Chapter 2 Missed questions

Section 457 Plans

-deferred compensation plan (yearly deduction for deferred amount) -for employees of state, political subdivision of state, and any agency of a state -also allowed for hospitals, charities, unions etc -NOT allowed for churches

ERISA regulations apply to which of the following? A) Private sector retirement plans. B) Federal government employee retirement plans. C) Armed Forces retirement plans. D) Public sector retirement plans.

A

Your client, working for a local municipality, tells you that he has the opportunity to participate in a Section 457 plan. Explaining some of the characteristics and features of this type of plan, you could tell him all of the following EXCEPT: A) earnings on plan assets are taxable on an annual basis. B) these are nonqualified plans. C) contributions to the plan for eligible employees are made through salary deferral. D) they can be established by state and local governments and other tax-exempt employers.

A

Which of the following retirement plans are always funded with after-tax contributions? A) Roth IRAs. B) SEP IRAs. C) Traditional IRAs. D) Keogh Plans.

A Roth IRA: funded- after tax may be partially or wholly depending on if youre covered by emloyer plan or not

The contribution in a defined benefit plan will: A) vary with the actual requirements to fund a certain benefit. B) not vary because of the side funding of past service requirements. C) not vary because of ERISA requirements. D) vary with the profitability of the firm.

A The contribution in a defined benefit plan will vary with the actual requirements to fund the specified benefit. These requirements are determined actuarially based upon a number of factors. Older, highly compensated employees benefit most from this type of plan.

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

A SEP IRA. SEP IRAs allow more contributions than ESAs or Traditional or Roth

If a corporation begins a nonqualified retirement plan, which of the following statements 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 -Earnings accumulate tax deferred if the plan is funded by an investment vehicle that offers tax deferral, such as an annuity contract. -Tax has been paid on all amounts the employees and the employer contribute to the plan. -Nonqualified plans need not comply with all ERISA requirements.

When a member firm opens an account for a registered representative of another member, the employer-member must be sent written notification: A) within five business days. B) before executing an order. C) either by the representative or by the firm opening the account. D) only if requested by the registered representative.

B New firm always has to notify old firm before execution

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 not contribute because their combined income is too high. B) They may each contribute 100% of earned income or the maximum annual allowable dollar limit, whichever is less, to an IRA. 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.

B Under IRA, you are entitled to contribute 100% of your earned income UNLESS you're covered under a qualified plan

If a company starts a pension plan for an employee who already has an IRA, this employee: A) may continue to make 100% deductible contributions up to the indexed maximum per year to his IRA. B) may continue to contribute to his IRA, but the contributions may not be 100% deductible, depending on his level of compensation. C) must roll over his IRA into the company pension plan. D) must stop contributing to the IRA, which will continue to accumulate on a tax-deferred basis.

B when your'e covered under another qualified plan, your IRA contributions may or may not be deductible

When pension plan proceeds (employer contributions only) are rolled into a Roth IRA, what portion is taxable? A) Employee contributions. B) Anything in excess of $5,000. C) Employer contributions. D) 20% of the total.

C In a Roth IRA, contributions are made with after-tax dollars, but distributions are tax free. Employer contributions into pension plans are made with pretax dollars. To allow a future tax-free distribution from the Roth IRA, employer contributions from a rollover are taxed at the time the rollover takes place.

All of the following are benefits of owning a traditional IRA EXCEPT: A) contributions may be tax-deductible. B) funds may be withdrawn without penalty because of permanent disability. C) funds withdrawn after age 70½ are tax free. D) earnings accumulate on a tax-deferred basis.

C Taxes are owed at withdrawal

Under the rules governing the activities of broker-dealer firms, prior consent of the employing firm would NOT be required in order for a registered representative of the firm to A) have trading authority in a spouse's account at another broker-dealer B) open a cash account at another broker-dealer C) discuss investment strategies with their brother whose account is at another broker-dealer D) open a margin account at another broker-dealer

C you can discuss investment strategies

Which of the following statements regarding a qualified profit-sharing retirement plan is NOT true? A) It must be nondiscriminatory. B) Contributions are required only when the company makes a profit. C) They operate under a trust agreement. D) Benefits are not paid until the employee reaches age 65.

D Qualified profit-sharing plans require contributions only in profitable years. Qualified profit-sharing plans must be in writing and nondiscriminatory.

A qualified profit-sharing plan offered by a corporation to its employees has all of the following features EXCEPT: A) the corporation may elect to omit or reduce contributions in years when profits from business operations fall. B) the earnings on the contribution are tax deferred until payout. C) the employee may elect to rollover a lump-sum distribution into a traditional IRA. D) the amount of the contribution is tax deductible to the employee.

D The amount of the contribution to the plan is deductible to the employer, not the employee. A major difference between a profit-sharing plan and a pension plan is that contributions to the former are not mandatory.

Regarding money in a 401(k) plan: I. there is no vesting period for the employee's contributions. II. there is no vesting period for the employer's contributions. III. there may be a vesting period for the employee's contributions. IV. there may be a vesting period for the employer's contributions. A) I and IV. B) III and IV. C) II and III. D) I and II.

I + IV - employee contributes to his 401k with his own money so there is no vesting period - contributions from employer

Which of the following regarding a Roth IRA are TRUE? I. The contributions are nondeductible. II. Contributions must cease at age 70½. III. Withdrawals must begin at age 70½. IV. Withdrawals after age 59½ can be tax free.

I + IV ROTH IRA: -contributions are not deductible -withdraws after 59.5 are tax free (if money has been in the account for 5 years) NO AGE FOR WHEN WITHDRAWS MUST BEGIN OR CONTRIBUTIONS MUST CEASE

Which of the following statements regarding deferred compensation plans are TRUE? I. They are available to employees selected by the employer. II. They must be nondiscriminatory. III. Under no circumstances may officers or directors be included. IV. The employer does not receive a tax deduction for the deferred payment until actually made.

I + IV deffered compensation: - can be discrimanotory -officers may be covered

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

II & IV -Max annual contribution = 100% of earned income - contributions made with after tax dollars - contributions are not tax deductible

Which of the following statements regarding the withdrawals from a qualified retirement plan are TRUE? I. The employee will be taxed at the ordinary income tax rate on his cost basis. II. Funds may be withdrawn after retirement (as defined) with no tax on the withdrawn amount. III. Funds may be withdrawn early by the beneficiary if the covered person dies. IV. All qualified plan provisions must be in written form.

III + IV Qualified Planholder: -No cost basis at retirement -must be in written form

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

It must be established under a trust agreement.

All of the following statements regarding a transfer on death (TOD) account are correct EXCEPT: A) only those assets held at the broker-dealer are transferred. B) the owner of the account may change beneficiaries at will. C) estate taxes are reduced. D) probate is avoided.

estate taxes are reduced. TOD does not avoid estate taxes