Unit 18

In the construction of a qualified retirement plan portfolio, which of the following investment vehicles would be considered generally inappropriate? A guaranteed investment contract (GIC) A municipal bond fund A leveraged real estate limited partnership A corporate bond rated A or higher

2 and 3

Becky Biggins has an executive position with a large corporation that covers her under its defined benefit pension plan. This year, Becky's salary will top $435,000. Becky has no dependents and wishes to maximize funds that she can accumulate for her retirement. Becky could not contribute to a traditional IRA contribute to a traditional IRA but would not be able to deduct her contributions contribute to her Roth IRA not contribute to her Roth IRA

2 and 4

Which of the following would you expect to see in the investment policy statement of a qualified plan? The information in the summary plan document specified by the Department of Labor The method to be used to measure the investment performance of the plan A listing of the portfolio assets as of the most recent quarter Investment limitations placed on the portfolio managers

2 and 4

Terry Bolton opens a UTMA for each of his sons, Josh, age 12, and Drake, age 14. Under current tax regulations (2023 and beyond), after deductions and exemptions, how will the income in the UTMAs be taxed? Josh's income is taxed at his tax rate. Drake's income is taxed at his tax rate. Josh's income in excess of $2,500 is taxed at Terry's marginal tax rate. Drake's income in excess of $2,500 is taxed at Terry's marginal tax rate.

3 and 4

Those individuals who are considered parties in interest due to handling the assets of a corporate retirement plans are A) not permitted to use those funds to acquire company assets in an amount beyond the allowable limits. B) encouraged to use plan funds to assist the employer when there is a cash flow crisis. C) able to sell personal securities to the plan if that will benefit plan participants. D) not considered to have a fiduciary responsibility.

A

An investment policy statement would likely include expected returns of the recommended strategy and the expected range of these returns recommended allocations among differing asset classes strategies used for selecting specific stocks in the equity portion of the portfolio disclosure of the fees that the adviser will earn for implementing the recommended strategy

1, 2, and 3

A fiduciary of an ERISA plan is preparing an investment policy statement. Included would probably be specific security selection methods of performance measurement determination for meeting future cash flow needs the Summary Plan Description

2 and 3

In order to qualify for the safe harbor under 404(c), the portfolio selections must include at least

3 diff asset classes

Unless the beneficiary is a special needs individual, amounts remaining in a Coverdell ESA must be distributed within

30 days after the designated ben turns 30

A 40-year-old teacher in the local public school system would find her retirement needs best served by contributing to

403b

A widower wants to fund a Section 529 plan for his daughter. What is the maximum amount he may initially contribute in 2023 without having to pay gift taxes?

85k

Adam Samuels suffered a massive heart attack and died at the age of 62. As part of his estate, there is an IRA with a current value of $170,000. A review of the IRA documents reveals that Eve Samuels, his wife, is the primary beneficiary and their two children have been named as contingent beneficiaries. Eve is 50 years old and does not need the income from the IRA and would like to preserve the IRA for her children to inherit. Which of the following steps would you recommend Eve take? A) Execute a rollover into an IRA in her name. B) Cash in the IRA because as a spouse of a deceased, she will avoid the 10% tax penalty. C) Disclaim the IRA and let it pass to the contingent beneficiaries. D) Execute a rollover into an inherited IRA.

A

For purposes of the maximum allowable annual contribution, an individual would have to aggregate contributions made to A) a 401(k) and a 403(b). B) a 401(k) and a Roth IRA. C) a 403(b) and a 457. D) a 401(k) and a 457.

A

Which of the following retirement plans would be appropriate for a highly compensated government employee? A) 457(b) B) 403(b) C) IRA D) 401(k)

A

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

A

Under UTMA, which of the following are allowable distributions for the benefit of the minor? A) The cost to attend a summer camp B) A percentage of housing expenses, such as the utilities for his bedroom C) A percentage of food expense D) Clothing expense for a child who has gone through a growth spurt

A -- can't pay for basics

If Maria turned 73 on August 16, 2023, when must she make the first required minimum distribution (RMD) from her IRA?

April 1, 2024

If the owner of a $1 million IRA leaves it to his daughter, which of the following best describes the income tax treatment to the daughter? A) She will pay income taxes only on a portion of the withdrawals which exceed $1 million. B) She will pay income taxes on the full amount she withdraws each year. C) She will pay income taxes on the full $1 million immediately. D) She will pay no income taxes because the estate taxes have already been paid.

