Investment Companies: Retirement/Education/Health Savings Plans

For the year 2017, the maximum contribution that a married couple, both under age 50, can make to an IRA is: A. $5,500 B. $6,500 C. $8,250 D. $11,000

$11,000 For the year 2017, the maximum contribution to a spousal IRA is the lesser of 100% of income or $5,500 each in 2 accounts; for a total of $11,000.

The maximum annual contribution to a Coverdell Education Savings Account is: a. $2,000 b. $2,500 c. $3,000 d. $4,000

$2,000

The maximum annual contribution to a Coverdell Education Savings Account is: A. $2,000 B. $2,500 C. $3,000 D. $4,000

$2,000 The maximum annual contribution to a Coverdell Education Savings Account for a single beneficiary is $2,000.

Distributions after age 59 1/2 from tax qualified retirement plans are: a. 100% taxable b. partial tax free return of capital and partial taxable income c. 100% tax free d. 100% tax deferred

100% taxable

Distributions from an Individual Retirement Account must commence by age: A. 50 1/2 B. 59 1/2 C. 70 1/2 D. 75 1/2

70 1/2 Distributions from an Individual Retirement Account must commence by April 1st of the year following that person reaching age 70 1/2.

A new customer, age 45, has been terminated from his assembly-line job of the past 20 years at an automotive parts supplier. During that time period, he has accumulated $124,000 in the company's 401(k) plan. He wishes to rollover the funds to an IRA account with your brokerage firm. This customer, who is an unsophisticated investor, has the entire 401(k) invested in a growth mutual fund and has no other investments. As the representative for this customer, you should be concerned about which of the following? I. Communicating effectively with an unsophisticated customer in an understandable manner to assess financial goals and risk tolerance II. Setting the investment allocation strategy that should be employed in order to provide sufficient retirement income for this individual III. Creating a financial plan that emphasizes asset preservation and that is likely to provide a prolonged income stream for a prolonged period of retirement IV. Minimizing the tax implications of any recommended transactions to increase the long-term growth potential of investments made

All of them

Which of the following statements are TRUE regarding defined benefit plans? I. Actuarial tables are used to determine contribution rates for each employee II. Distributions upon retirement are 100% taxable III. Employees with the highest salaries and the fewest years to retirement benefit the most IV. Contributions made to the plan can vary from year to year

All of them

Which of the following are characteristics of Defined Contribution Plans? I. Annual contribution amounts are fixed II. If the corporation has an unprofitable year, the contribution may be omitted III. The annual benefit varies dependent on the number of years that the employee is included IV. This type of plan is not subject to ERISA requirements

Annual contribution amounts are fixed The annual benefit varies dependent on the number of years that the employee is included Under a defined contribution plan, a fixed percentage or dollar amount is contributed annually for each year that the employee is included in the plan. Thus, the ultimate benefit to be received by the employee depends on the number of years he or she has been included in the plan and the annual amounts contributed. If the corporation has an unprofitable year, it must still make the contributions. Such plans are subject to ERISA requirements.

Which of the following are characteristics of Defined Contribution Plans? I. Annual contribution amounts are fixed II. Annual contribution amounts will vary III. If the corporation has an unprofitable year, the contribution may be omitted IV. If the corporation has an unprofitable year, the contribution must still be made

Annual contribution amounts are fixed If the corporation has an unprofitable year, the contribution must still be made Under a defined contribution plan, a fixed percentage or dollar amount is contributed annually for each year that the employee is included in the plan. If the corporation has an unprofitable year, it must still make the contributions.

All of the following are allowed investments into an Individual Retirement Account EXCEPT: A. Preferred Stock B. U.S. Government Bonds C. U.S. Government Gold Coins D. Antiques, Art, and Other Collectibles

Antiques, Art, and Other Collectibles Collectibles are not allowed as an investment in an IRA account. Securities are allowed; so are gold coins minted by the U.S. Government, and precious metals bullion.

Which statements are TRUE about Coverdell ESAs? I. Assets grow tax-deferred and distributions are not taxable if used for qualified educational purposes II. Contributions into the account are tax deductible to the donor III. Any adult, regardless of income level, can open or contribute into the account IV. Unexpended funds can be transferred without tax liability to another relative in the same or younger generation as the beneficiary

Assets grow tax-deferred and distributions are not taxable if used for qualified educational purposes Unexpended funds can be transferred without tax liability to another relative in the same or younger generation as the beneficiary Contributions to Coverdell ESAs are limited to $2,000 per child per year and are not tax deductible. Earnings build tax-deferred and when distributions are taken to pay for qualifying educational expenses, the amount distributed is not taxed. If the distribution is not used to pay for qualifying educational expenses, then it is taxable at ordinary income tax rates. High earning adults are prohibited from opening Coverdell ESAs. Unexpended funds can be transferred without tax liability to another relative in the same or younger generation as the beneficiary

Which of the following statements are TRUE about non-contributory defined benefit retirement plans? I. Contribution amounts are fixed II. Contribution amounts vary III. Annual benefit payments are fixed IV. Annual benefit payments vary

Contribution amounts vary Annual benefit payments are fixed In a "defined benefit" retirement plan, contribution amounts vary based upon the age of the person covered under the plan. Larger contributions are made for older plan participants nearing retirement than for younger plan participants who have many years left until retirement. Once benefit payments start, the amount of the benefit is fixed - since the plan funded a "defined" benefit. The other type of plan is a "defined contribution." In this type, the contribution amount is fixed. The benefit payment depends on the investment results of the fixed contributions made, and hence can vary.

Which of the following statements are TRUE regarding contributions to 403(b) tax deferred annuities and the distributions from these plans after age 59 1/2? I. Contributions are made with before tax dollars II. Contributions are made with after tax dollars III. Distributions are 100% taxable IV. Distributions are tax free

Contributions are made with before tax dollars Distributions are 100% taxable Contributions to tax qualified plans such as 403(b) tax deferred annuities are tax deductible. They are made with "before-tax" dollars, hence those funds were never taxed. When distributions commence, since no tax was paid on the entire amount, the distribution is 100% taxable.

