries. D)Cash in the IRA because as a spouse of a deceased, she will avoid the 10% tax penalty.

A)Execute a rollover into an IRA in her name. This is a highly complicated question and there is room for disagreement. However, if a question similar to this were to appear on your exam, the answer selected is the one that NASAA would mark as the correct one on their test. The key to this question is the word, preserve. By executing a rollover into an IRA in her name, tax deferral of the assets continues and RMDs are not required until after Mrs. Samuels turns 70 ½. Thus, the assets are preserved for at least 20+ years. If she took the distribution, she would not have to pay the penalty tax, but there would be ordinary income tax due and this would not meet her objective of preservation of the IRA. If she disclaimed, the assets would then go to the children, but, they would have to begin taking RMDs based on their life expectancy. Not a bad choice, but the assets are being distributed, not preserved. The benefit of rolling over into an inherited IRA (sometimes called a beneficiary IRA) instead of one in her own name is that she can begin taking distributions right now without the 10% tax penalty, even though she is only 50. However, the question stated that she did not need the income and, RMDs must begin at the time they would have been required for Mr. Samuels, 12 years earlier than if she chooses to rollover into her own IRA.

Which of the following statements regarding Coverdell Education Savings Accounts are TRUE? After-tax contributions of up to an indexed maximum per student per year are allowed. Contributions may not be made for students past their 18th birthday. If the account value is not used for educational purposes, it can be rolled over into a traditional IRA. Distributions are always taxable. A)I and II. B)II and IV. C)III and IV. D)I and III.

A)I and II. Coverdell Education Savings Accounts allow after-tax contributions of up to $2,000 per student, per year, for children until their 18th birthday. If the accumulated value in the account is not used by age 30, the funds must be distributed and subject to income tax and a 10% penalty, or rolled over into a different Coverdell ESA for another family member.

A nurse has been participating in her employer's Keogh plan. Upon leaving the clinic, she wishes to know what options she has that will keep the money growing tax-deferred without current tax consequences. You would tell her that she may arrange for a transfer of the Keogh assets into an IRA. she may rollover the assets into an IRA as long as it is completed within 30 days. she may rollover the assets into an IRA as long as it is completed within 60 days. her only option is to withdraw the funds, pay the taxes, and begin a new IRA. A)I and III B)I and II C)III and IV D)II and IV

A)I and III Normally, a transfer is the best option for an individual leaving a qualified plan because there are no current taxes and no limit on the number of transfers that may be done. A rollover is also an option, but it must be completed within 60 days and is limited to one per 12-month period. Please note—on the exam, when the term "rollover" is used without a descriptive adjective, it is always a traditional IRA. Anytime a Roth IRA is an option, it will say Roth.

A 52-year-old dentist has a balance of $150,000 in his Keogh plan, composed of $100,000 of contributions and $50,000 of earnings. If the dentist withdrew $100,000 from the Keogh plan, which of the following statements are TRUE? The entire withdrawal is taxable. The entire withdrawal is not taxable. The entire withdrawal is subject to a 10% penalty tax. A portion of the withdrawal is taxable. A)I and III. B)I and II. C)III and IV. D)II and III.

A)I and III. Contributions to qualified plans are made with pretax dollars and earnings grow on a tax-deferred basis, so the cost basis is zero. Therefore, any distributions will be taxed as ordinary income. In addition, there is a 10% penalty tax on withdrawals made prior to reaching age 59½.

Which of the following statements is TRUE regarding Section 529 Plans? Funds withdrawn for qualified education expenses are always free of federal income tax. Funds withdrawn for qualified education expenses are always free of state income tax. The maximum contribution limits are determined on a federal level. The maximum contribution limits are determined on a state level. A)I and IV. B)II and IV. C)I and III. D)II and III.

A)I and IV. Section 529 Plan withdrawals are exempt from federal income tax if used for the right expenses. In almost all cases, if the plan is one operated by your state of residence, it will be exempt from your state's income tax. But, if you elect to contribute to a plan operated by another state, more than likely, any withdrawals will be subject to your state's income tax. Because the plans are state operated, the maximum contribution limits are set by each state.

Once reaching the age of 70½, required minimum distributions must be taken for participants in: Keogh plans. Roth IRAs. SEP IRAs. Traditional IRAs. A)I, III and IV. B)I and IV. C)II only. D)I, II, III and IV.

A)I, III and IV. The Roth IRA is the only one of these where there are no required minimum distributions once reaching age 70½.

A 457 plan could cover which of the following? Employees of a corporation. Independent contractors providing services to the county. Employees of a nonincorporated business. City employees. A)II and IV. B)I and IV. C)I and III. D)II and III.

A)II and IV. The 457 plan is a nonqualified deferred compensation plan for municipal employees as well as for independent contractors performing services for those entities.

To comply with the safe harbor requirements of Section 404(c) of ERISA, the trustee of a 401(k) plan must: offer plan participants at least ten different investment alternatives. allow plan participants to exercise control over their investments. allow plan participants to change their investment options no less frequently than monthly. provide plan participants with information relating to the risks and performance of each investment alternative offered. A)II and IV. B)I and III. C)I and IV. D)II and III.

A)II and IV. To comply with the safe harbor provisions of ERISA's Section 404(c), the plan trustee must allow each participant control over her investments and furnish her with full performance and risk information. The rule only mandates a minimum of 3 alternatives and quarterly changes.

One of the responsibilities of the fiduciary handling a qualified retirement plan is providing an investment policy statement. Which one of the following is NOT typically included in that document? A)Investment selection. B)Current income needs. C)Time horizon. D)Risk tolerance.

A)Investment selection. The investment policy statement is generally a written document that sets forth the objectives and constraints on a managed portfolio. Income needs and risk tolerance are included in determining the objectives, and time horizon is a constraint. Investment selection is not stated in any policy; selections are made on the basis of the policy.

Which of the following statements regarding ERISA is TRUE? A)It covers employees in the private sector. B)It covers individual retirement accounts. C)It regulates banks and insurance companies. D)It covers employees in the public sector.

A)It covers employees in the private sector. The Employee Retirement Income Security Act (ERISA) is a federal regulation that protects the retirement funds of corporate employees in the private sector.

Which of the following attributes of 401(k) plans is NOT found in most other retirement plans? A)Matching employer contributions. B)Tax-deferred earnings. C)No penalties for premature distributions. D)Deductible contributions to the plan.

A)Matching employer contributions. 401(k) plans allow the employer to match employee-directed contributions up to a stipulated percentage. Other retirement plans have tax-deferred earnings, deductible contributions to the plan, and premature withdrawal penalties.

Which of the following investments would be permitted in a client's IRA? A)Municipal bonds B)Art C)Variable life insurance D)Term life insurance

A)Municipal bonds Although not generally recommended for a retirement plan, municipal bonds are permitted. The other choices are not.

A nurse employed by a local nonprofit hospital would like to begin a plan to save for retirement. Which of the following would be the nurse's best option? A)Open an IRA. B)Purchase a limited partnership interest in a producing oil and gas program. C)Open a Keogh. D)Regular investments into a periodic payment deferred variable annuity.

A)Open an IRA. While employees of nonprofit organizations ordinarily use the 403(b) plan, since that was not a choice given here, the IRA is the only other logical option.

Which of the following retirement plans is NOT legally required to establish vesting, funding, and eligibility requirements? A)Payroll deduction plan. B)Defined benefit pension plan. C)Profit-sharing plan. D)Keogh plan.

A)Payroll deduction plan. A payroll deduction plan is a retirement plan not subject to eligibility, vesting, or funding standards as required by ERISA plans. A payroll deduction plan is a nonqualified retirement plan. Profit-sharing, pension, and Keogh plans must have established standards.

If the owner of a $1 million IRA leaves it to his daughter, which of the following best describes the income tax treatment to the daughter? A)She will pay income taxes on the full amount she withdraws each year. B)She will pay income taxes only on a portion of the withdrawals which exceed $1 million. C)She will pay income taxes on the full $1 million immediately. D)She will pay no income taxes because the estate taxes have already been paid.

A)She will pay income taxes on the full amount she withdraws each year. An inherited IRA will be subject to income taxes to the beneficiary at time of withdrawal, on the same terms as if it had been distributed to the original owner.

What is the total amount that may be invested in a Coverdell Education Savings Account in 1 year? A)The current maximum per child. B)The current maximum per family member. C)The current maximum per couple. D)The current maximum per parent.

A)The current maximum per child. An indexed maximum contribution may be invested in each child's Coverdell Education Savings Account every year. For instance, if a couple has three children, they may invest the current maximum into each of three accounts.

A customer would like to set aside some money for his grandson's college education in an Education IRA. Which of the following regarding an Education IRA is TRUE? A)The funds must be distributed by the time the grandchild attains age 30, unless they are rolled over to an ESA established in the name of a family member. B)The customer may take a deduction for the amount contributed. C)The maximum contribution permitted is $2,000 annually per donor. D)The customer may make annual contributions until the grandson graduates from college.

A)The funds must be distributed by the time the grandchild attains age 30, unless they are rolled over to an ESA established in the name of a family member. The maximum annual contribution to an Education IRA, better known as a Coverdell ESA, is $2,000 per beneficiary (child). Contributions are not deductible and must cease when the beneficiary reaches age 18. If the accumulated value in the account is not used by age 30, the funds must be distributed and the earnings are subject to income tax and a 10% penalty. Taxes and penalties can be avoided if the account is rolled over into a different Coverdell ESA for another family member.​

A pension plan administrator hires an investment adviser to oversee the investment decisions of the plan. The adviser's primary responsibility is to which of the following? A)The plan. B)The plan sponsor. C)The pension plan administrator. D)The adviser.

A)The plan. The adviser's primary fiduciary responsibility is to the plan itself. By maintaining proper fiduciary responsibility to the plan, the interests of the participants of the plan are protected.

If a 40-year-old customer earns $65,000 a year and his 38-year-old spouse earns $40,000 a year, how much may they contribute to IRAs? A)They may each contribute 100% of earned income or the maximum annual allowable dollar limit, whichever is less, to an IRA. B)They may not contribute because their combined income is too high. C)They may contribute up to the maximum annual allowable dollar limit split evenly between both accounts. D)Only the higher wage earner may contribute to an IRA.

A)They may each contribute 100% of earned income or the maximum annual allowable dollar limit, whichever is less, to an IRA. No matter how much income individuals or couples receive, they may contribute to their IRAs if they have earned income. Each is entitled to contribute 100% of earned income up to the maximum allowed. However, if either or both of them are covered under a qualified plan, limits may exist on the deductibility of the contributions.

If an employer installs a Keogh plan, it must include all full-time employees: A)with at least three years of service, regardless of age. B)age 21, with at least one year of service. C)with at least one year of service. D)age 25 or older.

B)age 21, with at least one year of service. Keogh plans must have eligibility requirements that cover all employees who are full- time, are at least 21 years of age, and have one or more years of service.

A basic difference between a Section 457 plan established on behalf of a governmental entity and one established by a private tax-exempt organization is that: A)a governmental plan must hold its assets in trust or custodial accounts for the benefit of individual participants. B)a tax exempt plan's distributions are not eligible for a favorable lump sum 10-year averaging treatment. C)a tax-exempt plan participant does not have to include plan distributions in his or her taxable income. D)a governmental plan cannot make a distribution before the participant attains age 70½.

A)a governmental plan must hold its assets in trust or custodial accounts for the benefit of individual participants. A governmental Section 457 plan must be funded, that is, it must hold plan assets in trusts or custodial accounts for the benefit of individual participants. Conversely, a tax-exempt (nongovernmental) Section 457 plan may not be funded.

