Chapter 10-personal finance

Somerset, age 43, is self-employed and started saving for retirement 8 years ago using a Roth IRA. He liked the idea of someday taking distributions on a tax-free basis. Unfortunately, he has recently run into some business troubles and needs to raise cash quickly. He would like to take a distribution from his Roth IRA immediately. Which of the following statements is true for Somerset? A.) as long as he only takes out his contributions-not the account earnings-the distribution will be tax- and penalty-free B.) because he is younger than age 59 1/2, any distribution will be subject to a 10% early withdrawal penalty C.) any distribution will be deemed a return of earnings and principal; this means that his contributions will be subject to tax, while the earnings will be subject to a 10% penalty D.) the distributions is not allowed, unless he is purchasing a new home or paying for a child's education, before age 59 1/2

A.) as long as he only takes out his contributions-not the account earnings-the distribution will be tax- and penalty-free

Why do some dislike the probate process? A.) Because probate is public and difficult to maintain privacy for the deceased person and his or her heirs B.) The court caps the amount a personal representative can earn to $25 per day C.) The probate process makes it difficult to execute a will efficiently D.) All of these answer choices are correct

A.) Because probate is public and difficult to maintain privacy for the deceased person and his or her heirs

What is the difference between defined benefit plans and defined contribution plans? A.) Defined benefit plans guarantee payments to retirees, whereas defined contribution plans make contributions to retiree accounts without making guarantees B.) Defined benefit plans and defined contribution plans are both pension plans C.) Defined contribution plans are pensions and defined benefit plans are not D.) Defined contribution plans require employees to save less for retirement, whereas defined benefit plans require employees to save more

A.) Defined benefit plans guarantee payments to retirees, whereas defined contribution plans make contributions to retiree accounts without making guarantees

Xavier recently graduated from college with a degree in mechanical engineering. He currently makes 87,000 per year. He has aspirations to move up with his firm and eventually earn much more. If his plan works out, he will be paying more taxes sometime in the future. Which of the following retirement options should Xavier choose? A.) Roth IRA B.) Rollover IRA C.) Treasury Direct IRA D.) Traditional IRA

A.) Roth IRA

Scotty and Kirk own a speedboat together. They are not related but have been best friends since childhood. They own equal shares of the boat. When thinking about the future, Kirk would like to pass his share of ownership to his son, Lenard. How must Scotty and Kirk title the boat? A.) Tenancy in common B.) Community property C.) JTWROS D.) Fee simple

A.) Tenancy in common

Roger is currently age 68. He is creating a retirement income plan. As such, he needs to estimate his future required distributions from his retirement plans. Help Roger by telling him when he must begin taking distributions from his Roth IRA. A.) He should already be taking distributions because he is older than age 59 1/2 B.) He never needs to take a distribution C.) He must begin minimum distributions when he turns age 70 1/2 D.) He can wait until he begins taking Social Security, which is currently age 70

B.) He never needs to take a distribution

Which of the following refers to owning property equally with another person and each of you has the rights of survivorship? A.) Fee simple B.) Joint tenancy with right of survivorship C.) Tenancy by the entirety D.) Community property

B.) Joint tenancy with right of survivorship

A legal document that dictates your desire to distribute your property after death is called a: A.) title B.) will C.) gift D.) clause

B.) will

Which of the following requires financial professionals to act in the best interest of the client at all times and to full disclose any all conflicts of interests? A.) Suitability B.) Conflict of interest C.) Fiduciary standard D.) Commission

C.) Fiduciary standard

Which of the following refers to someone who died without a will? A.) Contract B.) Testate C.) Intestate D.) Title

C.) Intestate

Which of the following refers to the court-supervised process of distributing assets and paying debts after someone's death? A.) Transfer on death B.) Title C.) Probate D.) Payable upon death

C.) Probate

In what ways are 401(K) plans, 403(b) plans, and 457 plans similar? A.) They are all considered pension plans B.) They are each primarily funded by employer contributions C.) They each provide employees tax-advantaged opportunities to save for retirement D.) They are identical except for the type of employer who may sponsor them

C.) They each provide employees tax-advantaged opportunities to save for retirement

Mark, age 56, is a single man and died intestate. In addition to household and personal items, he had $450,000 in 401(k) retirement assets. Who will receive the 401(k) plan? A.) Whomever the state where he died indicates through probate statue B.) His brothers and sisters, in equal shares, or his parents C.) Whomever Mark listed as the account beneficiary D.) Whomever mark noted in his will

C.) Whomever Mark listed as the account beneficiary

Which of the following refers to legal documents that allow a named person, often an agent, to act on your behalf? A.) will B.) DNR C.) power of attorney (POA) D.) living will

C.) power of attorney (POA)

Which of the following is true regarding 401(k) plans? I. 401(k) plans are primarily funded by employees II. 401(k) plans are primarily funded by employers III. Investments grow tax-deferred in 401(k) plans IV. Employers may provide matching contributions to 401(k) plans

I, III, and IV only