Unit 11 Quiz 2

Under Keogh plan provisions, a full-time employee is defined as one working at least how many hours per year? A) 1000. B) 2000. C) 500. D) 100.

A) 1000.

Which of the following is a tax-qualified retirement plan for employees of nonprofit organizations? A) 403(b). B) 401(k) payroll deduction plan. C) SEP IRA. D) Keogh plan.

A) 403(b).

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 parent. C) The current maximum per couple. D) The current maximum per family member.

A) The current maximum per child.

All of the following qualified plans are covered by ERISA guidelines EXCEPT: A) public sector plans. B) profit-sharing plans. C) private sector plans. D) 401(k) plans.

A) public sector plans.

Which of the following types of retirement plans would be most beneficial to a young employee of a corporation? A) Defined benefit pension plan. B) Defined contribution pension plan. C) Keogh plan. D) Profit-sharing plan.

B) Defined contribution pension plan.

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

B) Investment-grade municipal bond.

One of your customers set up a Section 529 plan for a child of one of his neighbors and contributed to it for some years. When the child reached age 17, it was obvious that he had no plans to pursue higher education and your customer decided to redesignate the account. Which of the following would be a permissible new beneficiary? A) One of the donor's own grandchildren. B) The original beneficiary's younger sister. C) One of the children of another of your customer's neighbors. D) The winner of an informal essay contest to be held among high-school aged children in the neighborhood.

B) The original beneficiary's younger sister.

All of the following are true regarding nonqualified deferred compensation plans EXCEPT: A) the plans need not be offered to all employees. B) employees may use accumulated funds as collateral for a bank loan. C) IRS approval is not needed for deferred compensation plans. D) income taxes on compensation are not due until constructive receipt.

B) employees may use accumulated funds as collateral for a bank loan.

All of the following are benefits of a traditional IRA EXCEPT that: A) contributions may be tax deductible. B) no penalty is charged for failing to withdraw funds after age 70½. C) funds may be withdrawn without penalty for certain exemptions. D) earnings accumulate on a tax-deferred basis.

B) no penalty is charged for failing to withdraw funds after age 70½.

All of the following are true regarding Section 529 college savings plans EXCEPT: A) high contribution limits. B) tax-deductible contributions at the federal level. C) not subject to income limitations. D) tax-free withdrawal at the federal level for qualified education expenses.

B) tax-deductible contributions at the federal level.

All of the following statements concerning IRA contributions are true EXCEPT: A) between January 1 and April 15, you may make contributions for the current year, the past year, or both. B) you may make contributions for the past year after April 15, provided you have filed an extension on a timely basis. C) if you file your tax on January 15, you may deduct your IRA contribution even if it is not made until April 15. D) you may contribute to this year's IRA from January 1 of this year until April 15 of next year.

B) you may make contributions for the past year after April 15, provided you have filed an extension on a timely basis.

A teacher has a 403(b) plan and the school system he works for has deposited $10,000 into his plan over a 12-year period. At retirement, if the teacher withdraws the total value of $16,000, on what amount does he pay tax? A) 6,000. B) 8,000. C) 16,000. D) 10,000.

C) 16,000.

Which of the following statements regarding Coverdell ESAs is TRUE? A) Contributions are tax deductible, and distributions are always taxable. B) Contributions are not tax deductible, and distributions for any reason are tax free. C) Contributions are not tax deductible, and distributions are tax free when used for qualified educational expenses. D) Contributions are tax deductible, and distributions for any reason are tax free.

C) Contributions are not tax deductible, and distributions are tax free when used for qualified educational expenses.

Regulations regarding how contributions are made to tax-qualified plans relate to which of the following ERISA requirements? A) Reporting and disclosure. B) Nondiscrimination. C) Funding. D) Vesting.

C) Funding.

Under ERISA, all of the following retirement plans must set standards for vesting, eligibility, and funding EXCEPT: A) profit-sharing plans. B) Keogh plans. C) deferred compensation plans. D) corporate pension plans.

C) deferred compensation plans.