A premature distribution from an IRA would be exempt from the premature distribution tax penalty under all of the following circumstances EXCEPT: A)as a result of hardship. B)upon the death of the IRA owner. C)to pay for qualifying medical expenses. D)to correct an excessive contribution to the IRA.

A)as a result of hardship. Hardship withdrawals are not permitted from IRAs. They are a feature permitted in 401(k) plans, but generally do not escape the 10% tax penalty.

One of your clients has reached his company's mandatory retirement age of 67. He has been a participant in his employer's 401(k) plan and his account is valued at $400,000. The account is funded with mutual funds and company stock. The cost basis of the company stock is $25,000 and it is currently worth $125,000. If he were to rollover the entire account into an IRA, the tax treatment would be: A)no current tax, but any withdrawals would be taxed as ordinary income. B)no current tax on the portion applicable to the mutual funds; ordinary income on the cost basis of the company stock; and long-term capital gains on the unrealized appreciation of the company stock when it is sold. C)current tax at ordinary income rates on the unrealized appreciation of the company stock, ordinary income rates on the balance when withdrawals are taken. D)no current tax, but any withdrawals representing the gain on the company stock would be taxed as long-term capital gains.

A)no current tax, but any withdrawals would be taxed as ordinary income. As with any rollover from a qualified plan to an IRA, there is no current tax, but withdrawals are taxed at ordinary income tax rates. This client would have saved had he taken advantage of the NUA (Net Unrealized Appreciation) approach. In that case, taking the company stock and putting it into a taxable account would have resulted in ordinary income tax on the $25,000 cost basis, and long term capital gain rates on the appreciation whenever the stock was sold.

ERISA covers: A)private employee pension plans. B)state employee pension plans. C)federal employee pension plans. D)Traditional and Roth IRAs.

A)private employee pension plans. The Employee Retirement Income Security Act (ERISA) protects employees in the private sector of the economy. It does not cover public sector employees. Traditional and Roth IRAs are not covered under ERISA - there is no employer/employee relationship.

An investment adviser representative recommending investments for an IRA should give primary consideration to: A)risk. B)maximum current income. C)liquidity. D)the beneficiary's tax status.

A)risk. Risk is the key consideration in an IRA or other retirement plan. These accounts seek to preserve capital first and then to achieve a reasonable rate of return.

One of the major changes incorporated into the Uniform Prudent Investors Act of 1994 was the ability of a trustee to delegate certain responsibilities to qualified third parties. However, a fiduciary would not be able to delegate: A)the amount and timing of distributions. B)the selection of different managers for different asset classes. C)which investment style to be used for managing the portfolio. D)the ability to decide on the specific securities to be acquired.

A)the amount and timing of distributions. The UPIA allows a fiduciary to delegate the investment decisions to a qualified third party. Determining distribution amounts and timing is not part of portfolio management and can only be done by the fiduciary (trustee).

Your married client has an AGI of $105,000 per year and is covered by his employer's defined benefit pension plan. When inquiring about opening a Roth IRA, you would respond that A)the client could open the Roth IRA without any restriction B)the client could open a Roth, but depending on future earnings, might not be able to deduct all of the annual contribution C)the client's earnings exceed the Roth limits so the plan could not be opened D)one cannot be a participant in a qualified plan and a Roth IRA at the same time

A)the client could open the Roth IRA without any restriction As long as a married couple's AGI does not exceed $193,000 (for 2015, or $194,000 for 2016), a Roth IRA can be opened without any restrictions. Contributions are never deductible.

Among the ways in which UGMA accounts differ from UTMA accounts is that: A)the transfer of assets in a UTMA account can be deferred until the beneficial owner reaches as late as age 25; in a UGMA account, assets are transferred when the minor reaches the age of majority. B)UGMA accounts transfer the assets of a deceased minor into the account of the custodian, while UTMA accounts retain the deceased minor's assets until the minor would have reached age 25. C)gifts given under UGMA are irrevocable, while UTMA accounts allow the transfer of assets in and out of the account at the custodian's discretion. D)there is no difference between the accounts.

A)the transfer of assets in a UTMA account can be deferred until the beneficial owner reaches as late as age 25; in a UGMA account, assets are transferred when the minor reaches the age of majority. Unlike UGMA accounts where the assets are always transferred when the minor reaches the age of majority in that state, UTMA accounts may extend the transfer period first established by the Uniform Gift to Minors Act to as late as age 25. In neither case are the gifts revocable and, upon death of the minor, assets in either account go to the deceased's estate.

Under the UPIA of 1994, a prudent investor is expected to: A)use reasonable care, skill, and caution. B)grow the assets under his care at no less than the rate of inflation. C)select investments that will provide reasonable income. D)limit investment choices to those of investment-grade level.

A)use reasonable care, skill, and caution. The Uniform Prudent Investors Act of 1994 uses the specific terminology "reasonable care, skill, and caution" to describe the role of the prudent investor.

All of the following investments are eligible for a traditional IRA EXCEPT: A)works of art. B)covered call writing. C)growth-oriented securities. D)limited partnerships.

A)works of art. Gems, intangibles, and works of art are ineligible investments for an IRA. Covered call writing is allowed, but speculative options strategies are not. Limited partnerships are permissible investments for an IRA. Growth-oriented securities, and securities in general, are appropriate investment vehicles for IRAs.

All of the following are eligible to open an IRA account EXCEPT: A)A self-employed person covered by a Keogh plan. B)A divorced individual whose sole source of income is $10,000 per month in child support. C)A corporate officer not covered by his company's pension plan. D)A corporate officer covered by his company's pension plan.

B)A divorced individual whose sole source of income is $10,000 per month in child support. Anyone with earned income may open an IRA. However, unlike alimony, child support is not considered earned income. If the corporate officer's (covered by the pension plan) earnings exceed a certain limit, the officer is subject to limitations on the amount of the deduction that may be taken for IRA contributions, but the contribution may still be made.

Which of the following statements describing traditional IRAs is NOT true of 403(b) qualified plans? A)Contributions are tax deductible. B)A self-employed person may participate. C)Distributions after age 59½ are taxed as ordinary income. D)Distributions must begin by age 70½.

B)A self-employed person may participate. Only employees of schools, church organizations, and nonprofit organizations are eligible to participate in 403(b) plans.

Which of the following phrases best describes a prudent investor? A)The custodian for a minor under the Uniform Transfers to Minors Act B)A trustee who invests with reasonable care, skill, and caution C)A person in a fiduciary capacity who invests in a prudent manner D)An investment adviser representative handling a discretionary account

B)A trustee who invests with reasonable care, skill, and caution Although all of these may have a fiduciary responsibility, the definition, as expressed in the Uniform Prudent Investor Act of 1994, requires reasonable care, skill, and caution.

In terms of being considered compensation for determining the allowable contribution to an IRA, receipt of which of the following would be included? A)Deferred compensation B)Alimony C)Taxable interest income D)Child support

B)Alimony Court ordered alimony is taxable to the payee (and tax deductible to the payor). Therefore, receiving it is considered compensation for purposes of an IRA contribution.

Which of the following is NOT required under ERISA Section 404(c)? A)Plan participants must have access to a broad range of investment alternatives. B)All plan participants must have been employed by the plan sponsor for a minimum of 3 years. C)Each plan participant must have the ability to exercise independent control over assets in her account. D)Individual accounts must be provided for each plan participant.

B)All plan participants must have been employed by the plan sponsor for a minimum of 3 years. ERISA Section 404(c) relieves the employer of fiduciary responsibility for investment decisions made by employees. To qualify for this protection, employees must enjoy the benefits and risks of their decisions (individual accounts), have the right to exercise independent control over the account, and have a sufficiently broad range of choices to make the right of control meaningful. Section 404(c) has nothing to do with the employee's length of employment.

Ineligible investments in an IRA would include all of the following EXCEPT A)stamps B)American Silver Eagles C)cash value life insurance D)Kruggerands

B)American Silver Eagles A limited group of coins, especially the "eagles" minted by the U.S. Treasury Department, are eligible for investment in an IRA. No form of life insurance is, and collectibles, such as stamps, are also ineligible.

Which of the following would NOT be eligible to contribute to a traditional IRA? A)Ron, age 32, is self-employed. B)Bob, age 72, works part time and receives Social Security. C)Sheila, age 55, is covered by an employer-sponsored pensioIndividuals who are age 70½ or older may not contribute to a traditional IRA. They are required to begin taking withdrawals at that time. However, there is no age limit on the Roth IRA. n plan. D)Darlene, age 18, works part time and attends college.

B)Bob, age 72, works part time and receives Social Security. Individuals who are age 70½ or older may not contribute to a traditional IRA. They are required to begin taking withdrawals at that time. However, there is no age limit on the Roth IRA.

Which of the following statements regarding Coverdell ESAs and QTPs is NOT correct? A)QTPs are extremely useful tools that provide significant tax savings, allow for substantial investments for a child's education and provide a tool for avoidance of gift and estate taxes if used correctly. B)Coverdell ESAs currently permit up to $5,000 in annual contributions, whereas QTPs allow large contributions reaching as high as $250,000 and above. C)Coverdell ESAs are designed to offer tax benefits to those individuals who wish to save money for a child/grandchild's higher education expenses. D)If a portion or all of the withdrawal from a QTP is spent on anything other than qualified higher education expenses, the owner/contributor will be taxed at her own tax rate on the earnings portion of the withdrawal.

B)Coverdell ESAs currently permit up to $5,000 in annual contributions, whereas QTPs allow large contributions reaching as high as $250,000 and above. Coverdell ESAs currently permit up to $2,000 in annual contributions, whereas QTPs (Section 529 Plans) allow large contributions reaching as high as $250,000 and above.

Where would you be most likely to find an IPS? A)GRAT B)Defined benefit plan C)IRA D)SPD

B)Defined benefit plan The investment policy statement (IPS), although not required under Department of Labor (DOL) rules, is generally found in corporate qualified plans, such as the defined benefit or defined contribution plan. Because the investor manages the IRA, there is no need to prepare an IPS for participants to review.

An individual has a substantial vested interest in his 401(k) plan at work. Which of the following is NOT an exception to the premature distribution penalty tax? A)Distribution because of an employee's death or disability. B)Distribution made to purchase a principal residence. C)Distribution to pay medical expenses that exceed 7.5% of adjusted gross income. D)Distribution made pursuant to a qualified domestic relations order.

B)Distribution made to purchase a principal residence. Although individuals can make penalty-free withdrawals from an IRA to purchase a principal residence, this exception does not apply to withdrawals from a 401(k) plan. The penalty for withdrawals from a 401(k) plan taken before age 59½ is waived only in the cases of death, disability, qualified domestic relations orders (QDROs), medical expenses, certain period payments, and corrections of excess contributions.

A 61-year-old wanting to take a lump-sum distribution from his Keogh will: A)be taxed at long-term capital gains rates. B)be taxed at ordinary income rates. C)incur a 50% penalty tax. D)incur a 10% penalty tax.

B)be taxed at ordinary income rates. The distribution described here would be taxed as ordinary income. A 10% penalty tax would apply if the individual were under age 59-½.

Which of the following statements, with respect to nonqualified retirement plans, is TRUE? A)Employee contributions are tax deductible. B)Employee contributions grow tax deferred if they are invested in an annuity. C)Employer contributions are tax deductible. D)The employer must abide by all ERISA requirements.

B)Employee contributions grow tax deferred if they are invested in an annuity. Money invested in a nonqualified retirement plan will grow tax deferred if invested in a deferred annuity. Both employee and employer contributions to a nonqualified plan are not deductible; nonqualified plans are not subject to ERISA.