Which statements are TRUE? I. Distributions from a 529 plan to pay for higher education costs are not taxable II. Distributions from a 529 plan to pay for higher education costs are taxable III. Distributions from a Coverdell ESA to pay for qualified education costs are not taxable IV. Distributions from a Coverdell ESA to pay for qualified education costs are taxable

Distributions from a 529 plan to pay for higher education costs are not taxable Distributions from a Coverdell ESA to pay for qualified education costs are not taxable Contributions to both Coverdell ESAs and 529 plans are not tax deductible. Earnings build tax-deferred in both. Distributions from both, when used to pay for appropriate educational expenses, are not taxable. (Note that Coverdell ESA distributions can be used to pay for elementary, middle and high school costs as well as higher education costs, whereas 529 plan distributions can only be used to pay for higher education). High earning individuals cannot open a Coverdell; there is no similar restriction on a 529 plan. Coverdell ESA contributions are limited to $2,000 per child per year; 529 plan contribution limits are set by each state and are much higher.

Retirement plans that must comply with ERISA requirements include all of the following EXCEPT: A. Defined benefit plans B. Profit sharing plans C. Federal Government plans D. Payroll deduction savings plans

Federal Government plans ERISA rules cover private retirement plans to protect employees from employer mismanagement of pension funds. It does not cover public sector retirement plans, such as federal government and state government plans, since these are funded from tax collections and are closely regulated.

An individual, age 40, earns $60,000 per year. He has no family and has $200,000 of life insurance. He contributes 6% of his salary to his company sponsored 401(k) annually. He informs his registered representative that he is getting a $5,000 raise. What should you recommend that the customer do with the raise? A. Purchase a non-qualified variable annuity by making $5,000 a year payments B. Increase the 401(k) contributions by $5,000 per year C. Use the $5,000 annual increase to purchase a fixed annuity contract under a contractual plan D. Roll the 401(k) into a variable annuity contract and then re-roll the variable annuity into an IRA

Increase the 401(k) contributions by $5,000 per year Since any permitted 401(k) contribution is deductible, it is best to recommend that the customer max out his 401(k). Remember, he can contribute up to 25% of salary, capped to $18,000 in 2017, and this is a salary reduction. The purchase of either a variable annuity or a fixed annuity will not permit a salary reduction - these are non-qualified plans. Choice D is utter nonsense.

A 55-year old customer works as an auto mechanic. He has no intention of retiring until at least 75 and wants to put extra money away for his retirement at that time. He wants to make contributions over the 20-year time horizon until he reaches age 75 and does no want to be forced to take distributions starting at age 70 1/2. The BEST type of retirement plan for this individual is a: a. traditional IRA b. Roth IRA c. Coverdell ESA d. 401(k) plan

Roth IRA

High earning individuals are prohibited from making contributions to: I. Traditional IRAs II. Roth IRAs III. Coverdell ESAs

Roth IRAs Coverdell ESAs Any individual with earned income can open a Traditional IRA (whether the contribution will be deductible requires that the individual not be covered by another qualified plans and that person's income cannot be too high). High earning individuals are prohibited from contributing to Roth IRAs or Coverdell ESAs. There is an income phase-out range, above which contributions are prohibited to either of these For 2017, the top end of the income phase out range for individuals is $110,000 and for couples it is $220,000.

A small business owner of a firm that has 25 employees wants to establish a retirement plan and make contributions for her employees. What type of plan can the employer establish? A. Traditional IRA B. Roth IRA C. SEP IRA D. 403(b)

SEP IRA

Which statements are TRUE regarding RMDs (Required Minimum Distributions) from IRA accounts? I. The RMD is based on the life expectancy of the account beneficiary II. The RMD is based on the investment value of the account III. If the RMD is not taken, a penalty tax of 10% is applied IV. If the RMD is not taken, a penalty tax of 50% is applied

The RMD is based on the life expectancy of the account beneficiary If the RMD is not taken, a penalty tax of 50% is applied The penalty applied for not taking required minimum distributions from a qualified plan starting at age 70 1/2 is 50% of the under-distribution. There is an incentive to take the money out (and pay tax on it, which is what the Treasury is really looking for)! The IRS creates tables that lay out the required minimum distribution amount each year; and these are based on life expectancy.

If an individual, aged 69, takes a withdrawal from his IRA, which statement is TRUE? A. The amount withdrawn is subject to regular income tax only B. The amount withdrawn is subject to a 10% penalty tax only C. The amount withdrawn is subject to regular income tax plus a 10% penalty tax D. The amount withdrawn is not subject to any tax

The amount withdrawn is subject to regular income tax only Before age 59 1/2, distributions from an IRA are subject to regular income tax plus a 10% penalty tax. Afterwards, withdrawals are subject to regular tax; but not to the 10% penalty tax.

Which statement is FALSE about a SIMPLE IRA? A. The maximum contribution amount is the same as for a SEP IRA B. The contribution is made by the employee, who gets a salary reduction for the amount contributed C. The plan is only available to smaller employers D. The employer must make a matching contribution

The maximum contribution amount is the same as for a SEP IRA Finally, SEP IRAs allow for a maximum contribution that is much larger than a SIMPLE IRA. In a SEP IRA, a contribution of up to 25% of salary (statutory rate; actual contribution rate is 20%), capped at $54,000 in 2017 is permitted.

A 50-year old becomes disabled and wishes to withdraw money from his IRA. With regard to the withdrawal, how will it be taxed? A. There will be no tax due B. The withdrawal is subject to income tax only C. The withdrawal is only subject to penalty tax only D. The withdrawal is subject to both income tax and a penalty tax for early withdrawal

The withdrawal is subject to income tax only If an individual becomes disabled before age 59 1/2, distributions can be taken without penalty tax. However, since income tax has never been taken on the withdrawal, it will be subject to regular income tax.

High earning individuals can make contributions to: I. UGMA accounts II. Roth IRAs III. UTMA Accounts IV. Coverdell ESAs

UGMA accounts UTMA Accounts

A 40 year old man wishes to remove monies from his IRA to fund his child's summer vacation. The customer has: a. no tax liability b. regular income tax liability only on the amount withdrawn c. 10% penalty tax only on the amount withdrawn d. both regular income tax liability and 10% penalty tax on the amount withdrawn

both regular income tax liability and 10% penalty tax on the amount withdrawn

A 55 year old woman wishes to remove funds from her Individual Retirement Account to remodel her house. The customer is subject to: A. no tax liability B. regular income tax liability only on the amount withdrawn C. 10% penalty tax only on the amount withdrawn D. both regular income tax liability and 10% penalty tax on the amount withdrawn

both regular income tax liability and 10% penalty tax on the amount withdrawn Premature distributions from an IRA (before age 59 1/2), unless for reason of death, disability, to pay qualified education expenses, or to pay up to $10,000 of first-time home purchase expenses, incur normal income tax plus a 10% penalty tax on the amount withdrawn.