All of the following are true of an HR-10 Plan EXCEPT: A) the plan is subject to maximum contribution amounts. B) the plan allows a self-employed person to create and maintain a retirement plan. C) the plan does not require a sole proprietor making a contribution to his HR-10 plan to make contributions for eligible employees. D) this is a qualified plan subject to the requirement of having an IRS-approved plan document in place.

C) the plan does not require a sole proprietor making a contribution to his HR-10 plan to make contributions for eligible employees.

Under what circumstances would the fiduciary of a qualified corporate retirement plan be permitted to write covered calls on the securities in the portfolio? A) Under no circumstances B) If specifically approved by the covered employees C) If specifically approved by the SEC D) If this strategy is consistent with the objectives of the plan

D) If this strategy is consistent with the objectives of the plan

How often will the IRS allow a Health Savings Account (HSA) to be funded via an IRA distribution without paying federal taxes or penalties on the distribution? A) Never, taxes and penalties for early distributions are always due. B) Once each calendar year. C) There are no funding limits when HSAs are funded from another qualified account. D) One time.

D) One time.

To avoid penalty, a rollover of an IRA may occur no more frequently than: A) quarterly. B) semiannually. C) every 5 years. D) annually.

D) annually.

All of the following statements regarding a qualified pension plan are true EXCEPT A) it requires advance approval from the IRS B) growth in the account is tax-free C) it must cover all of its eligible employees D) it must comply with nondiscrimination rules

B) growth in the account is tax-free

Which of the following can be rolled over into an IRA? I. Another IRA II. Balances from savings accounts III. Corporate profit-sharing plan IV. Judgments from law suit settlements

I and III

Which of the following statements regarding qualified retirement plans are TRUE? I. Contributions are made with pretax dollars. II. Contributions are made with after-tax dollars. III. Distributions are 100% taxable. IV. Distributions are taxable only to the extent of earnings.

I and III

Which of the following investment activities are suitable for an individual retirement account? I. Writing uncovered calls. II. Writing covered calls. III. Buying puts on stock held long. IV. Writing naked puts.

II and III

Which statements are TRUE regarding funding for education? I. Distributions from a Coverdell ESA may be used for college only. II. Distributions from a Coverdell ESA may be used for both college and secondary education. III. Distributions from a Section 529 plan may be used for college only. IV. Distributions from a Section 529 plan may be used for both college and secondary education.

II and III

A businessowner pays himself a salary of $80,000 per year. He employs his spouse and pays her $45,000 per year. What is the maximum contribution that they may make to their traditional IRAs? A) They cannot make contributions, because their joint incomes are too high. B) They can each contribute 100% of earned income or the maximum allowable limit, whichever is less, to their individual IRAs. C) No traditional IRA contributions can be made by businessowners or their spouses. D) They can contribute 100% of the lower income to one IRA only.

B) They can each contribute 100% of earned income or the maximum allowable limit, whichever is less, to their individual IRAs.

Which of the following are qualified plans? I. Payroll deduction. II. Deferred compensation. III. Defined benefit. IV. Keogh.

III and IV

An employee not covered under his company's pension plan has been contributing to a traditional IRA for 5 years. If he leaves his current job, starts a new job, and is covered under the new corporation's pension plan, which of the following statements is TRUE? A) Contributions to his traditional IRA may continue. B) His traditional IRA must be closed. C) Contributions to his IRA must stop; the money in the account will be frozen, but interest and dividends can accrue tax-free until he retires. D) The money in his IRA must be combined with any money he will receive from the pension plan.

A) Contributions to his traditional IRA may continue.

A member firm's customer is requesting that IRA contributions converted from a traditional IRA to a Roth IRA now be moved back to a traditional IRA. This is A) called a re-characterization and is allowed by the IRS so long as certain requirements are met B) never allowed under any circumstances C) called a re-characterization and is permitted under all circumstances and within any time frame D) called a rollover and allowed by the IRS as long all requirements are met

A) called a re-characterization and is allowed by the IRS so long as certain requirements are met

A grandchild inherits his grandfather's IRA from which mandatory distributions had already begun. With regard to future distributions, which option is allowed? A) A lump sum distribution liquidating the account must be taken immediately upon inheritance. B) The grandchild must begin taking minimum required distributions based on his own life expectancy. C) The grandchild may wait until age 79½ and begin mandatory distributions. D) The grandchild must wait until age 59½ to begin taking distributions.