Which of the following statements are true about both an individual Roth IRA and a Roth 401(k) plan? contributions are made with after-tax dollars. one must have AGI below a certain level in order to maintain either Roth. if all the conditions are met, withdrawals are tax-free. there are no RMDs at age 70½. A)II and IV. B)I and III. C)III and IV. D)I and II.

B)I and III. In any Roth plan, contributions are made with after-tax dollars and, assuming all conditions are met, withdrawals are tax-free. However, unlike the individual Roth IRA, there are no earnings restrictions on participants in a Roth 401(k) plan and RMDs must begin at age 70 ½.

Nonqualified corporate retirement plans differ from qualified retirement plans because: nonqualified plan contributions are not exempt from current income tax. nonqualified plan earnings accumulate on a tax-deferred basis. the corporation need not comply with nondiscrimination rules that apply to qualified plans. the corporation must comply with ERISA requirements dealing with communications to plan participants. A)II and III. B)I and III. C)II and IV. D)I and II.

B)I and III. Two of the primary ways in which nonqualified corporate retirement plans differ from qualified retirement plans in that contributions are not exempt from current income tax and they need not comply with nondiscrimination rules that apply to qualified plans. Under most circumstances, the accounts do not provide for tax deferral on earnings because these plans are rarely funded. The ERISA communication requirements apply to qualified plans only.

When discussing the features of a Roth IRA with a 52-year-old client, it would be correct to state that: there is a $1,000 catch-up benefit for contributors who are 50 or older. once the account has been in existence at least 5 years, retirement benefits may be withdrawn free of any income tax. if needed for the first-time purchase of a principal residence, up to $10,000 per year may be withdrawn without tax. if the client has earned income well into his 70s, he may still continue to contribute to the plan. A)III and IV. B)I and IV. C)II and III. D)I and II.

B)I and IV. Any individual who has attained the age of 50 or older may make catch up contributions to an IRA up to a maximum of $1,000 per year. The Roth IRA is the only self-funded plan that may continue past age 70½. To have tax-free withdrawals, the account must be open for at least 5 years and the recipient must be at least 59 ½. Up to a maximum of $10,000 may be withdrawn without tax or penalty if it is used to buy, build or rebuild a first home.

A prospective client has been interviewing a number of investment advisers and wishes to see your firm's investment policy statement. Your IPS would probably include which of the following headings? Investment objectives. Investment philosophy. Investment selection criteria. Monitoring procedures. A)I and II. B)I, II, III and IV. C)I, III and IV. D)II and IV.

B)I, II, III and IV. Although there are no rules requiring that an IA develop an investment policy statement, it is a recommended procedure. Each of these four items would be found in a typical IPS. Please note that the IPS would include the criteria for selecting investment, but not the listing of the actual investments themselves.

Which of the following investment activities are acceptable for a fiduciary acting under the prudent expert rule? Purchasing AAA rated debentures. Purchasing a growth mutual fund. Purchasing new issues of an AAA rated issuer. Writing covered calls on dividend-paying stocks. A)I and II. B)I, II, III and IV. C)II and IV. D)II and III.

B)I, II, III and IV. The prudent expert rule permits a fiduciary to invest in securities that a prudent expert might buy. These investments are nonspeculative, low-to-moderate risk, and likely to be considered prudent if they are used in a way consistent with modern portfolio theory (MPT).

Which of the following investors are eligible to establish an IRA? Independently wealthy individual whose sole source of income is $125,000 per year in dividends and interest. Law student who earned $1,200 in a part-time job. An individual who earned $3,500 last year selling encyclopedias but whose spouse is covered by a company profit-sharing plan. Property owner whose income is solely from rent charged on family dwellings he owns. A)I and IV. B)II and III. C)I and III. D)II and IV.

B)II and III. An individual may contribute 100% of earned income up to a maximum allowable dollar limit, whichever is less. Interest and dividend income is portfolio income and rent is passive income, not earned income.

William and Kat, a married couple, are advisory clients of yours. Each of them is employed and covered by a qualified plan. Which of the following statements are CORRECT? Employees covered by a qualified plan are not eligible to open Roth IRAs. Employees covered by a qualified plan are eligible to open Roth IRAs. Distributions from a qualified plan may be rolled over into a Roth IRA. Distributions from a qualified plan may not be rolled over into a Roth IRA. A)I and IV. B)II and III. C)II and IV. D)I and III.

B)II and III. Eligibility for a Roth IRA is not affected by participation in a qualified plan, and effective January 2008, distributions may be rolled over into a Roth.

Which of the following statements correctly describe a Roth IRA? The maximum annual contribution is 100% of earned income or a maximum allowable dollar limit, whichever is greater. The maximum annual contribution is 100% of earned income or a maximum allowable dollar limit, whichever is less. Contributions are tax deductible. Contributions are not tax deductible. A)I and IV. B)II and IV. C)II and III. D)I and III.

B)II and IV. The maximum annual contribution to a Roth IRA is 100% of earned income, not to exceed a maximum allowable dollar limit. Contributions are made with after-tax dollars.

Which of the following securities is the least suitable recommendation for a qualified money-purchase plan account? A)A rated corporate bond. B)Treasury bill. C)Investment grade municipal bond. D)Large-cap common stock.

C)Investment grade municipal bond. Investment-grade municipal bonds bear low yields that are tax exempt. Since money in a qualified retirement plan account grows tax deferred regardless of the investment instrument, tax-exempt securities are unsuitable. In addition, when the money is withdrawn it is taxable as ordinary income so, in effect, tax-free income has been converted into taxable income.

Why are ERISA Section 404(c) and the accompanying Department of Labor Regulations important for an employer sponsoring a Section 401(k) retirement plan and who offer at least three diversified categories of investments with materially different risk and return characteristics? A)If followed, the employer need not provide a Summary Plan Description (SPD) to any employees participating in the plan. B)If followed, the employer is relieved of fiduciary liability for any unsatisfactory investment results experienced by the employee. C)Union-negotiated contracts are exempt from Department of Labor review under this safe harbor section. D)This Section permits the employer to avoid certain coverage and participation rules that would otherwise apply to a qualified plan.

B)If followed, the employer is relieved of fiduciary liability for any unsatisfactory investment results experienced by the employee. The importance of ERISA Section 404(c) to an employer sponsoring a Section 401(k) plan with self-directed investment or earmarking provisions is the relief from fiduciary responsibility for unsatisfactory investment results experienced by the employee.

Which of the following is NOT TRUE concerning a Coverdell Education Savings Account (ESA)? A)The beneficiary may be the contributor's child or grandchild or child of a friend of the contributor. B)In order for the withdrawal to be considered qualified, it may only be used for post-secondary education expenses. C)A beneficiary's unused balance may be rolled over to an ESA account for another child. D)The maximum contribution is $2,000 per beneficiary.

B)In order for the withdrawal to be considered qualified, it may only be used for post-secondary education expenses. Unlike the Section 529 Plan, an ESA may be used to fund education at any level. The maximum contribution permitted for any beneficiary is $2,000 per year. The beneficiary need not be related to the contributor(s). ESA accounts may be rolled over to change investment vehicles or to change beneficiaries.

Which of the following is not included in adjusted gross income on an individual's federal income tax return? A)Unemployment compensation B)Municipal bond interest C)Salary and commissions D)Dividends paid on preferred stock

B)Municipal bond interest Although tax-exempt interest is reported on the Form 1040 (line 8b), it is not included in adjusted gross income.

A client is covered by a noncontributory pension plan. If his employer has terminated the pension plan and made lump-sum distributions, which of the following actions should the client take? A)Purchase municipal bonds to avoid tax. B)Roll over the distribution into an IRA within 60 days to maintain tax-deferred status. C)Purchase a single-premium annuity to maintain tax-deferred status. D)Place the distribution in a Section 529 account to avoid tax.

B)Roll over the distribution into an IRA within 60 days to maintain tax-deferred status. To maintain the tax-deferred status, the distributions should be rolled over into an IRA within 60 days.

Which one of the following statements regarding a characteristic or use of a Roth IRA is CORRECT? A)Roth IRA withdrawals are tax-deferred in their entirety regardless of the participant's age at withdrawal. B)Roth IRAs are not subject to the minimum distribution rules until the death of the owner-participant of the plan. C)Like regular IRAs, Roth IRA contributions may not be made after the participant attains age 70½. D)Like regular IRAs, Roth contribution eligibility is restricted by active participation in an employer's retirement plan.

B)Roth IRAs are not subject to the minimum distribution rules until the death of the owner-participant of the plan. Unlike the regular or traditional form of IRA, Roth IRAs are not subject to the minimum distribution rules upon the participant attaining age 70½. Rather, distributions need not be made until the death of the owner/participant. For a Roth IRA withdrawal to be entirely tax free, it must be made after a 5-year holding period and after the participant reaches age 59½.

With regard to ERISA and a qualified retirement plan, which of the following would NOT constitute a conflict of interest between the plan and a fiduciary? A)A fiduciary offers reduced commissions to the plan for transactions that are executed through his employing financial institution. B)The fiduciary receives fees for acting as a trustee to the plan. C)A fiduciary participates in a transaction on the plan's behalf that involves a party with interests adverse to those of the plan, to ensure favorable terms for the plan. D)A fiduciary sells a real estate investment to the plan at the current market rate.

B)The fiduciary receives fees for acting as a trustee to the plan. A fiduciary may receive compensation from the plan's sponsor for acting as a trustee, if fees are reasonable and consistent with duties performed.

Which of the following statements regarding a traditional IRA is TRUE? A)Distributions without a tax penalty may begin after the age of 59½ and must begin by April 1 of the year before an individual turns 70½. B)The income and capital gains earned in the account are tax deferred until the funds are withdrawn. C)Because contributions to a traditional IRA are not currently tax deductible, all qualifying withdrawals are tax free. D)Distributions before age of 59½ are subject to a 10% tax penalty in lieu of income taxes.

B)The income and capital gains earned in the account are tax deferred until the funds are withdrawn. The income and capital gains earned in the account are tax deferred until the funds are withdrawn. It is the Roth IRA that can have tax-free withdrawals.

Which of the following is TRUE of the tax consequences when a participant in a noncontributory pension plan withdraws a monthly income at retirement? A)The income is partly taxed as ordinary income and partly taxed as capital gains. B)The income is taxable as ordinary income. C)The income is nontaxable. D)The income is taxable as capital gains.

B)The income is taxable as ordinary income. The employer has been making all of the contributions to the pension plan. Noncontributory means that the employee has made no contributions. Under the Internal Revenue Code, the income to the retiree from the plan is ordinary income.

Under which of the following circumstances would a premature distribution from a traditional IRA be exempt from the premature distribution penalty? A)A distribution taken to satisfy the terms of a court-ordered property settlement. B)When the distribution is paid in equal annual amounts over the owner's life. C)A distribution taken at age 55 if the owner is retired. D)When the account is fully funded with nondeductible contributions.

B)When the distribution is paid in equal annual amounts over the owner's life. A distribution from an IRA taken in equal annual amounts over the owner's life is not subject to the 10% premature distribution penalty even if started before age 59½. This is one of the exceptions that apply to IRAs. The exception for qualified domestic relations orders (QDROs) and for retirement at age 55 apply to employer-sponsored plans but not to IRAs.