Many years ago, a customer opened a Coverdell ESA for his son, who is now age 16, and a savings account for his daughter, who is now age 18. The 18-year-old daughter is entering college and does not have enough money in the savings account to pay for tuition. To pay the tuition bill, the customer: a. can change the beneficiary on the Coverdell ESA from the son to the daughter b. can use the funds from the Coverdell ESA with the written approval of the son c. can use funds from the Coverdell ESA with the written approval of the IRS d. cannot use the funds in the Coverdell ESA

can change the beneficiary on the Coverdell ESA from the son to the daughter

Distributions from Roth IRAs: a. must commence by April 1st of the year prior to reaching the age of 70 1/2 without being penalized b. must commence by April 1st of the year reaching age 70 1/2 without being penalized c. must commence by April 1st of the year after reaching age 70 1/2 without being penalized d. can commence at any time after reaching age 59 1/2 without being penalized

can commence at any time after reaching age 59 1/2 without being penalized

Health Saving Accounts (HSAs): I. can be established by all employers that offer health insurance plans II. can only be established by employers that have high deductible health insurance plans III. are funded with tax-deductible contributions IV. are funded with non tax-deductible contributions

can only be established by employers that have high deductible health insurance plans are funded with tax-deductible contributions Health Savings Accounts (HSAs) were first authorized by Congress starting in the beginning of 2004. They are a tax advantaged medical savings account that is owned by the individual. They are established by corporate employers as part of their health insurance plans, and only plans that have a high deductible can set up HSAs for employees. More employers are adopting these high-deductible plans coupled with HSAs as a way of reducing, or slowing the growth of, their health insurance expenses.

Which statements are TRUE about Coverdell Education Savings Accounts? I. Contributions are tax deductible II. contributions are not tax deductible III. distributions are taxable IV. distributions are not taxable

contributions are not tax deductible distributions are not taxable

Which statements are TRUE about Coverdell Education Savings Accounts? I. contributions can continue until the beneficiary reaches age 18 II. contributions can continue until the beneficiary reaches age 30 III. distributions to the beneficiary must be completed upon reaching age 18 IV. distributions to the beneficiary must be completed upon reaching age 30

contributions can continue until the beneficiary reaches age 18 distributions to the beneficiary must be completed upon reaching age 30

Your customer, age 68, that has an IRA account at your firm valued at $500,000, passes away. The customer leaves the account to his son, age 38. He has no need for current income as he is still working, and wishes to know his best option to minimize taxes. He expects to retire in 22 years, at which time, he will need the funds to pay for annual living expenses. You should advise the son to: A. roll the funds over into a new IRA in the son's name B. transfer the IRA funds to a beneficiary distribution account C. cash out the inherited IRA account D. disclaim the inherited IRA account

transfer the IRA funds to a beneficiary distribution account Since the son is the beneficiary, the most advantageous option, which is to roll over the account, is not available. Roll overs of inherited IRAs are only available to spouses. The best option is for the son to transfer the funds into a beneficiary distribution account. The tax rules are that distributions must commence immediately, and the account must be depleted either over 5 years, or over the life expectancy of the beneficiary, if this is longer (which would be the case for a male who is age 38, who would be expected to live to age 78). Tax must be paid on each annual distribution, but the minimum distribution amount would be relatively small since the customer has a life expectancy of another 40 years. Also, there would be no 10% penalty tax on each distribution, even though the son is under age 59 1/2, because the account is titled in both the decedent's name and the beneficiary's name and the account is considered to be the property of the estate of the decedent. Immediate cash out of the account would subject the entire proceeds to ordinary income tax that year - again, not meeting the customer's goal of minimizing taxes. Finally, the customer has stated that he will need the funds for retirement in 22 years, so disclaiming (giving away) the account makes no sense.

For the year 2016, the maximum contribution that an individual under age 50 can make to an IRA is: a. $2,750 b. $5,500 c. $7,500 d. $11,000

$5,500

In 2017, an unmarried person under age 50 earning $72,000 a year, is not covered by a pension plan. The maximum tax deductible Individual Retirement Account contribution for this year is: A. 0 B. $5,500 C. $6,500 D. $7,500

$5,500 In the year 2017, the maximum contribution to an IRA is 100% of income up to $5,500 for an individual. If this person is not covered by a qualified retirement plan, regardless of income, the contribution is deductible.

In 2016, a self-employed person earning $300,000 wishes to open a Keogh Plan. The maximum yearly contribution is: a. $5,500 b. $43,000 c. $53,000 d. $63,000

$53,000

In 2017, a doctor has earned $300,000 from her practice and another $200,000 from investments. Their maximum contribution to an HR 10 plan is: A. $44,000 B. $54,000 C. $60,000 D. $107,000

$54,000 Keogh (HR10) contributions are based only on personal service income - not investment income. $300,000 of personal service income x 20% effective contribution rate = $60,000, however the maximum contribution allowed is $54,000 in 2017.

Distributions from Section 403(b) tax deferred annuities are: a. 100% taxable b. partial tax free return of capital and partial taxable income c. 100% tax free d. 100% tax deferred

100% taxable

Payments received by the owner of a tax qualified variable annuity are: A. 100% taxable as investment income B. only taxable to the extent of earnings above the holder's cost basis C. only taxable to the extent of the holder's cost basis D. non-taxable

100% taxable as investment income Funds paid into "tax qualified" retirement plans were never subject to tax, since the contribution amount was deductible from income at the time it was made. Earnings build up tax deferred in the plan. When distributions are taken, since all of the dollars in the plan were never taxed, all of the distribution is taxable. Funds paid into "non-tax qualified" retirement plans are not tax deductible. Any earnings build up tax deferred. When distributions are taken, the portion that represents the return of original after tax investment is not taxed; while the portion that represents the tax deferred earnings buildup is taxable.