B) The grandchild must begin taking minimum required distributions based on his own life expectancy.

A customer who has just started an IRA will be vested: A) at age 70. B) immediately. C) in 2 years. D) in 5 years.

B) immediately.

One of your customers has maintained a traditional IRA for the past 15 years. Some of his annual contributions were not tax deductible due to his income level and participation in another qualified plan. At age 60, the customer elects to make a lump-sum withdrawal. Which of the following statements is TRUE? A) The portion representing earnings and principal from the nondeductible contributions is tax free, while the balance is taxable as ordinary income. B) The entire withdrawal is taxable as ordinary income. C) The portion representing principal from the nondeductible contributions is tax free, while the balance is taxable as ordinary income. D) The portion representing earnings from the nondeductible contributions is tax free, while the balance is taxable as ordinary income.

C) The portion representing principal from the nondeductible contributions is tax free, while the balance is taxable as ordinary income.

Which of the following statements regarding both traditional and Roth IRAs is TRUE? A) Withdrawals at retirement are tax free. B) Contributions are tax deductible. C) Distributions must begin in the year after the owner reaches age 70½. D) Contribution limits are the same.

D) Contribution limits are the same.

Which of the following statements about a Coverdell Education Savings Account (ESA) is NOT true? A) The funds grow income tax deferred and, if used for elementary, secondary, or college educational expenses, the earnings are tax free. B) Contributions can be made to this type of plan and a Section 529 plan in the same year for the same beneficiary. C) Contributions of $2,000 per child per year are allowed. D) Contributions are tax deductible, subject to a modified AGI phaseout.

D) Contributions are tax deductible, subject to a modified AGI phaseout.

A registered representative (RR) is explaining the characteristics of a Coverdell ESA to a customer. Which of the following statements regarding this type of savings account is CORRECT? I. Contributions are tax deductible. II. Contributions are not tax deductible. III. When used for qualified educational expenses, withdrawals are taxable. IV. When used for qualified educational expenses, withdrawals are not taxable.

II and IV

One of your customers, age 45, estimates that his annual earnings will be below the Roth IRA contribution ceiling limit and makes his Roth contribution early in the year. To his pleasant surprise, he receives a year-end bonus in December of that year, but, unfortunately, it puts his earnings over the Roth IRA earnings limit for allowing contributions. As the customer's registered representative, and given these circumstances, you could suggest that the customer A) take out the contribution in the form of a withdrawal B) re-characterize the Roth contribution made into a traditional IRA C) roll over the Roth into a traditional IRA D) leave the contribution in the Roth because a bonus does not impact the allowable earnings limit for making contributions to a Roth IRA

B) re-characterize the Roth contribution made into a traditional IRA

Distribution from a traditional IRA can begin at age 59½ and must begin no later than: A) 15 years from the individual's date of retirement. B) age 70½. C) age 65. D) an age as determined by IRS life expectancy tables using the account holders year of birth.

B) age 70½.

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

B) an executive of a corporation who receives $5,000 in stock options from his company.

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

B) be taxed at ordinary income rates.

The primary purpose for creating ERISA was to: A) establish a means for self-employed persons to provide for their own retirement. B) protect employees from the mishandling of retirement funds by corporations and unions. C) promote a retirement fund for government employees. D) provide all employees, both government and nongovernment, with an additional source of retirement income in the event that the Social Security system defaults.

B) protect employees from the mishandling of retirement funds by corporations and unions.

Which of the following would make an employee ineligible to participate in a company's qualified retirement plan? A) He works only 1,200 hours a year for the company. B) He is not a member of the company's management team. C) He is only 20 years old. D) He has been with the company for only 2 years

C) He is only 20 years old.