All of the following statements concerning IRA contributions are true EXCEPT: A)if you pay your tax on January 15, you can still deduct your IRA contribution even if not made until April 15. B)contributions for the past year may be made after April 15, provided an extension has been filed on a timely basis. C)between January 1 and April 15, contributions may be made for the current year, the past year, or both. D)contributions can be paid into this year's IRA from January 1 of this year until April 15 of next year.

B)contributions for the past year may be made after April 15, provided an extension has been filed on a timely basis. Contributions can be made to an IRA only until the first tax filing deadline (April 15), regardless of having filed an extension.

During your annual review with your clients, Matt and Sally Eberhart, they indicate that they think it is time to start putting away some money for college for their 3 year-old son. They ask you to describe the advantage of using an UTMA account over a Coverdell ESA. You would likely point out all of the following as advantages EXCEPT A)there are no earnings limits for making UTMA contributions. B)contributions to the UTMA are made with after-tax dollars. C)there is no limit to the amount that can be contributed to an UTMA. D)withdrawals for other than qualified education expenses are not subject to any penalties.

B)contributions to the UTMA are made with after-tax dollars. We're looking for a feature possessed by the UTMA that is not found in an ESA, but in both cases, contributions are made with after-tax dollars. Therefore, you would not describe that as an advantage. Unlike the ESA where couples earning in excess of $220,000 per year are not eligible to contribute, no such ceiling is imposed on those donating or transferring property to an UTMA. Unlike the ESA, where there is a 10% tax penalty on the earnings withdrawn for non-qualified eductional expenses, no such penalty applies to an UTMA. Unlike the ESA which has a $2,000 per year per child limit, there is no limit to the amount that one can give to an UTMA. However, unlike the ESA, where all earnings are tax-free if used for qualified educational expenses, earnings in an UTMA are taxable and, if over a certain amount, might be taxed at the parent's top marginal rate.

The Employee Retirement Income Security Act of 1974 (ERISA) is a: A)federal law establishing the Social Security system. B)federal law regulating many aspects of private retirement plans. C)state law establishing a pension system for state employees. D)state law regulating many aspects of private retirement plans.

B)federal law regulating many aspects of private retirement plans. The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that regulates many aspects of retirement plans established by employers in the private sector, It was enacted to help protect the rights of employees who participate in retirement plans. ERISA provides many of the rules that retirement plans must meet if they want to be considered qualified plans.

All of the following statements regarding the Roth IRA are correct EXCEPT: A)contributions are made with after-tax dollars. B)individuals covered under qualified plans by their employers are not eligible to open a Roth IRA. C)under certain circumstances, all funds withdrawn are free of federal income tax. D)one may contribute to both a Roth IRA and a traditional IRA, but the combined contribution may not exceed the annual limit of $5,500, or $6,500 if qualifying for the catch-up provisions.

B)individuals covered under qualified plans by their employers are not eligible to open a Roth IRA. A Roth IRA may be opened by anyone with earned income as long as the individual falls within the earnings limits imposed by Congress.

When a nonspouse inherits an IRA, the beneficiary can choose from all of the following options EXCEPT A)withdrawing the funds over a 5-year period following the death of the owner B)keeping the money in the deceased's IRA C)withdrawing all of the funds immediately D)opening a separate inherited IRA in the name of the deceased FBO the beneficiary

B)keeping the money in the deceased's IRA It is only a beneficiary who is the spouse of the deceased who may continue that IRA. One caution, particularly when the surviving spouse is the younger partner, is that RMDs must begin when they would have started for the deceased.

Under ERISA Section 404(c), plan participants must be able to reallocate plan assets: A)once every week. B)once every 3 months. C)annually. D)daily.

B)once every 3 months. Although many 401(k) plans provide for daily reallocation of plan assets, Section 404(c) requires that plan participants be able to reallocate plan assets, through Internet trading or other methods, at least once every 3 months.

All of the following are general principles of the prudent investor standard EXCEPT A)liquidity of investment B)profit guarantees C)diversification D)reasonable expected returns

B)profit guarantees The prudent investor standard does not require a guarantee of profit, but it does include using skill and caution to achieve diversification, liquidity, and the goal of obtaining a reasonable return based on a reasonable amount of risk.

Qualified annuity plans offered under Section 403(b) of the Internal Revenue Code, referred to as tax-sheltered annuities (TSAs), are not available to a: A)nurse at a nonprofit hospital. B)student at a nonprofit college. C)public school custodian. D)church minister.

B)student at a nonprofit college. 403(b) plans are available to employees of 501(c)(3) nonprofit organizations and schools, not to students.

All of the following are advantages of a 401(k) plan EXCEPT: A)tax deferral on the plan earnings is advantageous to employees. B)the employer may make unlimited contributions, which generate unlimited tax deductions for the business. C)the owner of the business may participate in the plan. D)employees and the business may reduce current taxes.

B)the employer may make unlimited contributions, which generate unlimited tax deductions for the business. Contributions are deductible by the employer but are not unlimited because contributions to a 401(k) are subject to a number of limits. Tax deferral on plan earnings is advantageous to employees. The owner of the business may participate in the plan.

To comply with the safe harbor requirements of Section 404(c) of ERISA, the trustee of a 401(k) plan must: offer plan participants at least 10 different investment alternatives. allow plan participants to exercise control over their investments. allow plan participants to change their investment options no less frequently than monthly. provide plan participants with information relating to the risks and performance of each investment alternative offered. A)I and IV. B)II and III. C)II and IV. D)I and III.

C)II and IV. To comply with the safe harbor provisions of ERISA's Section 404(c), the plan trustee must allow each participant control over her investments and furnish her with full performance and risk information. The rule only mandates a minimum of 3 alternatives and quarterly changes.

George and Martha Washington are both in their mid-70s, very active in their community, and both work part-time at the local community bank. They would like to contribute a small portion of their earnings to some form of retirement plan. Which of the following choices would be the most appropriate for this couple? A)A traditional IRA. B)A spousal IRA. C)A Roth IRA. D)A Keogh Plan.

C)A Roth IRA. One of the distinguishing characteristics of the Roth IRA is that contributions may be continued past age 70 ½ as long as the participant has earned income.

On the basis of IRS guidelines, which of the following is most likely eligible to contribute to a Keogh plan? A)While employed full time for a major department store, a clerk who won $10,000 playing his state's lottery. B)A doctor who has formed a professional corporation with 3 other physicians. C)A public school teacher who gets paid during her summer vacation to give motivational speeches to training directors at major brokerage firms. D)The CEO of a listed corporation who receives a large bonus after an outstanding year.

C)A public school teacher who gets paid during her summer vacation to give motivational speeches to training directors at major brokerage firms. The speaking income earned by the school teacher is considered self-employment income and is therefore eligible for a Keogh Plan. Remember, corporate employees are not eligible unless they have separate source of self-employment income

Martha Mae Dixon passed away recently at the age of 87. Among the assets in her estate was an IRA with a value of $150,000. Mrs. Dixon's son, Jerome, a successful 52-year-old surgeon and a client of yours, was named as the beneficiary of the IRA. From a tax standpoint, which of the following options would you recommend to Mr. Dixon? A)Mr. Dixon should take the cash now and use a Section 1035 exchange into an annuity. B)Mr. Dixon should use the 5-year cash-out option. C)A separate inherited IRA should be opened in Mrs. Dixon's name for the benefit of Jerome. D)Mr. Dixon should take the cash now and use the money fund a new IRA.

C)A separate inherited IRA should be opened in Mrs. Dixon's name for the benefit of Jerome. When an IRA is inherited by a nonspouse, there are several different options available. From a tax standpoint, it is generally agreed that the most efficient choice is to create an inherited IRA in the name of the deceased for the benefit of the beneficiary. In this way, the beneficiary (Jerome) will be required to take RMDs using his life expectancy. That will result in much less tax (at least currently) than taking the money now or even over 5 years. One can assume that a successful surgeon is in a relatively high tax bracket. The Section 1035 exchange right does not apply when moving funds from an IRA, and inherited money is not considered earned income for purposes of funding an IAR.

Which of the following phrases best describes a prudent investor? A)An investment adviser representative handling a discretionary account. B)A person in a fiduciary capacity who invests in a prudent manner. C)A trustee who invests with reasonable care, skill, and caution. D)The custodian for a minor under the Uniform Transfers to Minors Act.

C)A trustee who invests with reasonable care, skill, and caution. Although all of these may have a fiduciary responsibility, the definition, as expressed in the Uniform Prudent Investor Act of 1994, requires reasonable care, skill, and caution.

Company-sponsored 401(k) retirement programs have which of the following? Voluntary employee contributions. Voluntary employer contributions. Mandatory employee contributions. Mandatory employer contributions. A)I and IV. B)III and IV. C)I and II. D)II and III.

C)I and II. 401(k) plans are salary reduction, employer-sponsored, qualified retirement plans. Employee participation is voluntary and any matching contributions made by the employer are also voluntary.

Many parents prefer to use a Section 529 Plan over a Coverdell ESA to finance their child's education plans because contribution limits are higher funds may be withdrawn tax-free if used for qualified secondary education expenses there are no earnings limits 529 contributions are tax deductible on the federal level A)I, II and III B)I and II C)I and III D)III and IV

C)I and III Contributions to a Coverdell ESA are limited to $2,000 per beneficiary per year while those to a Section 529 Plan can be as high as $300,000 in some states. A married couple cannot make a Coverdell contribution if their income exceeds $220,000 while there is no earnings limit to contribute to a 529. The Coverdell ESA has an advantage over the 529 Plan in that the funds may be used for any level of education; it is not limited to post-secondary as is the 529. In neither case is the contribution tax-deductible on the federal level (although the Section 529 plans may have tax advantages in some states).

If an investor received a lump-sum distribution from a 401(k) plan when he left his job, he may: roll over his account into an IRA within 60 days. transfer his account without taking possession of the money. keep the funds and pay ordinary income tax. invest in a tax-exempt municipal bond fund to avoid paying tax. A)II and IV. B)III and IV. C)I and III. D)I and II.

C)I and III. Since the client has already received the lump sum, he may either roll the money into an IRA account within 60 days, or retain the money and pay income tax (and possibly a penalty) on it. Any amount the client does not roll over will be taxed as income even if invested in tax-exempt bonds. A direct custodian-to-custodian transfer is not permitted because the client has already received the distribution.

Which of the following statements regarding participant loans in a 401(k) plan are CORRECT? The maximum allowable loan amount is the lesser of $50,000 or 50% of the participant's vested account balance. Unless the loan is taken out for the purpose of a mortgage on the participant's principal residence, repayment must be completed within 60 months of obtaining the loan. Payback of the loan will be through payroll deduction. Default on the loan will result in the IRS treating the loan as a distribution. A)II and III. B)I and II. C)I, II, III and IV. D)III and IV.

C)I, II, III and IV. All of these statements regarding borrowing from a 401(k) plan are true.

Which of the following can be rolled over into an IRA? Another IRA. Corporate pension plan. Corporate profit-sharing plan. Keogh plan. A)III and IV. B)II and III. C)I, II, III and IV. D)I and IV.

C)I, II, III and IV. Assets from any qualified corporate plan or from another IRA may be rolled over into an IRA.

Mr. and Mrs. Walker are advisory clients of yours. Each of them is employed and covered by a qualified plan. Which of the following statements are CORRECT? Employees covered by a qualified plan are not eligible to open Roth IRAs. Employees covered by a qualified plan are eligible to open Roth IRAs. Distributions from a qualified plan may be rolled over into a Roth IRA. Distributions from a qualified plan may not be rolled over into a Roth IRA. A)II and IV B)I and IV C)II and III D)I and III

C)II and III Eligibility for a Roth IRA is not affected by participation in a qualified plan. Effective January 2008, distributions may be rolled over into a Roth in the same manner as they have always been into a traditional IRA.