Distributions from qualified retirement plans that are not rolled over into an IRA or other qualified plan are subject to: A. 6% withholding tax B. 10% withholding tax C. 20% withholding tax D. 25% withholding tax

20% withholding tax Distributions from qualified retirement plans, unless they are rolled over into an IRA, are taxable. To ensure that the tax will be paid, the tax code requires that 20% of the distribution amount be withheld as a credit against taxes due. No withholding tax is imposed if a trustee to trustee transfer is made - with the assets being transferred directly into another IRA or qualified retirement plan.

A salary reduction plan established by a for profit corporation that allows $7,000 per year (indexed for inflation) to be contributed, is a: A. SEP IRA Plan B. Defined Benefit Plan C. 401(k) Plan D. 403(b) Plan

401(k) plan

Which of the following retirement plans is funded by an annual employee salary reduction of $7,000 (indexed for inflation annually)? a. defined contribution plan b. defined benefit plan c. tax deferred annuity d. 401(k) plan

401(k) plan

A grandmother wishes to make a gift into her grandson's 529 college savings plan. What is the maximum that can be contributed without incurring gift tax liability? A. 1 times the annual gift tax exclusion amount B. 2 times the annual gift tax exclusion amount C. 5 times the annual gift tax exclusion amount D. 10 times the annual gift tax exclusion amount

5 times the annual gift tax exclusion amount A tax benefit offered by 529 plans is a 1-time gift that can be made into the account equal to 5 times the current gift tax exclusion, without the donor worrying about having to pay gift tax. Since the current exclusion is $14,000 in 2017, 5 times this amount or $70,000 can be donated as a 1-time gift and not be subject to gift tax.

Distributions from Roth IRAs are subject to a penalty if withdrawals are made within: a. 1 year of original contribution b. 3 years of original contribution c. 5 years of original contribution d. 10 years of original contribution

5 years of original contribution

Catch-up IRA contributions are permitted for individuals who are at least age: a. 40 b. 50 c. 60 d. 70

50

A woman in the highest tax bracket has $105,000 to invest for her teenage child's college education. She wants to make sure that, if he doesn't attend college, that he will not have access to these funds. She should be advised to make the investment in a: a. Coverdell ESA b. 529 Plan c. UTMA account d. growth mutual fund

529 Plan

In the year 2017, a divorced woman under age 50 collects $50,000 of alimony and child support as her sole source of income. The woman wishes to make a contribution to an Individual Retirement Account this year. Which statement is TRUE? A. No contribution can be made because the woman does not have earned income B. A contribution of up to $5,500 is permitted, but the contribution is not tax deductible. C. A tax deductible contribution of up to $5,500 is permitted D. A tax deductible contribution of up to $6,000 is permitted

A tax deductible contribution of up to $5,500 is permitted Alimony and child support payments are classified as "earned income" for purposes of making IRA contributions. Thus, a woman whose sole support stems from these payments makes an IRA contribution. The maximum annual contribution for an individual is $5,500 in 2017, and is deductible in full as long as the person is not covered by another qualified retirement plan; or if that person is covered by another retirement plan and earns less than $62,000 in year 2017 (the deduction phases out between $62,000 - $72,000 of income).

When comparing Section 529 plans to Coverdell Education Savings Accounts, which statement is FALSE? A. The account may be opened by any adult B. Annual contributions are limited to $2,000 per beneficiary C. Earnings build in the account tax deferred D. Distributions to pay for higher education expenses are not taxable

Annual contributions are limited to $2,000 per beneficiary There is a maximum $2,000 annual contribution into a Coverdell Education Savings Account; there is no maximum annual contribution into a Section 529 account - any contribution limits are set by the State (and are typically quite high). Any adult can open either type of account for a beneficiary; contributions to either are not tax deductible; earnings build tax-deferred in both; and distributions to pay for qualified higher education expenses are not taxable for both.

For an Individual Retirement Account contribution to be deductible from that year's tax return, the contribution must be made by no later than: A. April 15th of that year B. December 31st of that year C. April 15th of following year D. December 31st of the following year

April 15th of following year IRA contributions must be made by April 15th of the following year - no extensions are permitted.

Which of the following statements are TRUE about Individual Retirement Accounts? I. Contributions are allowed based solely upon personal service income II. Contributions may be made if the individual is covered by another type of retirement plan III. All contributions reduce the individual's taxable income IV. To remain tax deferred, distributions from other retirement plans

Contributions are allowed based solely upon personal service income Contributions may be made if the individual is covered by another type of retirement plan To remain tax deferred, distributions from other retirement plans

Which of the following statements are TRUE regarding contributions to, and distributions from, non-tax qualified retirement plans? I. Contributions are made with before tax dollars II. Contributions are made with after tax dollars III. Distributions are 100% taxable IV. Distributions are partially tax free, with the amount above the original cost basis being taxed

Contributions are made with after tax dollars Distributions are partially tax free, with the amount above the original cost basis being taxed Contributions to non-tax qualified plans are not tax deductible. They are made with "after-tax" dollars. Earnings accrue tax deferred. When distributions commence, the return of original capital contributions made with after-tax dollars is not taxed. Only the tax deferred "build-up" in the account above what was originally contributed is taxed.

Which statement is TRUE about Roth IRAs? a. Contributions are tax deductible; distributions after age 59 1/2 are not taxed b. Contributions are not tax deductible; distributions after age 59 1/2 are not taxed c. Contributions are tax deductible; distributions after age 59 1/2 are taxed d. Contributions are not tax deductible; distributions after age 59 1/2 are taxed

Contributions are not tax deductible; distributions after age 59 1/2 are not taxed

Which of the following statements about 403(b) Plans are TRUE? I. Contributions are tax deductible to the employee II. Contributions are not tax deductible to the employee III. These plans are available to employees of any organization IV. These plans are available to non-profit organization employees only

Contributions are tax deductible to the employee These plans are available to non-profit organization employees only 403(b) plans are only available to non-profit organization employees, such as school and hospital employees. These are tax qualified annuity plans, where contributions made by employees are tax deductible. Earnings in the plan grow tax deferred. When the employee retires, he or she may take the annuity, which is 100% taxable as ordinary income as taken.

