Series 65 Unit 4 Test Review - Retirement Plans (7-8 questions)

D. confining investments to only those most likely to achieve growth

1. Under ERISA, a fiduciary must act in all of the following ways EXCEPT: A. solely in the interest of plan participants and beneficiaries B. with care, skill, prudence and caution under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character C. in accordance with the governing plan documents unless they are not consistent with ERISA D. confining investments to only those most likely to achieve growth

B. $1,000 Penalty = (required min amount - actual distribution) * 50% i.e. 10k - 8k = 2k * 50% (.50) = $1,000

14. Under the minimum distribution rules, Jason is required to take a minimum distribution of $10,000 this year from his IRA. However, a distribution of only $8,000 has been made. Whats the dollar amount he will b penalized? A. $200 B. $1,000 C. $2,000 D. $4,000

D. a student at a non-profit college

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

D. the employer can contribute more than 15% of total payroll

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

B. the Section 529 Plan - because their earnings exceed the coverdell max amount

One of your clients is a successful professional couple with earnings in excess of $500,000 per year. They are interested in providing a funding source for post-secondary education for their grandchildren. Which would be most appropriate to discuss with them? A. the Coverdell ESA B. the Section 529 Plan C. Both D. Neither

C. plan participant

11. An employer whose 401(k) plan complies with ERISA section 404 is placing investment risk with the: A. IRS B. plan fiduciary C. plan participant D. SEC

C. identical amounts of cash contributions are allowed

3. IRAs and Koegh plans are similar in the following ways EXCEPT: A. deferral of taxes B. distributions without penalty can begin as early as age 59 1/2 C. identical amounts of cash contributions are allowed D. there is a 50% tax penalty for insufficient distributions

Only if he has earned income

A person younger than age 70 1/2 may contribute to a traditional IRA:

B. funding

Regulations regarding how contributions are made to tax-qualified plans relate to which of the following ERISA requirements? A. vesting B. funding C. nondiscrimination D. reporting and disclosure

B. $2,000 per child

The max amount that may be invested in a Coverdell ESA in 1 year is: A. $500 per parent B. $2,000 per child C. $500 per couple D. $2,000 per couple

D. 2 and 4

To comply with the safe harbor requirements of Section 404(c) of ERISA, the trustee of a 401(k) plan must: 1. offer plan participants at least 10 different investment alternatives 2. allow plan participants to exercise control over their investments 3. allow plan participants to change their investment options no less frequently than monthly 4. provide plan participants with info. relating to the risks and performance of each investment alternative offered A. 1 and 3 B. 1 and 4 C. 2 and 3 D. 2 and 4

C. 1 and 4

Which of the following are characteristics of a Keogh plan? 1. Divs, int, and cap gains are tax deferred 2. distributions after age 70 1/2 are tax free 3. contributions are allowed for a nonworking spouse 4. lump-sum distributions are allowe A. 1 and 2 B. 1 and C. 1 and 4 D. 2 and 3

B. trust agreement

Which of the following determines the amount paid into a defined contribution plan? A. ERISA-defined contribution plan B. trust agreement C. employer's age D. employee's retirement age

B. Cash value life insurance is a permissible IRA investment, but term insurance is not

Which of the following statements regarding IRAs is NOT true? A. IRA rollovers must be completed within 60 days of receipt of the distribution B. Cash value life insurance is a permissible IRA investment, but term insurance is not C. The investor must be younger than age 70 1/2 to open and contribute to an IRA D. Distributions may begin at age 59 1/2 and must begin April 1 after the year in which the investor turns 70 1/2

A. selecting and monitoring third-party service providers

17. A person providing which of the following services to an ERISA plan would be performing in a fiduciary capacity? A. selecting and monitoring third-party service providers B. determining the age at which benefits are to be provided C. amending the plan D. changing the level of employer contributions

C. works of art

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

A. a wealthy individual withdraws $10,000 from his IRA to buy his first principal residence

5. Which of the following is an allowable early withdrawal from a traditional IRA without penalty? A. a wealthy individual withdraws $10,000 from his IRA to buy his first principal residence 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 an additional home ( a vacation home). D. a person withdraws funds from his IRA to buy a principal residence after he sold his first home as a result of med expenses