A fiduciary of an ERISA plan is preparing an investment policy statement. Included would probably be specific security selection methods of performance measurement determination for meeting future cash flow needs the summary plan description A)III and IV B)I, II, and III C)II and III D)II and IV

C)II and III The IPS will include methods of performance measurement (if it is meeting objectives) and a way to determine how future cash flow needs will be met (based on expected numbers of retirees). It will not include the specific securities to be purchased, but will include the types that may be placed in the portfolio. The Summary Plan Description (SPD) is a Department of Labor (DOL) required document that gives employees a summary of the plan and its features. It has nothing to do with determining how the money is invested.

Ways in which a Section 529 Plan differs from a Coverdell ESA include: tax-free distributions when the funds are used for qualifying educational expenses . higher contribution limits. no earnings limitations. contributions that may be made by someone other than a parent or legal guardian. A)II and IV. B)I and II. C)II and III. D)I and IV.

C)II and III. Contributions to an ESA are limited to $2,000 per beneficiary per year, while the 529 limit is set by the plan sponsor, sometimes as high as $300,000. Unlike the ESA where there is a ceiling on the earnings for a contributor, there is no limit for someone setting up a 529. Both Section 529 Plans and Coverdell ESAs enjoy tax-free distributions and plans may be established by almost anyone.

In the construction of a qualified retirement plan portfolio, which of the following investment vehicles would be considered generally inappropriate? a guaranteed investment contract (GIC). a municipal bond fund. a leveraged real estate limited partnership. a corporate bond rated A or higher. A)III and IV. B)I and IV. C)II and III. D)I and II.

C)II and III. GIC's and investment grade corporate bonds (A or higher rated bonds) are considered as appropriate investments for a qualified plan. A municipal bond fund will potentially convert tax-free income into ordinary income and using leveraged investments in retirement plans is generally prohibited.

Which of the following statements about plan fiduciaries under ERISA are TRUE? Plan fiduciaries sometimes have conflicting obligations to plan participants and other parties in interest. Plan fiduciaries must ordinarily diversify plan investments. Plan fiduciaries are personally liable for fines if they violate their fiduciary duties. A)I, II and III. B)I and III. C)II and III. D)I and II.

C)II and III. Under ERISA, plan fiduciaries must act solely in the interests of plan participants and beneficiaries, and they may not place the interests of other interested parties above those of the plan participants and beneficiaries. They must diversify plan investments to minimize the risk of large losses, unless it would not be wise to do so. If they violate any of their fiduciary duties, they may be personally liable for large fines.

The contribution limit does not have to be aggregated when participating in both a 401(k) and 403(b) a 401(k) and 457 a 403(b) and 457 a 457 and Roth IRA A)II and III B)I and II C)II, III, and IV D)III and IV

C)II, III, and IV Contributions to a 457 plan do not have to be aggregated with other retirement plans. That is, if eligible, one could contribute the maximum to a 401(k), a 403(b), or an IRA (traditional or Roth) and could also contribute the maximum to a 457 plan.

Which of the following statements regarding a qualified profit-sharing plan is TRUE? A)Contributions are required annually. B)It must define a specific contribution amount. C)It must be established under a trust agreement. D)It can permit regular direct cash payouts to participants before retirement.

C)It must be established under a trust agreement. All qualified retirement plans must be established under a trust agreement. Contributions with this type of plan are not required annually, nor can the plan make direct cash payouts to participants before retirement.

Which of the following may NOT be used to fund an individual retirement account (IRA)? A)Bank accounts. B)Mutual funds. C)Life insurance. D)Stocks.

C)Life insurance. There are many funding options available to investors who open an IRA. IRA contributions can be invested in stocks, mutual funds, bank accounts, and annuities. They cannot be invested in life insurance, however.

Which of the following could NOT participate in a Keogh plan? A)Self-employed individual who owns an IRA. B)Spouse of a self-employed individual who works for the business. C)Limited partner who does not contribute any personal services to the partnership but has invested money. D)Employee of a self-employed individual.

C)Limited partner who does not contribute any personal services to the partnership but has invested money. Keogh plan participants must work for the business. This may include a sole proprietor, a partner who works in the business, or an employee, but not a limited partner who contributes no personal services (meaning there is no compensation paid).

It would be considered least appropriate to recommend which of the following for your client's IRA? A)Corporate bonds. B)Common stocks. C)Municipal bonds. D)CDs.

C)Municipal bonds. Tax-free bonds do not belong in tax-sheltered accounts, as we would be converting tax-free income into ordinary income once the distributions begin.

Your client's wife retired as a 3rd grade teacher in 2009 where she was covered under the school system's 403(b) plan. If she resumes employment with a corporate employer, and that new employer has a 401(k) plan, is she entitled to defer RMDs from the 403(b) plan past the regular age 70 ½ date? A)RMDs may never be deferred for those who were participants in a 403(b) plan. B)RMDs may be deferred as long as the individual is employed on a full-time basis. C)RMDs may be deferred only from the plan sponsored by the current employer. D)RMDs may be deferred only if the current employer offered a 403(b) plan.

C)RMDs may be deferred only from the plan sponsored by the current employer. The rule is that you can only defer RMDs in the plan of the employer where you are currently employed. For example, assume you retire from Company A and get a job with Company B, and both companies have a 401(k) plan. You can only defer RMDs from the Company B plan, because that is your current employer; you will have to take RMDs from the Company A plan. The same would be true if it were two different school systems with 403(b) plans.

Tammy Jones is retiring from her company next month on her 62nd birthday. Her 401(k) has $300,000 and offers her four different mutual funds. After calculating what she will receive from Social Security, she concludes that she will need an additional $500 a month to retain her current lifestyle. Which of the following would be the most appropriate recommendation? A)Leave the money in her current 401(k) account. B)Roll the money into a mutual fund withdrawal plan. C)Roll the money into a traditional IRA. D)Take a lump-sum distribution of the entire $300,000.

C)Roll the money into a traditional IRA. It would benefit Ms. Jones most to roll the money into a traditional IRA. By doing this she would defer paying taxes on the $300,000-something she could not avoid if she took the lump-sum distribution or rolled the money into a mutual fund withdrawal plan. A self-directed traditional IRA account has more investment options than the four mutual funds offered in Ms. Jones's 401(k) account.

Which of the following statements regarding Roth IRAs is TRUE? A)Roth IRA withdrawals are tax free in their entirety regardless of the participant's age at withdrawal. B)Like traditional IRAs, Roth IRA contributions may not be made after the participant reaches age 70-½. C)Roth IRAs are not subject to the minimum distribution rules until the death of the owner/participant of the plan. D)Like traditional IRAs, Roth contribution eligibility is restricted by active participation in an employer's retirement plan.

C)Roth IRAs are not subject to the minimum distribution rules until the death of the owner/participant of the plan. Unlike traditional IRAs, Roth IRAs are not subject to the minimum distribution rules regarding a participant's age (70-½). Rather, distributions need not be made until the death of the owner/participant. For a Roth IRA withdrawal to be entirely tax free, it must be made following a 5-year holding period after the first contribution and after the participant reaches age 59-½.

Which of the following statements regarding Roth IRAs is NOT true? A)Roth IRAs do not have required distributions. B)There is no age limit on making contributions to Roth IRAs. C)Roth IRAs have higher contribution limits than traditional IRAs. D)Distributions prior to age 59½ may be subject to penalty.

C)Roth IRAs have higher contribution limits than traditional IRAs. An individual with earned income may choose to have either or both a traditional and a Roth IRA (as long as he falls within the Roth's income limitations). The maximum contribution under current regulations is $5,500 (+ $1,000 catch-up for those age 50 or older) and can be split however desired so long as no more than a total of $5,500 ($6,500 with catch-up) is contributed.

An agent taking which of the following actions would be committing a violation? A)Buying securities in a cash account with the consent of the customer. B)Selling securities from a corporate account by using limited power of attorney trading authority for the account. C)Selling securities from a minor's custodial account without the custodian's consent but with the beneficial owner's consent. D)Buying securities in a joint account at the request of one party only.

C)Selling securities from a minor's custodial account without the custodian's consent but with the beneficial owner's consent. The custodian, not the beneficial owner (minor), is the person who has the authority to make investment decisions for an account. Any tenant in a joint account may give instructions for the account.

An employer wishing to offer a retirement plan with a goal of retaining key employees would probably start with a A)payroll deduction plan B)defined benefit plan C)deferred compensation plan D)SEP-IRA

C)deferred compensation plan Because the deferred compensation plan allows the employer to discriminate, it is a popular choice for offering special benefits to retain key employees. Defined benefit plan will be the answer to a question dealing with offering maximum benefits to older employees.

The Chief Financial Officer (CFO) of a company approaches an investment adviser representative who happens to be the trustee of the corporation's qualified plan requesting a loan from the plan to help the company meet some short-term obligations. Which of the following would be the appropriate action to be taken by the IAR? A)The IAR is permitted to meet any reasonable request from the CFO of the employing company. B)With sufficient collateral, the loan may be made. C)The IAR is prohibited from making this loan because of his fiduciary responsibility to the plan. D)The IAR is prohibited from making this loan if it is not a part of the asset allocation model used in the plan's investment policy statement.

C)The IAR is prohibited from making this loan because of his fiduciary responsibility to the plan. As the plan fiduciary, the IAR is prohibited from taking any action that is against the rules. Companies can not use their qualified plan assets to finance their business operations.

A self-employed attorney has income of $110,000 per year. If he contributes $4,000 to his traditional IRA and has no other retirement plans, which of the following statements is TRUE? A)The contribution is partially tax deductible. B)The contribution is not permitted. C)The contribution is fully tax deductible. D)The contribution is not tax deductible.

C)The contribution is fully tax deductible. Traditional IRA contributions are fully deductible no matter how much income is earned if the taxpayer is not covered by any other qualified plan. Anyone under the age of 70½ with earned income can contribute to a traditional IRA.

What is the proper course of action for the fiduciary of a trust that has a portfolio made up of 10% cash and 90% stock of one company that has recently experienced a 40% market gain? A)Use the cash to acquire more shares of the stock B)Begin diversifying the equity portfolio C)The fiduciary can maintain the current allocation if ,while acting in the capacity of trustee, he believes it aligns with the goal of the trust D)Increase the cash position to 25% by taking some of the profits off the table

C)The fiduciary can maintain the current allocation if ,while acting in the capacity of trustee, he believes it aligns with the goal of the trust In virtually every trust question, the correct answer will be that the trustee (fiduciary) has to follow the terms of the trust and meet the trust's goals and objectives.

Which of the following statements regarding loans from 401(k) plans is NOT correct? A)They must be adequately secured. B)They must bear a reasonable rate of interest. C)They must be made available to highly compensated employees in amounts greater than that made available to other employees. D)They must be made in accordance with the loan provisions stipulated in the 401(k) plan.

C)They must be made available to highly compensated employees in amounts greater than that made available to other employees. ] Loans must be repaid with interest, generally within 5 years. They must be secured and made in accordance with plan provisions. Loans may not be made available to highly compensated employees in amounts greater than that made available to other employees.

One of your clients wishes to reallocate the assets in his 401(k) plan. Specifically, he plans to assist his parents in the purchase of a retirement home. He claims that it makes sense to have about 10% of his plan assets in real estate. A)This is prohibited as qualified plans cannot own real estate. B)An asset allocation model would not have 10% in real estate. C)This is not permitted because a prohibited party will benefit. D)This would only be permitted if the home were for his personal use.