Which statements are TRUE about Roth IRAs? I. Contributions must cease at age 70 1/2 II. Contributions can continue after age 70 1/2 III. Distributions must start after age 70 1/2 IV. Distributions are not required to start after age 70 1/2

Contributions can continue after age 70 1/2 Distributions are not required to start after age 70 1/2 Unlike Traditional IRAs, Roth IRA contributions can continue after age 70 1/2, as long as that person has earned income. And unlike Traditional IRAs, there are no required minimum distributions after age 70 1/2 for Roth IRAs.

Which statements are TRUE when comparing UTMA Custodian Accounts to Coverdell Education Savings Accounts? I. Contributions to UTMA accounts are limited to $2,000 annually II. Contributions to Coverdell Education Savings Accounts are limited to $2,000 annually III. Earnings in UTMA accounts are subject to Federal income tax IV. Earnings in Coverdell Education Savings Accounts are subject to Federal Income tax

Contributions to Coverdell Education Savings Accounts are limited to $2,000 annually Earnings in UTMA accounts are subject to Federal income tax Custodian accounts opened under either the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA) can be opened by any adult for any minor, with no limitation on the dollar amount that can be donated into the account. There is no tax deduction for the donor for the contribution, and earnings in the account are taxable annually to the minor. Because all of the funds in the account represent "after-tax" dollars, there is no tax liability when funds are withdrawn. Coverdell Education Savings accounts can be opened by any adult for a minor, with annual contributions into the account limited to $2,000. The contribution amount is not deductible. Earnings build tax-deferred; and when distributions commence, as long as they are used to pay for that minor's education expenses, the distribution is not taxable (a major tax benefit). Also note that high earning individuals cannot open Coverdell ESAs.

Which statements are TRUE? I. Contributions to a 529 plan are tax deductible II. Contributions to a 529 plan are not tax deductible III. Contributions to a Coverdell ESA are tax deductible IV. Contributions to a Coverdell ESA are not tax deductible

Contributions to a 529 plan are not tax deductible Contributions to a Coverdell ESA are not tax deductible Contributions to both Coverdell ESAs and 529 plans are not tax deductible. Earnings build tax-deferred in both. Distributions from both, when used to pay for appropriate educational expenses, are not taxable. (Note that Coverdell ESA distributions can be used to pay for elementary, middle and high school costs as well as higher education costs, whereas 529 plan distributions can only be used to pay for higher education). High earning individuals cannot open a Coverdell; there is no similar restriction on a 529 plan. Coverdell ESA contributions are limited to $2,000 per child per year; 529 plan contribution limits are set by each state and are much higher.

Which statements are TRUE when comparing UTMA Custodian Accounts to Coverdell Education Savings Accounts? I. Earnings in UTMA accounts are subject to Federal Income Tax II. Earnings in UTMA accounts are not subject to federal income tax III. earnings in Coverdell education savings accounts are subject to Federal Income Tax IV. earnings in Coverdell education savings accounts are not subject to federal income tax

Earnings in UTMA accounts are subject to Federal Income Tax earnings in Coverdell education savings accounts are not subject to federal income tax

Which of the following investments are permitted for 403(b) plans? I. Corporate stocks II. Certificates of deposit III. Fixed annuities IV. Variable annuities

Fixed annuities Variable annuities 403(b) retirement plans allow employees of non-profit institutions such as hospitals and universities to establish their own retirement plans if none is provided by the employer. The monies contributed are excluded from taxable income. The plans allow for investment in tax deferred annuity contracts, that can be funded by mutual fund purchases, as well as by traditional fixed annuities. Direct investments in common stocks are not allowed; the investments must be managed by a professional manager.

All of the following statements are true about Health Savings Accounts EXCEPT: a. HSAs are only appropriate for those individuals covered by high-deductible health insurance plans b. HSAs can be set up to include dependents of the covered individual c. HSA contributions are tax deductible d. HSA contributions are subject to phase-out when an individual's income exceeds $250,000

HSA contributions are subject to phase-out when an individual's income exceeds $250,000

A working couple has a combined income of $150,000. Neither are covered by an employer sponsored pension plan. Which statement is TRUE about IRA contributions by these persons? A. IRA contributions are prohibited since these persons can be covered by an employer sponsored plan B. IRA contributions are prohibited since these persons' income exceeds allowed limits C. IRA contributions are permitted; however the contribution amount is not deductible D. IRA contributions are permitted with the contribution amount being tax deductible

IRA contributions are permitted with the contribution amount being tax deductible Anyone can contribute to an IRA, whether covered by a pension plan or not. If a couple is not covered by a qualified plan, the contribution is tax deductible and the maximum that can be contributed in 2017 is $5,500 each ($11,000 total). However, the contribution is not tax deductible for couples, where both are covered by qualified plans, who earn over $119,000 in year 2017 (the deduction phases out between $99,000 - $119,000 of income).

State-sponsored education savings programs that permit contributions to build tax-deferred are known as: a. Coverdell Education Savings Accounts b. Educational IRAs c. Section 529 plans d. Section 403(b) plans

Section 529 plans

A customer that earns $200,000 per year wishes to set aside funds for his 12 year old daughter's future college expenses. Which statements are TRUE? I. The customer can open a UTMA account for the daughter to deposit the funds II. the customer cannot open a UTMA account for the daughter to deposit the funds III. the customer can open a Coverdell ESA account for his daughter to deposit the funds IV. the customer cannot open a Coverdell ESA account for his daughter to deposit the funds

The customer can open a UTMA account for the daughter to deposit the funds the customer cannot open a Coverdell ESA account for his daughter to deposit the funds

Contributions to qualified retirement plans, other than IRAs, must be made by: A. December 31st of the calendar year in which the contribution may be claimed on that person's tax return B. April 15th of the calendar year in which the contribution may be claimed on that person's tax return C. April 15th of the calendar year after which the contribution may be claimed on that person's tax return D. The date on which the tax return is filed with the Internal Revenue Service

The date on which the tax return is filed with the Internal Revenue Service Contributions to qualified retirement plans (other than IRAs) must be made no later than the date the tax return is filed (even if it is filed with an extension). On the other hand, IRA contributions must be made no later than April 15th of the tax year after the year for which the deduction is claimed.