D. Hannah, who is 55 years old - catch-up contribtutions are allowed to participants who are 50 and OLDER

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

B. Ordinary income plus a 10% penalty

If a 50 year old person wants to withdraw funds from her IRA, the withdrawal penalty will be taxed as: A. Ordinary income B. Ordinary income plus a 10% penalty C. Cap gains D. Cap gains plus a 10% penalty

D. a former corp. employee who decides to become self-employed may not rollover any distributions from a qualified corp. plan into a rollover IRA if he has created a Keogh Plan

10. Keogh plans are qualified plans intended for those with self-employment income and owner-employees of unincorporated businesses or professional practices from filing a Form 1040 Schedule C with the IRS. Which of the following statements relating to the Keogh plan is NOT true? A. owner-employee businesses and professional practices must show a gross profit in order to qualify for a tax-deductible contribution B. a participant in a Keogh plan may also maintain an IRA C. the max allowable contribution to Keogh Plan is substantially higher than that for an IRA D. a former corp. employee who decides to become self-employed may not rollover any distributions from a qualified corp. plan into a rollover IRA if he has created a Keogh Plan

D. with defined benefit plans, the employee bears the investment risk - the employer bears the investment risk when using defined benefit plans

6. All of the following statements regarding qualified corp. retirement plans are true EXCEPT: A. all corp. pensions and profit-sharing plans must be established under a trust agreement B all qualified retirement plans are either defined contribution or defined benefit plans C. they are covered under ERISA D. with defined benefit plans, the employee bears the investment risk

401(k)and SIMPLE Plans: X Death X Disability X seperation from service after age 55 X certain med expenses X QDROs X to reduce excess contributions or deferrals X as substantially equal payments over life - first time home purchase - higher education expenses - health insurance premiums while unemployed

10% early withdrawal penalty exceptions by plan types: * by marking an X = exempt from penalty 401(k)and SIMPLE Plans: - Death - Disability - separation from service after age 55 - certain med expenses - QDROs - to reduce excess contributions or deferrals - as substantially equal payments over life - first time home purchase - higher education expenses - health insurance premiums while unemployed

Qualified Pension, Profit-sharing, and TSAs (403(b) Plans): X Death X Disability X separation from service after age 55 X certain med expenses X QDROs X to reduce excess contributions or deferrals X as substantially equal payments over life - first time home purchase - higher education expenses - health insurance premiums while unemployed

10% early withdrawal penalty exceptions by plan types: * by marking an X = exempt from penalty Qualified Pension, Profit-sharing, and TSAs (403(b) Plans): - Death - Disability - separation from service after age 55 - certain med expenses - QDROs - to reduce excess contributions or deferrals - as substantially equal payments over life - first time home purchase - higher education expenses - health insurance premiums while unemployed

Traditional, Roth, and SEP IRAs: X Death X Disability - separation from service after age 55 X certain med expenses - QDROs X to reduce excess contributions or deferrals X as substantially equal payments over life X first time home purchase X higher education expenses X health insurance premiums while unemployed

10% early withdrawal penalty exceptions by plan types: * by marking an X = exempt from penalty Traditional, Roth, and SEP IRAs: - Death - Disability - separation from service after age 55 - certain med expenses - QDROs - to reduce excess contributions or deferrals - as substantially equal payments over life - first time home purchase - higher education expenses - health insurance premiums while unemployed

A. a governmental plan must hold its assets in trust or custodial accounts for the benefit of individual participants

15. A basic difference between a Section 457 Plan established on behalf of a governmental entity and one established by a private tax-exempt org. 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 participant does not have to include plan distributions in his or her taxable income C. a governmental plan cannot make a distribution before the participant turns age 70 1/2 D. A tax exempt plan's distributions are not eligible for a favorable lump-sum 10-year averaging treatment

A. 1. Roth IRA contributions made for the year - the max annual contribution applies to the total of both your traditional and roth IRA. So if the max contribution limit is $5,500, you could put $3k in a traditional and 2.5k in a roth. Or 6.5k total if > 50 years old. * high income level and participation in an employer-sponsored plan will impact the amount you may deduct but NOT the amount you may contribute.