C)This is not permitted because a prohibited party will benefit. There are two problems here. First of all, any investment in a qualified plan (or IRA), must be for future use (or else it would be considered a distribution subject to tax). Secondly, real estate may be used prior to your retirement, but not by "related" parties. These are defined as your spouse and lineal members of your family (ancestor or descendant or their spouse). So, because the parents will be using the property, they are considered prohibited persons.

Which of the following statements regarding nonqualified deferred compensation arrangements is NOT correct? A)The employer cannot take a tax deduction for the compensation deferred until it is paid out or otherwise taxable to the employee. B)Most deferred compensation arrangements are unfunded. C)Under such arrangements, the employee can rely on guaranteed future benefits. D)These arrangements usually are unsecured promises made by an employer to an employee to pay the employee part of his compensation in the future.

C)Under such arrangements, the employee can rely on guaranteed future benefits. A basic feature of a nonqualified plan is that the benefits are not guaranteed. If they were, the tax characteristics of the plan would change.

Each of the following individuals is eligible to participate in a Keogh plan EXCEPT: A)a securities analyst employed by a major research organization who makes $2,000 giving lectures in his spare time. B)a self-employed doctor in private practice. C)an executive of a corporation who receives $5,000 in stock options from his company. D)an engineer employed by a corporation who earns $5,000 making public speeches in her spare time.

C)an executive of a corporation who receives $5,000 in stock options from his company. Individuals with income from self-employment may participate in Keogh plans. Stock options, capital gains, dividends, and interest are not considered income earned from self-employment.

As stated in the Uniform Prudent Investors Act of 1994, a prudent investor would choose investments on the basis of all of the following EXCEPT: A)growth prospects of the asset. B)anticipated income to be received from the asset. C)commission structure of the broker-dealer being used. D)objectives of the account.

C)commission structure of the broker-dealer being used. Under most circumstances, a prudent investor does not make investment decisions based on brokerage commissions being charged.

All of the following statements concerning Qualified Tuition Programs for educational funding are correct EXCEPT A)a college savings plan is a type of QTP where the owner of the account contributes cash to the account so that the contributions can grow tax deferred B)prepaid tuition plans are plans where prepayment of college tuition is allowed at current prices for enrollment in the future C)control over the account passes to the student/beneficiary once withdrawals commence D)unless there is a change in beneficiary. assets in the QTP may be moved from the plan of one state to the plan of another as frequently as once per 12 months

C)control over the account passes to the student/beneficiary once withdrawals commence One of the advantages of QTPs (Qualified Tuition ​Programs, better known as Section 529 Plans) is that the owner-contributor ​is always in control of the program. Without a change in beneficiary, plan "rollovers" are limited to once per 12 month period.

Each of the following is an example of a qualified retirement plan EXCEPT a: A)profit-sharing plan. B)Keogh plan. C)deferred compensation plan. D)defined benefit plan.

C)deferred compensation plan. A deferred compensation plan is considered a nonqualified plan because IRS approval is not required to initiate such a plan for employees.

Among the reasons why a corporation might choose to utilize a deferred compensation plan for retirement planning would be A)current tax savings on money contributed to fund the plan B)the plans are nondiscriminatory C)employees who leave the company prior to retirement would not receive benefits D)compliance with ERISA

C)employees who leave the company prior to retirement would not receive benefits Deferred compensation plans are usually structured so that if the employee leaves prior to retirement or is terminated with cause, benefits are forfeited. These plans are discriminatory and there is no current tax saving, hence the term "deferred". As nonqualified plans, they do not have to comply with ERISA.

If a loan from a 401(k) plan does not meet tax law requirements, the loan: A)is treated and taxed as a capital gain. B)must be repaid in full immediately. C)is considered a plan distribution and taxed as income. D)is subject to a 50% penalty tax.

C)is considered a plan distribution and taxed as income. Because plan loans could be used to circumvent the taxation of plan distributions, the IRS imposes strict rules. If the rules are not followed, the loan is considered a distribution and taxed as income.

Probably the most significant benefit of saving for retirement using a Roth IRA is: A)tax-deferred accumulation. B)larger contributions than a traditional IRA. C)tax-free treatment at withdrawal. D)tax-deductible contributions.

C)tax-free treatment at withdrawal. Although Roth IRA contributions grow without current taxation, that doesn't make them unique. What is truly special about the Roth is that, if certain conditions are met, withdrawals are totally free of income tax.

Your customer opens a Coverdell ESA for his niece. In order to meet qualified education expenses of $9,000, she takes a distribution of $10,000. The amount of the distribution in excess of her education expenses that represents earnings in the account will be A)nontaxable to either party B)taxable to the uncle, the donor to the plan C)taxable to the niece, the beneficiary of the plan D)automatically reinvested back into the plan

C)taxable to the niece, the beneficiary of the plan Any excess distribution representing earnings that is not used to meet qualified education expenses is taxable to the beneficiary who took the distribution.

All of these would be characteristics of a traditional 401(k) plan EXCEPT: A)employees can choose from a variety of investment options. B)in service employees may be eligible for hardship withdrawals. C)the employer can contribute more than 15% of total payroll. D)employees may have a portion of their contribution matched by the employer.

C)the employer can contribute more than 15% of total payroll. 401(k) plans provide for hardship withdrawals, a choice of investment options, and employer matching.

Although not required by DOL regulations, if a plan administrator prepared a written investment policy statement meeting ERISA requirements, you would expect to find all of the following EXCEPT: A)methods to be used for determining how the plan will meet future cash flow needs. B)investment philosophy. C)the identity of the specific securities to be chosen for the portfolio. D)performance measurement parameters.

C)the identity of the specific securities to be chosen for the portfolio. Although not required by law, most qualified plans have an IPS. One thing not found in that statement is a listing of specific securities to be selected. The method for determining how they are selected will be there, but not the specific securities.

One of your clients has told you that his employer has just instituted a Roth 401(k) plan. If they wish to make matching contributions: A)they may contribute a specified percentage of his pay to the Roth 401(k). B)current tax law does not permit matching contributions to be made on behalf of any employee participating in a Roth 401(k) plan. C)they may contribute a specified percentage of his pay to a regular 401(k). D)he may choose as to whether he wants the matching contribution made to the Roth 401(k) or a regular 401(k).

C)they may contribute a specified percentage of his pay to a regular 401(k). In order to have matching contributions, participants in a Roth 401(k) plan must actually have two accounts - the Roth and a regular 401(k). The employer contributions are made on a tax deductible basis to the regular 401(k) and are fully taxable upon withdrawal.

A fiduciary, acting in accordance with the UPIA, would choose investments on the basis of all of the following EXCEPT: A)needs for liquidity, regularity of income, and preservation or appreciation of capital. B)general economic conditions. C)transaction costs. D)other resources of the beneficiaries.

C)transaction costs. Under the Uniform Prudent Investor Act, transaction costs are not a primary factor in a trustee's determination of which investments to choose for the trust. They may be a factor in determining where to execute the transactions.

401k rollover when switching jobs

Can transfer to 401k with new employer, or transfer to an IRA rollover account with no tax witholding

IRA must be paid in

Cash

Harry, age 52, is an unmarried individual currently earning $55,000 per year. He consults you about the possibility of establishing both a traditional IRA and Roth IRA this year and making contributions to each. You have determined that Harry should make a $3,000 contribution to the traditional IRA for this year. What amount, if any, can Harry also contribute to the Roth IRA? A)$1,000. B)$0. C)$2,000. D)$3,500.

D)$3,500. Contribution amounts to the traditional and Roth IRA must be aggregated for purposes of determining a total amount. In addition, because Harry is over age 50, he is permitted a $1,000 catch up contribution. Currently, his total allowable contribution is $6,500; Harry can contribute an additional $3,500 to the Roth IRA.

A self-employed CPA has earned $38,000 from his practice; he also earned $2,300 interest on his savings. What is the basis for his deposit into his defined contribution Keogh (HR-10) account this year? A)$40,300. B)$35,700. C)$2,300. D)$38,000.

D)$38,000. Only earned income may be included in determining the income eligible for Keogh contributions. Dividends and interest are classed as portfolio income and are not included.

Which of the following individuals will NOT be penalized for an IRA withdrawal? A)50-year-old woman who decides on early retirement. B)Man in his early 40s who uses the money to buy a vacation home. C)Woman who turned age 59 one month before the withdrawal. D)35-year-old man who just became eligible for Social Security disability payments.

D)35-year-old man who just became eligible for Social Security disability payments. Disability allows an IRA owner to withdraw without penalty before age 59½.

Which of the following is an allowable early withdrawal from a traditional IRA without penalty? A)A person withdraws funds from his IRA to pay for elective cosmetic surgery. B)A single parent withdraws funds from her IRA to pay for the education of a nephew. C)A single parent supplements a home equity loan with funds from her IRA to pay for a second home. D)A wealthy individual withdraws $10,000 from his IRA to purchase his first principal residence.

D)A wealthy individual withdraws $10,000 from his IRA to purchase his first principal residence. An individual withdrawing up to $10,000 from his IRA to purchase his first principal residence would have the 10% tax penalty waived; the wealth of the individual is not relevant. Although there are certain circumstances where funds may be withdrawn for medical expenses, elective cosmetic surgery does not qualify.

Which one, if any, of these transactions will be treated as a prohibited transaction under the provisions of the ERISA legislation? A)The plan fiduciary permitting a plan participant to use part of his vested interest to purchase commercial real estate. B)The furnishing of office space to a plan trustee for reasonable compensation and fair rental value. C)A loan between a 401(k) plan and plan participant. D)An investment adviser using the interest from plan assets to cover the adviser's office expenses.

D)An investment adviser using the interest from plan assets to cover the adviser's office expenses. An investment adviser, as a fiduciary and disqualified person under the plan, is prohibited from using plan assets in payment of personal obligations (such as outstanding office expenses). Loans from a 401(k) plan to a participant are not prohibited transactions. The plan trustee may rent space from the plan (one of the plan's assets is an office building). Speaking of real estate, participants in a retirement plan may purchase real estate with their funds provided that the real estate is not used for the benefit of any related person.

If a man turned 70 on July 16, 2011, when must the first required minimum distribution (RMD) be made from his IRA? A)April 1, 2012. B)December 31, 2012. C)December 31, 2011. D)April 1, 2013.

D)April 1, 2013. The IRS requires that RMDs commence no later than April 1 of the year following the year that the owner turned 70-½ years old. He turned 70-½ on January 16, 2012. Therefore, distributions must commence by April 1, 2013.

On retirement, if your customer who is a corporate executive will receive retirement income equaling a percentage of the average of his last five years of compensation, this is which type of plan? A)Keogh B)TSA C)Defined contribution D)Defined benefit

D)Defined benefit In a defined benefit plan, the retiree receives a specified amount with the sponsor bearing the investment risk. Keogh plans are not corporate plans. In a defined contribution plan, the employee contributes a defined amount each period, bears the investment risk, and does not receive a defined amount upon retirement. TSAs (tax-sheltered annuity plans, a common name for 403(b) plans) are defined contribution plans, not defined benefit plans.

If a retiree is paid an annual amount equal to 30% of the average of his last three years' salary, which of the following retirement plans offers this type of payment? A)Deferred compensation B)Profit-sharing C)Money purchase pension D)Defined benefit ​pension

D)Defined benefit ​pension A retirement plan that establishes the retiree's payout in advance is a defined benefit plan. ​Profit sharing and money purchase pension plans are defined contribution plan.