Which of the following statements are TRUE regarding Individual Retirement Accounts? I. The earliest a taxpayer can make an annual contribution is January 1st of that tax year II. The latest a taxpayer can make an annual contribution is April 15th of the next tax year III. If the taxpayer obtained a 4 month filing extension, the annual contribution can be made until the extension date IV. Annual tax deductible contributions may be made even if the person is covered by another qualified retirement plan

The earliest a taxpayer can make an annual contribution is January 1st of that tax year The latest a taxpayer can make an annual contribution is April 15th of the next tax year Annual IRA contributions can be made anytime from January 1st of that year until April 15th of the next tax year. If the taxpayer requests an extension for filing his tax return, he does not get an extension for making the IRA contribution. Contributions can always be made based upon earned income, but if a person is covered by another qualified retirement plan and earns too much (over $72,000 in 2017), the contribution is not deductible.

A 529 plan is set up for a child in State A. The child attends a college in State B. Which statement is TRUE? A. The funds in the 529 Plan are not portable and can't be used to pay for college in State B B. The funds in the 529 Plan are portable and can be used to pay for college in State B C. The funds must be transferred into a 529 Plan in State B if they are going to be used to pay for college in State B D. The child must renounce his or her residency in State A and become a resident of State B in order to use the funds in the 529 Plan for college in State B

The funds in the 529 Plan are portable and can be used to pay for college in State B As long as the funds are used to pay for college, 529 Plans are completely portable - the money can be used to pay for college in any State.

Which statements are TRUE about Roth IRAs for tax year 2017? I. The maximum permitted contribution for an individual is $2,750 II. The maximum permitted contribution for an individual is $5,500 III. If an individual contributes $5,500 to a Traditional IRA in that year, no additional contribution to a Roth IRA is permitted IV. If an individual contributes $5,500 to a Traditional IRA in that year, an additional contribution to a Roth IRA is permitted

The maximum permitted contribution for an individual is $5,500 If an individual contributes $5,500 to a Traditional IRA in that year, no additional contribution to a Roth IRA is permitted For 2017, the maximum permitted annual contribution to a Roth IRA is $5,500 for an individual. If the full $5,500 contribution is made to a Traditional IRA, no Roth contribution is permitted. If the full $5,500 contribution is made to a Roth IRA, no Traditional IRA contribution is permitted.

For an investor who has a Keogh Plan, which of the following statements are TRUE? I. The plan is a tax qualified II. The plan is non-tax qualified III. Once distributions commence at age 59 1/2 or later, only the tax deferred build-up is taxed IV. Once distributions commence at age 59 1/2 or later, both the original investment and the build-up are taxed

The plan is a tax qualified Once distributions commence at age 59 1/2 or later, both the original investment and the build-up are taxed Keoghs are tax qualified retirement plans for self employed individuals. The investment in a Keogh plan is tax deductible; and the earnings in the plan "build-up" tax deferred. Since none of the dollars were ever taxed, 100% of all distributions from Keoghs are taxable.

A 50 1/2 year old self-employed individual has a balance of $200,000 in his HR 10 plan. This balance is composed of $140,000 of contributions and $60,000 of earnings. The individual decides to withdraw $100,000 from the plan. Which statement is TRUE? A. There will be no tax liability B. There will be regular tax liability, but no 10% penalty tax liability C. There will be a 10% penalty tax liability, but no regular tax liability D. There will be both regular tax liability and a 10% penalty tax liability

There will be both regular tax liability and a 10% penalty tax liability Since this individual is younger than age 59 1/2, any distribution from the Keogh plan is subject to both ordinary income tax plus the 10% penalty tax. If the distribution is made after age 59 1/2, it is subject only to ordinary income tax - there is no penalty tax. Please note that 100% of all distributions from Keoghs are taxable - these are tax qualified plans where all of the investment dollars were never taxed. Once distributions commence, both the original investment (that was never taxed), and the tax deferred build-up, are now taxable in full.

Which of the following statements are TRUE regarding tax sheltered annuities for employees of non-profit organizations? I. These are known as 401(k) plans II. These are known as 403(b) plans III. Monies contributed to this plan are excluded from taxable income IV. Monies contributed to this plan are included in taxable income

These are known as 403(b) plans Monies contributed to this plan are excluded from taxable income Tax deferred annuities for employees of non-profit organizations are 403(b) plans. These retirement plans allow employees of non-profit institutions such as hospitals and universities to establish their own retirement plans if none is provided by the employer. The monies contributed are excluded from taxable income, and must be used to purchase "tax sheltered" annuities or mutual funds; direct stock investments are prohibited.

A husband and wife are self-employed and have 3 children, ages 4, 7, and 9. They have a combined income of $300,000. They wish to open Coverdell ESAs for each of their children to pay for qualified education expenses. Which statement is TRUE? A. They can open the account for each child and make an annual $2,000 tax-deductible contribution for each B. They can open the account for each child and make an annual $2,000 non tax-deductible contribution for each C. They are prohibited from opening an account for each child because they earn too much D. They are prohibited from opening an account for each child because Coverdell ESAs cannot be opened by self-employed individuals

They are prohibited from opening an account for each child because they earn too much Both Roth IRAs and Coverdell ESAs are not available to high-earning individuals. There is an income phase-out range, above which contributions are prohibited to either of these. For 2017, the top end of the income phase out range for individuals is $110,000 and for couples it is $220,000.

When comparing Roth IRAs to Traditional IRAs, which statements are TRUE? I. Traditional IRA contributions can be deductible; Roth IRA contributions are never deductible II. Traditional IRA contributions are never deductible; Roth IRA contributions can be deductible III. After age 59 1/2, distributions from Traditional IRAs can be taxable; distributions from Roth IRAs are never taxable IV. After age 59 1/2, distributions from Traditional IRAs are never taxable; distributions from Roth IRAs can be taxable

Traditional IRA contributions can be deductible; Roth IRA contributions are never deductible After age 59 1/2, distributions from Traditional IRAs can be taxable; distributions from Roth IRAs are never taxable Roth IRAs, unlike Traditional IRAs, do not permit a tax deduction for the amount contributed. On the other hand, when distributions are taken, unlike a Traditional IRA, the distributions are not taxable (given that the investment has been held for at least 5 years).

