Unit 24 - Retirement Plans and Special Types of Accounts

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? I. Investment objectives II. Investment philosophy III. Investment selection criteria IV. Monitoring procedures .A) I, II, III, and IV B) II and IV C) I, III, and IV D) I and II

.A) I, II, III, and IV

A disadvantage of a defined benefit pension plan to the employee is that A) at retirement, the employee may not be earning as much as when she was at her peak earning power. B) the funds are an integral part of the retirement planning process. C) the individual is guaranteed a payout at the time of her retirement by her employer. D) the risk of fund performance is borne by the employer.

A) at retirement, the employee may not be earning as much as when she was at her peak earning power.

Which one, if any, of these transactions will be treated as a prohibited transaction under the provisions of the ERISA legislation? A) The furnishing of office space to a plan trustee for reasonable compensation and fair rental value B) An investment adviser using the interest from plan assets to cover the adviser's office expenses C) A loan between a 401(k) plan and plan participant D) None of these transactions constitute a prohibited transaction under the provisions of the legislation

B) An investment adviser using the interest from plan assets to cover the adviser's office expenses

All of the following statements concerning qualified tuition programs for educational funding are correct EXCEPT A) 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 B) control over the account passes to the student/beneficiary once withdrawals commence C) prepaid tuition plans are plans where prepayment of college tuition is allowed at current prices for enrollment in the future D) 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) control over the account passes to the student/beneficiary once withdrawals commence

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 penalty tax of how much? A) $15,000 B) $10,000 C) $0 D) $6,000

C) $0

Which of the following permits the highest annual contributions? A) A traditional spousal IRA for which the contribution has been deducted B) A Coverdell Education Savings Account C) A SEP IRA D) A traditional nondeductible IRA

C) A SEP IRA

What is the maximum amount a taxpayer may contribute each year to a Coverdell Education Savings Account (ESA) for one student? A) $500.00 B) $1,000.00 C) $100.00 D) $2,000.00

D) $2,000.00

If a retiree is paid an annual amount equal to 30% of the average of his last 3 years' salary, which of the following retirement plans offers this type of payment? A) Money purchase pension B) Deferred compensation C) Profit-sharing D) Defined benefit ​pension

D) Defined benefit ​pension

Which of the following circumstances must be met for a fiduciary to trade options in a trust account? I. Special circumstances determined by the broker-dealer II. The trust agreement states the trustee has the power to trade options III. The trust's investment objectives are determined to be compatible with options trading IV. Only covered options may be traded by a fiduciary A) I and III B) I and IV C) II and IV D) II and III

D) II and III

All of these are true about a traditional 401(k) plan EXCEPT A) employees can choose from a variety of investment options B) employees may have a portion of their contribution matched by the employer C) in service employees may be eligible for hardship withdrawals D) the employer can contribute more than 25% of total payroll

D) the employer can contribute more than 25% of total payroll

A widower wants to fund a Section 529 plan for his daughter. What is the maximum amount he may initially contribute in 2019 without having to pay gift taxes? A) $75,000 B) $150,000 C) An unlimited amount because a gift occurs only when he irrevocably changes the beneficiary D) $15,000

A) $75,000 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 × $15,000 = $75,000). If he remarries, his wife may also consent to gift split, thereby doubling this amount to $150,000. Please note: The annual exclusion was increased to $15,000 effective January 1, 2018.

One of your clients has recently turned 72 and has questions about RMDs. The client has a traditional IRA, a rollover IRA, and 401(k) plans from two previous employers. When computing the RMDs, I. the RMD from each IRA is computed and may be made from one or both of them. II. the RMD from each IRA is computed and must be paid from that IRA. III. both 401(k)s are combined to compute the required distribution which may be made from one or both of them. IV. the RMD from each 401(k) is computed and must be paid from that 401(k). A) I and III B) I and IV C) II and IV D) II and III

B) I and IV For RMD purposes, each IRA is figured separately and the distribution can be made from one or all of them. That is not the case with a 401(k) plan. Each account has a RMD that can only be paid from that account.

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) 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 D) 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

Tim earns $30,000 at his employment and is not offered a pension plan. His spouse 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 $12,000. B) Set up one IRA for $6,000 or 100% of earned income, whichever is less. C) Set up separate accounts for $6,000 each. D) Set up one joint account for $12,000.

C) Set up separate accounts for $6,000 each.

C) Set up separate accounts for $6,000 each. A) a traditional IRA B) a 401(k) C) a 403(b) D) a Roth IRA

C) a 403(b)

A nonqualified, single premium variable annuity differs from a Keogh plan in that A) earnings are tax deferred B) it is open to self-employed persons C) all payouts are fully taxable in a Keogh plan D) both are subject to early withdrawal penalties

C) all payouts are fully taxable in a Keogh plan

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) there is no limit to the amount that can be contributed to an UTMA C) contributions to the UTMA are made with after-tax dollars D) withdrawals for other than qualified education expenses are not subject to any penalties

C) contributions to the UTMA are made with after-tax dollars

One of the ways that individuals can accumulate funds for retirement is through individual retirement arrangements (IRAs). There are a wide range of investments eligible for inclusion in an IRA and would include all of the following except A) life insurance contracts. B) exchange-traded funds. C) specified collectibles. D) fixed annuity contracts.

A) life insurance contracts.

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) $18,000.00 B) $0.00 C) $34,000.00 D) $16,000.00

D) $16,000.00 Contributions to a Keogh must be based on self-employment income.

One of your clients, a couple in their early 30s, asks you to recommend a plan to save for their newborn child's education. They are only able to contribute $1,800 per year. Which of the following would most likely be the best fit for their situation? A) Equity index annuity B) UTMA C) Section 529 plan D) Coverdell ESA

D) Coverdell ESA The key to this choice is the contribution level. The Coverdell ESA has a maximum annual limit of $2,000 and offers tax-free growth. Why not the Section 529 plan? Invariably, that will be the correct choice when the question involves higher contribution amounts or tax benefits on a state level. When the couple can only contribute $1,800 per year, it seems logical to assume that they are in a low tax bracket where those benefits would be of minimal value. UTMA offers less flexibility and the annuity would not be suitable for anyone wishing to use the funds prior to age 59½.