Which of the following securities is most suitable for an investment adviser representative to recommend to a 26-year-old customer opening an IRA? A)Put options. B)Municipal bond fund shares. C)Term insurance contract. D)Growth stock mutual fund.

D)Growth stock mutual fund. Growth stocks provide potentially long-term returns suitable for a retirement account. An individual opening a new IRA won't have sufficient funds to properly diversify other than by purchasing shares of an investment company. IRA distributions are 100% taxable, which makes the investment in tax-exempt securities unsuitable. Insurance is not permitted in an IRA account and speculative options are inappropriate.

Which of the following individuals is clearly eligible to make a catch-up contribution? A)Emily, who is fully vested. B)Sam, who has completed 15 years of service. C)Roger, who has completed 1 year of service. D)Hannah, who is 55 years old.

D)Hannah, who is 55 years old. Catch-up contributions are allowed to participants who are age 50 and over.

A 45-year-old employment counselor has a Keogh plan for himself and three full-time employees who have been working for him for the past four years. If he earns $150,000 this year and contributes the maximum amount allowed to his Keogh plan, how much may he invest in an IRA? A)He may not have an IRA. B)He may invest any amount up to 100% of his earned income. C)He may have an IRA but may not make a contribution for this year. D)He may contribute 100% of earned income or the maximum allowable IRA limit, whichever is less.

D)He may contribute 100% of earned income or the maximum allowable IRA limit, whichever is less. Regardless of how much is invested in a Keogh plan, an investor may still invest in an IRA if he has earned income. The maximum contribution to an IRA is 100% of earned income or the maximum allowable limit, whichever is less. In this individual's case, however, the contribution would probably be nondeductible.

As a client's only child is about to complete her college education, it is obvious that the 529 Plan used to accumulate funds has been overfunded. Which of the following might be suggested to minimize tax consequences? Encourage the daughter to go to graduate school and use the money for qualified expenses there. Rollover the funds to a member of the beneficiary's family Rollover the funds to a Coverdell ESA Rollover the funds to the donor's IRA A)I, II and III B)I and IV C)II and III D)I and II

D)I and II When there is money remaining in a Section 529 Plan after a student has completed college, withdrawal of that excess will result in the portion representing earnings being taxed at ordinary income tax rates plus a 10% penalty. Those taxes and penalties can be avoided if the funds are properly used, such as graduate school for the original beneficiary or designating a new beneficiary who is an immediate family member (as defined in the law) and rolling over the funds. There is no such thing as a rollover to a Coverdell ESA and money in a 529 Plan is not part of a qualified plan so rolling over to an IRA is out of the question.

Employee contributions to a 401(k) plan are subject to: Social Security taxes. federal unemployment taxes. federal income tax withholding. state income tax withholding. A)III and IV. B)II and IV. C)I and III. D)I and II.

D)I and II. Employee contributions are excluded from taxable income at the time of contributions, which exempts them from income tax, but not from payroll taxes.

In order to comply with the safe harbor requirements of Section 404(c) of ERISA, the trustee of a 401(k) plan must: offer plan participants at least 3 different investment alternatives. ensure that plan participants are insulated from control over their portfolios. allow plan participants to change their investment options no less frequently than quarterly. allow plan participants to purchase U.S. Treasury securities. A)II and III. B)II and IV. C)I and IV. D)I and III.

D)I and III. The safe harbor requirements of ERISA Section 404(c) relieve the trustee of a 401(k) plan of liability if the plan participants have the ability to select from at least 3 different investments and are allowed to make selection changes no less frequently than quarterly.

Which of the following regarding a Roth IRA are TRUE? The contributions are nondeductible. One may not contribute to a Roth IRA if concurrently contributing to a traditional IRA. The contributions are deductible. Withdrawals after age 59½ may be tax free. A)III and IV. B)I and II. C)II and III. D)I and IV.

D)I and IV. In a Roth IRA, contributions are not deductible from current income. Withdrawals after age 59½ are tax free, provided the account has been open for at least five years. One may maintain both a Roth and a traditional IRA concurrently. However, the maximum total contribution between both plans is $5,500 (or $6,500 for those age 50 or older).

Which of the following is (are) TRUE regarding qualified pension plans? They must not discriminate. They must have a vesting schedule. They must be in writing. Every month the employer must update the current status of all accounts. A)III only. B)I, II, III and IV. C)I and III. D)I, II and III.

D)I, II and III. An employer must update the status of all employees at least annually, not monthly.

Which of the following statements regarding participant loans in a 401(k) plan are correct? The maximum allowable loan amount is the lesser of $50,000 or 50% of the participant's vested account balance. Unless the loan is taken out for the purpose of a mortgage on the participant's principal residence, repayment must be completed within 60 months of obtaining the loan. Payback of the loan will be through payroll deduction. Default on the loan will result in the IRS treating the loan as a distribution. A)II and III. B)I and II. C)III and IV. D)I, II, III and IV.

D)I, II, III and IV. All of these statements regarding borrowing from a 401(k) plan are true.

Which of the following are governed by the prudent investor rule? Trustee Executor Custodian Agent who has been granted discretionary authority A)I, II, and III B)I and II C)III and IV D)I, II, III, and IV

D)I, II, III, and IV The prudent investor rule applies to fiduciary accounts, or accounts in which someone is acting on someone else's behalf. In these accounts, the fiduciary must act prudently. An agent who has been granted discretionary authority is acting in a fiduciary capacity.

Which of the following concerning a money purchase pension plan are TRUE? All employees must contribute to the plan. Voluntary employee contributions are optional. Employer contributions are required. Employer contributions are optional. A)I and III. B)II and IV. C)I and IV. D)II and III.

D)II and III. A money purchase pension plan is a defined contribution plan established by the employer, thereby making the contributions mandatory. Employee participation by making voluntary contributions to the plan is optional. Employees who contribute to the plan usually contribute a percentage of their income.

Becky Biggins has an executive position with a large corporation that covers her under its defined benefit pension plan. This year, Becky's salary will top $235,000. Becky has no dependents and wishes to maximize funds that she can accumulate for her retirement. Becky could not open a traditional IRA open a traditional IRA but would not be able to deduct her contributions open a Roth IRA not open a Roth IRA A)I and IV B)II and III C)I and III D)II and IV

D)II and IV Anyone with earned income can open a traditional IRA. Deductibility of contributions may be disallowed if the individual is covered under a corporate plan and has earnings in excess of a certain level. Becky's salary exceeds the maximum permitted for a single person so her contributions would be made with after-tax dollars. In the case of a Roth, nothing is deductible, so it doesn't matter if you are covered at work. However, Becky's salary is far in excess of the maximum permitted for a single person to contribute to a Roth IRA.

A client has just celebrated her 70th birthday and wants to know which of the various retirement vehicles you have established for her do not have required minimum distributions. Under current tax law, there are no RMDs for her: Keogh plan. Roth IRA. traditional IRA. variable annuity. A)III and IV. B)I and II. C)I and III. D)II and IV.

D)II and IV. Not only are distributions from a Roth IRA generally tax free, there is no obligation to begin payout at 70 ½. There are never any RMDs with annuity contracts, fixed or variable.

Which of the following would be permitted to open an IRA? An individual whose sole income consists of dividends and capital gains. A divorced mother whose sole income is alimony and child support. A self-employed attorney who has a Keogh plan. A corporate officer covered by 401(k). A)III and IV. B)I and II. C)I, II, III and IV. D)II, III and IV.

D)II, III and IV. An IRA contribution can only be made by someone who has earned or otherwise eligible income. Earned income is defined as salary, wages, commissions, and tips. Alimony, (but not child support) is considered eligible income for an IRA. Individuals can contribute to an IRA even if they are covered by a corporate pension plan or Keogh plan. Although a contribution can be made, it may or may not be deductible depending on the individual's income. Dividends and capital gains are not considered earned income.

One of your clients is discussing various options for funding his IRA. Current tax law would permit investing in which of the following vehicles? Collectible stamps issued by the U.S. Postal Service. Gold or silver coins minted by the U.S. Treasury Department . Fixed annuities. REITs. A)I, II, III and IV. B)II and IV. C)I and III. D)II, III and IV.

D)II, III and IV. In general, investments in collectibles are not permitted in IRAs. The one major exception is U.S. gold and silver coins minted by the Treasury Department. Although some might object to placing an annuity into a tax deferred plan because it is already tax deferred, there could be a good reason for it's inclusion and, more important for this question, it is permitted.

An IAR handling the portfolio of a senior citizen with diminished mental capacity is deemed to be acting as a fiduciary and, therefore, bound by the provisions of the Uniform Prudent Investor Act. Compliance with the act would require the IAR to: make sure that the investment allocation is done prior to the renewal date of the contract. use skill and caution in making investment recommendations. carefully consider the risks of all investments. seek to meet the client's objectives with minimum risk. A)III only. B)I, II, III and IV. C)II and IV. D)II, III and IV.

D)II, III and IV. The UPIA requires that fiduciaries act with skill and caution in an effort to meet their clients objectives. In so doing, they should attempt to maximize returns while minimizing risks. What does making the allocation prior to contract renewal have to do with properly serving your client?

Which of the following statements describes an advantage of a Roth IRA over a traditional IRA? A)There are no annual contribution limits once an individual attains age 59-½. B)The AGI limits for contributions are the same as those for traditional deductible IRA contributions. C)The required minimum distribution date rules do not apply if the distribution is made in the form of an annuity. D)Qualifying distributions are received free of income tax if a holding period and age requirement is met.

D)Qualifying distributions are received free of income tax if a holding period and age requirement is met. A Roth IRA distribution is tax free if the distribution is made on or after the owner attains age 59-½ (or other specified events), and a 5-year holding period requirement is met. The contribution limits are aggregated with that of a traditional IRA regardless of age; however, there are AGI limits with a Roth IRA but none with a traditional IRA.

Dr. Smith is resigning from the clinic where he was an employee covered under its profit sharing plan. The plan document requires distribution of vested amounts once an employee leaves the clinic. Under the Internal Revenue Code, what can he do to avoid current-year taxation of the distribution? A)Invest the distribution in a government zero-coupon bond. B)Place the distribution in a Keogh Plan. C)Invest the distribution in municipal bonds. D)Roll over the distribution into an IRA within 60 days.

D)Roll over the distribution into an IRA within 60 days. Lump-sum distributions from retirement accounts can be rolled over into an individual retirement account. If implemented within 60 days, no tax liability is incurred.

Tim earns $30,000 at his employment and is not offered a pension plan. His wife is not currently employed. What is the best way to set up an IRA to give maximum retirement benefits? A)Set up separate accounts totaling $11,000. B)Set up one IRA for $5,500 or 100%, whichever is less. C)Set up one joint account for $11,000. D)Set up separate accounts for $5,500 each.

D)Set up separate accounts for $5,500 each. A one-worker couple can open a spousal IRA. This type of arrangement allows the contribution of a total of $11,000 to the two accounts and no more than $5,500 in either account. Selecting separate accounts totaling $11,000 could imply that one account could exceed $5,500 while the other would be less. IRAs are always individual accounts. The spousal IRA allows contributions on behalf of a nonworking spouse.

When completing an individual tax return on Form 1040, one of the most important numbers is the adjusted gross income (AGI). Which of the following would NOT be included in AGI? A)Salary and commissions B)Alimony received from a former spouse C)Qualifying dividends on common stock D)Tax-exempt interest received from municipal bonds

D)Tax-exempt interest received from municipal bonds Even though municipal bond interest is reported on line 8b of the 1040, it is specifically not included in AGI. Paying alimony is a deduction, while receiving it is considered income. Qualifying dividends merely means the tax rate is limited to a maximum of 15% (except for very high income earners - not tested).