Which statements are TRUE when comparing a Roth IRA to a Traditional IRA? I. Traditional IRAs are available to anyone who has earned income II. Roth IRAs are available to anyone who has earned income III. Traditional IRAs are not available to high-earning individuals IV. Roth IRAs are not available to high-earning individuals

Traditional IRAs are available to anyone who has earned income Roth IRAs are not available to high-earning individuals Roth IRAs allow for the same contribution amounts as Traditional IRAs, but the contribution is never tax-deductible (which is usually the case with a Traditional IRA). Earnings build tax deferred and when distributions commence after age 59 1/2, no tax is due. This is a very good deal. Unfortunately, it is not available for high-earners. Individuals that earn over $133,000 and couples that earn over $196,000, in 2017, cannot open Roth IRAs. They can open Traditional IRAs, however.

High earning individuals can make contributions to: I. UGMA Accounts II. Roth IRAs III. UTMA Accounts IV. Coverdell ESAs

UGMA Accounts UTMA Accounts Custodian accounts opened under either the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA) can be opened by any adult for any minor, with no limitation on the income of the donor in determining whether the account can be opened. On the other hand, high earning individuals are prohibited from opening either a Roth IRA or a Coverdell Education Savings Account.

A client, age 35, is covered by a 401(k) plan at work and also has set up an IRA account. He has been contributing the maximum amount to each of these each year. He lives frugally and has excess income available for investment. He asks you, the registered representative, for an appropriate recommendation to add to his retirement savings. Which recommendation is appropriate? A. 529 Plan B. Variable Annuity C. Keogh Plan D. SEP IRA

Variable Annuity Anyone can contribute to a non-qualified variable annuity, with no contribution limits. It makes no difference if the customer is covered by another qualified plan. The contribution is not deductible, but the separate account builds tax deferred. Upon retirement, only the portion of any distribution representing the tax-deferred build up is taxable. 529 Plans can only be used to pay for higher education expenses; Keogh plans can only be set up by self-employed individuals; and SEP IRAs can only be established by businesses for their employees.

Distributions after age 59 1/2 from non-tax qualified retirement plans are: a. 100% taxable b. partial tax free return of capital and partial taxable income c. 100% tax free d. 100% tax deferred

partial tax free return of capital and partial taxable income

When comparing a Section 529 plans to Coverdell Education Savings Accounts, which statement is FALSE? a. the account may be opened by any adult b. annual contributions are limited to $2,000 per beneficiary c. earning build in the account tax deferred d. distributions to pay for higher education expenses are not taxable

annual contributions are limited to $2,000 per beneficiary

A distribution from a section 529 plan would be taxable if the beneficiary: a. does not go to college b. gets a full scholarship c. goes on disability d. goes to vocational school

does not go to college

If a non-spouse inherits an IRA, the beneficiary can: I. roll over the IRA proceeds into an existing IRA owned by the beneficiary II. elect to receive the entire IRA proceeds as an immediate lump sum III. roll over the IRA proceeds into a new IRA set up by the beneficiary IV. elect to receive the entire proceeds over the next 5 years under the "5 year rule" or the remaining life of the beneficiary, whichever is longer

elect to receive the entire IRA proceeds as an immediate lump sum elect to receive the entire proceeds over the next 5 years under the "5 year rule" or the remaining life of the beneficiary, whichever is longer

ERISA legislation was enacted to protect: a. employee retirement funds from employer mismanagement b. employee retirement funds from government mismanagement c. retirement fund accounts against broker-dealer mismanagement d. retirement fund accounts against investor adviser mismanagment

employee retirement funds from employer mismanagement

All of the following statements about 403(b) plans are true EXCEPT: a. employees make voluntary contributions through their employees b. contributions are tax deductible to the employee c. employees of any organization can contribute to this type of plan d. earnings on contributions by employees are tax deferred

employees of any organization can contribute to this type of plan

In an Individual Retirement Account, a 6% penalty tax will be imposed for: A. failing to make a contribution to an Individual Retirement Account by April 15th B. the purchase of a mutual fund in an Individual Retirement Account C. premature distributions from an Individual Retirement Account D. excess contributions to an Individual Retirement Account

excess contributions to an Individual Retirement Account Excess contributions to an Individual Retirement Account are subject to a 6% penalty tax. Do not confuse this penalty with that imposed on a premature distributions from an IRA. Premature distributions (prior to age 59 1/2) are subject to a 10% penalty tax.

If a distribution from a Coverdell Education Savings Account in a given year exceeds the beneficiary's qualified education expenses in that year, the: A. excess distribution is not taxable B. excess distribution is taxable and a 10% penalty is imposed C. entire distribution is not taxable D. entire distribution is taxable and a 10% penalty tax is imposed

excess distribution is taxable and a 10% penalty is imposed Since contributions to Coverdell Education Savings Account are not deductible, normally, distributions from a Coverdell Education Savings Account to pay for qualified education expenses are not taxable. However, if distributions are taken in a given year in excess of the qualified education expenses incurred in that year, then the excess portion is taxable - with the taxable amount being the portion of the distribution that represents the "build-up" in the account above the original contribution amount. This "build-up" was never taxed. In addition, a 10% penalty tax applies as well. The moral of this tale is, use the money in the account to pay for qualified education expenses only; and use it all up for this purpose!

Which statements are TRUE? I. funds in a 529 plan can only be used for higher education expenses II. funds in a 529 plan can be used for any qualifying education expenses III. funds in a Coverdell ESA can only be used for higher education expenses IV. funds in a Coverdell ESA can be used for any qualifying education expenses

funds in a 529 plan can only be used for higher education expenses funds in a Coverdell ESA can be used for any qualifying education expenses

A defined benefit plan: a. excludes employees earning less than $20,000 per year b. is required to vest 100% of contribution after 1 year's service c. gives the greatest benefit to high salaried employees close to retirement age d. bases contributions solely on each employee's earnings

gives the greatest benefit to high salaried employees close to retirement age

Section 529 plans are used to fund: A. retirement needs B. higher education needs C. medical needs D. disability needs

higher education needs Section 529 plans are state sponsored savings plans used to fund higher education.