16. Which of the following could reduce the amount that an individual may contribute to a Traditional IRA? 1. Roth IRA contributions made for the year 2. high income level 3. participation in an employer-sponsored plan 4. marital status A. 1 B. 1 and 2 C. 1, 2, and 3 D. all 4

C. Section 529 Plans - the SEC has stated that certain Section 529 College Savings Plans established by states or local governmental entities are MUNI fund securities.

18. While in your office, you see that your firm is going to be holding a training session on muni fund securities. You wish to attend because you are interested in being able to speak intelligently to your clients about: A. the difference between GO bonds and revenue bonds B. the difference between using MFs or UITs to invest in muni bonds C. Section 529 Plans D. Section 457 Plans

B. the income and cap gains earned in the account are tax-deferred until the funds are withdrawn

2. Which of the following statements regarding a traditional IRA for someone filing a 2013 tax return is TRUE? A. a traditional IRA allows a max tax-deductible annual contribution of $2,500 per individual or $4,000 per couple B. the income and cap gains earned in the account are tax-deferred until the funds are withdrawn C. distributions without penalty may begin after age 59 1/2 and must begin by April 1 of the year preceding the year an individual turns 70 1/2

D. the fiduciary receives fees for acting as a trustee to the plan

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

D. a beneficiary of an ESA who withdraws the funds for nonqualified expenses will be taxed on the entire amount of the withdrawal plus a 10% penalty

9. All of the following are true of college funding plans EXCEPT: A. proceeds in the ESAs may be withdrawn income tax-free even if the child is under age 18 B. proceeds in 529 plans may be withdrawn income tax-free only if used at an accredited institution C. section 529 plans allow a gift tax exclusion equal to five times the annual limit that may be repeated every 5 years D. a beneficiary of an ESA who withdraws the funds for nonqualified expenses will be taxed on the entire amount of the withdrawal plus a 10% penalty

B. the loan must be repayable within 5 years at a reasonable rate of interest

Susan participates in a Section 401(k) plan at work that includes loan provisions. She has recently enrolled in college and has inquired about the possible consequences of borrowing from the plan to help pay for her education. As her financial planner, what is your advice to her? A. the loan will statutorily be treated as a taxable distribution from the plan B. the loan must be repayable within 5 years at a reasonable rate of interest C. the 401(k) plan needs to be rewritten as loans are only available from qualified plans D. the loan is not being made for reasons of an unforeseen emergency and therefore is not possible

1. T 2. T 3. F 4. T 5. T - The max contributions for defined benefit plans allow larger contributions in a SHORTER period for HIGHLY paid individuals nearing retirement 6. F - remember the (k) in 401 (k) reminds us that top-heavy plans benefit key employees

True or false? 1. a defined contribution pension plan is a qualified plan that specifies an employer's annual funding. 2. the movement of funds from one retirement plan to another, generally wihtin a specified period, os called a rollover 3. ina defined pension plan, all employees receive the same benefits at retirement 4. in a safe harbor 401(k) plan al employees are immediately vested 5. in a defined benefit plan, high income employees near retiement may recieve much larger contributions than younger employees with the same salary 6. in a top-heavy 401(k) plan, a disproportionate benefit acrues to eligible highly compensated employees

C. Contribution limits are identical

Which of the following statements regarding both traditional IRAs and Roth IRAs is TRUE? A. Contributions are deductible B. Withdrawals at retirement are tax free C. Contribution limits are identical D. To avoid penalty, distributions must begin April 1 after the year the owner reaches age 70 1/2

B. a trustee who invests with reasonable care, skill, and caution

Which of the following would best describe a prudent investor? A. a person in a fuduciary capacity who invests in a prudent manner B. a trustee who invests with reasonable care, skill, and caution C. an IAR handling a discretionary account D. the custodian for a minor under the Unifor Transfer to Minor's Act

D. 2 and 4

Which of the following would you expect to see in the IPS of a qualified plan? 1. the info. in the summary plan doc specified by the dept. of labor 2. the method to be used to measure the investment performance of the plan 3. a listing of the portfolio assets of the most recent quarter 4. investment limitations placed on the portfolio A. 1 and 3 B. 1 and 4 C. 2 and 3 D. 2 and 4

A. she turned 70 8 months ago

Which of these would disqualify a person from participation in a Keogh plan? A. she turned 70 8 months ago B. she has a salaried position in addition to her self-employment C. her spouse has a co. sponsored retirement benefits D. she has an IRA