Hal and Amy are covered by a pension plan at Benson Industries, Inc., where they are both employed as executives. Their incomes total $200,000 per year, and they file a joint tax return. Which of the following best describes what they can do in a regular IRA program for the year 2015? A)They cannot have an IRA because they are covered by a pension plan. B)They may each make a $5,500 deductible contribution. C)They may make an $11,000 deductible contribution. D)They may contribute $5,500 each, but they cannot take a deduction.

D)They may contribute $5,500 each, but they cannot take a deduction. They may each contribute to their own IRA and enjoy tax-deferred growth within their IRAs, but neither may take the $5,500 annual contribution as a deduction to taxable income on a tax return. For married couples covered by retirement plans at work, the phaseout begins at a joint MAGI (modified adjusted gross income) of $98,000 and is complete at $118,000. This probably won't be tested because the amounts change yearly. Also, don't ask yourself, "What if one or both are age 50 or older?" You can safely assume that if a contributor can qualify for the catch-up provision, age will be given in the question.

The requirement to take a minimum distribution once the age of 70 ½ has been reached is found in: A)a qualified employer sponsored plan even when still working for that employer. B)a Section 529 Plan. C)an index annuity. D)a traditional IRA.

D)a traditional IRA. Those who have a traditional IRA must begin distributions by the April 1st of the first year after reaching age 70½. There are never RMDs with annuities or educational savings plans. There are RMDs for qualified corporate plans, however, they do not go into effect until after the employee retires from that employer, even if that is well past age 70½.

Eight years ago, Joe Hampton, a resident of Georgia, opened a Section 529 Plan for his then 10-year old under the Georgia Higher Education Savings Plan. Now that the child is preparing to enter the University of Alabama, Joe asks you about the taxation on the money he will be withdrawing to pay for tuition. You would tell him that: A)federal and state income taxes will be due, based on the student's tax bracket, but only on the amount withdrawn that exceeds Joe's cost basis. B)because his child is attending an out-of-state university, there will be Georgia income tax due on his withdrawals, but no federal income tax. C)because his child is attending college in Alabama, the child will be liable for Alabama income tax on the funds withdrawn. D)any funds withdrawn for tuition are exempt from both state and federal income tax.

D)any funds withdrawn for tuition are exempt from both state and federal income tax. In all cases, funds withdrawn from a Section 529 Plan that are used to pay for qualifying expenses (like tuition), are exempt from federal income tax. The general rule is that residents of a state never pay income tax on funds withdrawn from that state's plan. It is not important where the student goes to school; only the state of residence matters.

Minimum distributions from a traditional IRA must begin: A)a year after the owner turns 59-½. B)as soon as the owner turns 70-½. C)once the owner retires. D)by April 1, the year after the owner turns 70-½.

D)by April 1, the year after the owner turns 70-½. Minimum distributions from a traditional IRA must begin by April 1 of the year after the owner turns 70-½.

All of the following statements regarding 529 plans are true EXCEPT: A)anyone can make a contribution on behalf of a beneficiary. B)a beneficiary of a 529 plan may also be the beneficiary of a Coverdell Education Savings Account. C)earnings accumulate tax free if the money is used for qualified educational purposes. D)contributions are made with pretax dollars at the federal level.

D)contributions are made with pretax dollars at the federal level. Contributions are made with after-tax dollars. Withdrawals are tax free at the federal level if used for qualified higher education expenses.

Mr. Jones, age 70, is retiring, and his employer has three investment options for his 401(k). You should advise him to: A)leave the investments with his employer. B)transfer the funds into a variable annuity using a Section 1035 exchange. C)take a distribution of 100% of the funds in the account. D)do a rollover to a traditional IRA.

D)do a rollover to a traditional IRA. Most advisers would agree that even when the employer's 401(k) plan permits retirees to continue to maintain their account, it is better for the client to move the assets to a self-directed IRA. Because of the immediate tax liability, it generally does not make sense to take a lump-sum distribution. Section 1035 exchanges are only allowable between insurance contracts.

One of the usual practices of the fiduciary handling a qualified retirement plan is providing a written document that sets forth the objectives and constraints on a managed portfolio. This document is called the: A)management agreement. B)statement of fiduciary responsibility. C)legal opinion. D)investment policy statement.

D)investment policy statement. An Investment Policy Statement (IPS) is designed to describe the plan's investment goals and investment strategies. It typically identifies levels of risk acceptable in the construction of a portfolio. An IPS establishes the strategic framework utilized by the fiduciary to manage a portfolio.

If an individual makes a withdrawal from her IRA at age 52, she pays no penalty tax if she: A)used the funds for her nephew's college tuition. B)has retired. C)had no earned income that year. D)is disabled.

D)is disabled. An individual may withdraw from an IRA before the age of 59½ without a penalty tax in the case of death or disability. Funds may be withdrawn without penalty for qualified education expenses for immediate family members, but that does not include nieces and nephews.

Under ERISA, a pension portfolio manager may engage in writing covered options: A)only during declining markets. B)under any circumstances. C)at no time; writing options is too high a risk. D)only if it fits with the objectives of the plan.

D)only if it fits with the objectives of the plan. Writing covered options is appropriate as long as it matches investment objectives. While writing covered calls is sometimes done to generate income, writing uncovered, or naked, calls is not appropriate for a pension plan because of the unlimited risk potential.

One of your clients will be separating from his current employer and asks you for your suggestion as to what should be done with the assets in his contributory 401(k) plan. The plan documents indicate that plan assets must be distributed upon termination. Given the following choices, your recommendation would be to A)reconsider the decision to separate B)take the distribution in cash and rollover the assets into an IRA within 60 days C)take the cash and put it into a managed account D)open a rollover IRA and have the assets directly transferred

D)open a rollover IRA and have the assets directly transferred Most would agree that the best plan is to preserve the tax deferral as long as possible. A direct transfer into a rollover IRA is preferable to taking the cash first because there is no 20% withholding so all the money goes to work immediately.

One of your clients has reached his company's mandatory retirement age of 67. He has been a participant in his employer's 401(k) plan and his account is valued at $400,000. The account is funded with mutual funds and company stock. The cost basis of the company stock is $25,000 and it is currently worth $125,000. If he were to use the net unrealized appreciation (NUA) approach when taking the distribution of the company stock, the tax treatment would be: A)ordinary income on the entire $125,000. B)ordinary income on the $25,000 cost basis, short-term capital gain on the appreciation when sold. C)long-term capital gain on the entire $125,000. D)ordinary income on the $25,000 cost basis, long-term capital gain on the appreciation when sold.

D)ordinary income on the $25,000 cost basis, long-term capital gain on the appreciation when sold. Under IRS rules, if part of your retirement plan assets includes company stock, taking that as a distribution (not rolling it over into an IRA) subjects the cost basis to ordinary income tax and any unrealized appreciation is taxed as long-term capital gain when sold.

To comply with ERISA Section 404(c), a 401(k) plan must satisfy all the following requirements EXCEPT: A)sufficient information must be provided to plan participants about investment alternatives available under the plan to permit informed decision making. B)plan participants must have the ability to transfer assets among investment options at least quarterly. C)plan participants must have access to at least 3 core diversified investment options. D)plan participants must be provided with the services of a Certified Financial Planner at least annually to assist them with investment decision making.

D)plan participants must be provided with the services of a Certified Financial Planner at least annually to assist them with investment decision making. Section 404(c) relieves a plan fiduciary from liabilities associated with losses stemming from employee investment choices. To qualify for this protection, the plan must provide at least 3 core diversified investment options, participants must have the ability to transfer assets among investment options at least quarterly, and sufficient information must be provided to participants to allow for informed decision making.

GEMCO Manufacturing Co. has appointed the company's CFO as the trustee for their employee retirement plan. You are an IAR and you advise a substantial portion of the plan's assets. You are contacted by the CFO requesting a short-term loan from the plan assets for which he will pay the plan prime + 2%. Your best course of action would be to: A)permit the loan because the CFO is the plan trustee. B)permit the loan once you have been satisfied that there is adequate collateralization in place. C)refuse to allow this to happen because the plan assets will suffer. D)refuse to allow this to happen as it would be a violation of your fiduciary responsibility.

D)refuse to allow this to happen as it would be a violation of your fiduciary responsibility. ERISA never permits transactions of this type for a plan trustee. As an IAR handling some of the plan's investments, you would be placed in a fiduciary position and could not violate that trust.

IRAs and Keogh plans are similar in each of the following ways EXCEPT: A)distributions without penalty may begin as early as age 59½. B)rollovers are allowed once every 12 months and must be completed within 60 days. C)taxes on earnings are deferred. D)the maximum allowable cash contribution is the same.

D)the maximum allowable cash contribution is the same. Both IRAs and Keogh plans have maximum annual allowable contribution limits but they are significantly higher in a Keogh Plan.

ERISA rules require testing of 401(k) plans to determine whether they meet the definition of a top-heavy plan. A plan would be considered top heavy if: A)the employer contributes more to the plan than the employees do. B)the plan has a long vesting schedule. C)the plan is disproportionately benefiting highly compensated employees. D)the plan is disproportionately benefiting key employees.

D)the plan is disproportionately benefiting key employees. A plan is considered top heavy when more than 60% of the plan assets are held in the accounts of employees meeting the definition of key employee.

Jesse Liverless is the trustee of the Short Circuit Electric Corporation 401(k) plan. Jesse would be able to reduce his ERISA fiduciary exposure if A)the firm provided educational sessions to participants covering the basics of investing B)the plan provided for account reports no less frequently than annually C)loans to participants were permitted D)the plan offered a broad index fund, a medium term government bond fund and a cash equivalent fund

D)the plan offered a broad index fund, a medium term government bond fund and a cash equivalent fund ERISA Section 404 (c) describes a safe harbor for 401(k) plan fiduciaries. Among the requirements is to provide at least three different investment alternatives with a range of risk and provide account access no less frequently than quarterly.

One reason why employers like using deferred compensation plans is that A)IRS approval is easily obtained B)they provide larger tax deductions than any other plan C)with all employees receiving the same benefit, plan administration is simplified D)they can be structured so that the employee's benefits are forfeited upon termination with cause

D)they can be structured so that the employee's benefits are forfeited upon termination with cause Deferred compensation plans frequently provide that employees leaving before a certain period of time, going to the competition, or being terminated for cause forfeit plan benefits. There are no current tax deductions, the plans discriminate and, because they are nonqualified, there is no IRS approval.

Under ERISA, a fund manager wishing to write uncovered calls may do so: A)without restrictions. B)if explicitly allowed in the plan document. C)if approved by the IRS in writing. D)under no circumstances.

D)under no circumstances. ERISA prohibits retirement plans from making investments that are excessively speculative such as uncovered call writing, which possesses unlimited risk.

SIMPLEs

Savings Incentive MAtch Plans for Employees

SEP plans available to which of following a. self employed people and their employees b. employees of a corp where a 401k is available c. employees of a nonprofit d. employees covered by a union

Self employed

Keogh plans are for

Self employed and their employees

Your client earns $21,000 and has been contributing $2,000 to an individual IRA account annually for the past 3 years. This year her employer initiated a pension plan, which also covers her. What can be done about her IRA account?

She can keep the IRA account and make pre-tax contributions up to $5,500 each year. Individuals covered by a corporate pension plan can make fully deductible IRA contributions of up to $5,500 annually. A single taxpayer making less than $59,000 or joint making less than $95,000 can continue tax-deductible IRA deductions.

401k

you donate a % of salary (pre-tax) and employer matches