All of the following are true statements about Individual Retirement Accounts EXCEPT: A. the earliest a taxpayer may make an annual contribution is January 1st of that tax year B. the latest a taxpayer may make an annual contribution is April 15th of the following tax year C. if the taxpayer obtained a 4 month filing extension, he can make the annual contribution up to the extension date D. annual contributions may be made even if the person is covered by another qualified retirement plan

if the taxpayer obtained a 4 month filing extension, he can make the annual contribution up to the extension date Annual IRA contributions can be made anytime from January 1st of that year until April 15th of the next tax year. If the taxpayer requests an extension for filing his tax return, he does not get an extension for making the IRA contribution. IRA contributions can be made even if the employee is covered by another qualified pension plan, but may not be tax deductible in that case.

An uncle opens a Coverdell ESA for his niece and makes deposits over a number of years. When she enters college, the niece withdraws $10,000 from her Coverdell ESA to pay for expenses. The student only uses $9,000 of the funds. The remaining $1,000: a. must be redeposited to the account b. is taxable at ordinary income tax rates to the niece c. is taxable at ordinary income tax rates to the uncle d. is not taxable and can be used by the niece for any purpose

is taxable at ordinary income tax rates to the niece

A tax deduction for a contribution to a Coverdell Education Savings Account is: A. permitted without limitation B. permitted only for persons earning below a statutory limit C. not permitted unless the monies remain in the account for at least 5 years D. not permitted

not permitted

A company has decided to terminate its retirement plan and is going to make lump sum distributions to its employees. In order to defer taxation on the distribution, the employee may: A. buy tax exempt municipal bonds B. buy a single premium deferred annuity C. roll over the funds into an Individual Retirement Account within 60 days D. establish a UGMA account within 60 days

roll over the funds into an Individual Retirement Account within 60 days Lump sum distributions from qualified plans can be "rolled over" into an IRA without dollar limit and remain tax deferred as long as the rollover is performed within 60 days of the distribution date.

Your customer, age 68, that has an IRA account at your firm valued at $500,000, passes away. The customer leaves the account to his wife, age 58. She has no need for current income as she is still working, and wishes to know her best option to minimize taxes. She expects to retire in 12 years, at which time, she will need the funds to pay for annual living expenses. You should advise the spouse to: a. roll the funds over into a new IRA in the spouse's name b. transfer the IRA funds to a beneficiary distribution account c. cash out the inherited IRA account d. disclaim the inherited IRA account

roll the funds over into a new IRA in the spouse's name

ERISA requirements regarding the investments that are suitable for a retirement account stress: A. income potential B. capital gain potential C. safety of principal D. legal list securities

safety of principal ERISA rules regarding retirement plans stress that investments should be "safe."

Section 529 plans are established by the: a. state b. donor c. recipient d. custodian

state

A 50 year old individual leaves a corporate employer and receives a $50,000 lump sum distribution from the pension plan. He rolls over $30,000 of the funds within 60 days into an IRA and deposits the rest into his checking account. The individual pays: a. no tax b. income tax on the $50,000 distribution c. tax on the $30,000 rollover d. tax on the $20,000 not rolled over

tax on the $20,000 not rolled over

Employees of non-profit organizations are permitted to establish tax deferred retirement plans, similar to Keogh, by making investments in a: a. 401(k) plan b. tax sheltered annuity c. profit sharing plan d. defined benefit plan

tax sheltered annuity

A customer dies, leaving his $300,000 IRA account to his three daughters, who are age 46, 50, and 52. Which daughter's life expectancy would be used to determine the minimum annual payout to be made from the IRA? a. the 46 year old daughter's age b. the 50 year old daughter's age c. the 52 year old daughter's age d. the arithmetical average of the three daughters' age

the 52 year old daughter's age

All of the following statements are true about SEP IRAs EXCEPT: a. the plan is established by the employer b. the plan allows for flexible contribution amounts c. the amount that can be contributed is significantly greater than for a traditional IRA d. the contributions made are no deductible

the contributions made are no deductible

If a corporation has an unfunded pension liability this means that: a. the expected future value of fund assets is less than projected benefit claims b. the expected future value of fund assets is more than projected benefit claims c. inflation has eroded the value of the portfolio funding the plan d. existing retirees' benefit claims are not being met

the expected future value of fund assets is less than projected benefit claims

If a corporation has an unfunded pension liability, this means that: A. inflation has eroded the value of the portfolio funding the plan B. the plan is in default because the existing retirees' benefit claims are not being met C. the expected future value of fund assets is less than projected benefit claims D. the expected future value of fund assets is more than projected benefit claims

the expected future value of fund assets is less than projected benefit claims An unfunded pension liability means that expected payments from the retirement plan are in excess of the expected future assets in the plan. It is common for defined benefit pension plans to be underfunded, but the plan trustee is responsible to ensure that future funding is adequate as needed.

All of the following statements are true regarding the transfer of Individual Retirement Accounts from one trustee to another EXCEPT: A. there is no limit on the number of transfers that can be made each year B. the funds can be transferred by having the trustee or custodian make a check payable to the account holder; who will then deposit the check with the new trustee or custodian C. the transfer can be effected by wiring the funds directly between trustees or custodians D. the transfer can be effected by having the predecessor trustee or custodian make a check payable to the successor trustee or custodian

the funds can be transferred by having the trustee or custodian make a check payable to the account holder; who will then deposit the check with the new trustee or custodian IRA transfers between trustees must be made directly from trustee to trustee. There is no limit on the number of transfers that can be made each year. If the transfer is effected by having the check made out to the account holder, this is considered to be an IRA rollover, which must be completed within 60 days and only 1 rollover per year is permitted. Thus, transfers cannot be effected by having the check made out to the account holders - the funds must go directly from trustee to trustee.

Which statement is FALSE about a SIMPLE IRA? a. the maximum annual contribution is the same as for a traditional IRA b. the contribution is made by the employee, who gets a salary reduction for the amount contributed c. the plan is only available to small employers d. the employer must make a matching contribution

the maximum annual contribution is the same as for a traditional IRA b. the contribution is

Which statements are TRUE? I. the name of the beneficiary on a Coverdell ESA can be changed to another beneficiary II. the name of the beneficiary on a Coverdell ESA cannot be changed to another beneficiary III. the name of a beneficiary (minor) on a UTMA account can be changed to another beneficiary IV. The name of a beneficiary (minor) on a UTMA account cannot be changed to another beneficiary

the name of the beneficiary on a Coverdell ESA can be changed to another beneficiary The name of a beneficiary (minor) on a UTMA account cannot be changed to another beneficiary