B

One reason why employers like using deferred compensation plans is that A) they provide larger tax deductions than any other plan B) they can be structured so that the employee's benefits are forfeited upon termination with cause C) with all employees receiving the same benefit, plan administration is simplified D) IRS approval is easily obtained

B

Which of the following is not an example of a nonqualified retirement plan? A) A payroll deduction plan B) A SIMPLE plan C) A SERP D) A deferred compensation plan

B

Which of the following may not be used to fund an individual retirement account (IRA)? A) Stocks B) Life insurance C) Bank accounts D) Mutual funds

B

An individual has a substantial vested interest in his 401(k) plan at work. Which of the following is not an exception to the premature distribution penalty tax? A) Distribution because of an employee's death or disability B) Distribution of up to $10,000 made to purchase a principal residence C) Distribution to pay certain medical expenses D) Distribution made pursuant to a qualified domestic relations order

B -- possible for IRA, not for 401k

Jill's bank, where she has her traditional deductible contributory IRA, is recommending that she roll over her IRA into a Roth IRA to benefit from the tax-free status of the withdrawals when she retires. (Jill is now 32 years old.) Which of the following is a consequence if Jill follows the bank's recommendations? A) No tax will occur, provided the rollover is completed within 60 days. B) The amount attributable to growth must be declared as income. C) The entire amount rolled over must be declared as income. D) Rolling over a traditional IRA to a Roth IRA will negate the tax-free status of future withdrawals.

C

Minnie's Uncle Bob would like to contribute to his one-year-old niece's education expenses. He is able to contribute a maximum of $1,200 per year. There is no other family member in a position to make a contribution. If minimizing the taxes at withdrawal and low cost investing, such as index mutual funds, is the objective, which of the following would you recommend? A) Dollar cost averaging B) Section 529 plan C) Coverdell ESA D) UTMA

C

Which of the following is a benefit to an employee of a business offering a safe harbor 401(k) using a nonelective formula? A) The plan is free from the top-heavy testing requirements. B) The employees are guaranteed the ability to consult an investment adviser. C) The employer is required to contribute on the employee's behalf even if the employee does not contribute to the plan. D) It guarantees that highly compensated employees do not get more of an employer match than employees who are not highly compensated.

C

Which of the following offers the benefit of tax-deductible contributions? A) Roth IRA B) Payroll deduction plan C) Health savings account (HSA) D) Coverdell Education Savings Account (ESA)

C

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) None of these transactions constitute a prohibited transaction under the provisions of the legislation C) An investment adviser using the interest from plan assets to cover the adviser's office expenses D) A loan between a 401(k) plan and plan participant

C

Withdrawals during retirement from which of the following accounts would most likely be subject to the greatest amount of taxation? A) Nonqualified variable annuity B) Roth IRA C) Qualified variable annuity D) Nondeductible traditional IRA

C

A 401(k) offering which of the following choices would be most likely to be in compliance with Section 404(c) of ERISA? A) Money market fund, intermediate-term municipal bond fund, large-cap stock index fund B) Long-term bond fund, large-cap stock index fund, foreign equity fund C) Money market fund, intermediate-term government bond fund, large-cap stock index fund D) Small-cap fund, large-cap stock ETF, money market fund

C -- muni not acceptable for qualified plan

All of these are reasons a corporation might choose to establish a nonqualified plan rather than a qualified plan except A) a nonqualified plan typically has lower administrative costs. B) a nonqualified plan has more design flexibility than a qualified plan. C) the corporation can exclude rank-and-file employees from a nonqualified plan. D) the employer can take a tax deduction at the time the contribution is made to the plan.

D

Which of the following has a use it or lose it provision?

FSA

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? Investment objectives Investment philosophy Investment selection criteria Monitoring procedures

all 4

traditional IRA contributions (are/are not) tax deductible

are

Under ERISA Section 404(c), plan participants must be able to reallocate plan assets

once every 3 months

If the administrator of a corporate 401(k) plan ensures that a wide variety of investment alternatives are available to employees along with the ability for the employees to monitor their accounts and make frequent changes as needed, ERISA

shifts resp for acct performance to the employee

An employer whose 401(k) plan complies with ERISA Section 404(c) is placing investment risk with

the plan participant

When a participant in a 401(k) plan dies before retirement, the proceeds are distributed

to the designated beneficiary without going through probate

All of the following statements regarding qualified corporate retirement plans are true except A) defined contribution plans have the same contribution limits as Keogh plans. B) with defined benefit plans, the employee bears the investment risk. C) all corporate pension and profit-sharing plans must be established under a trust agreement. D) all qualified retirement plans are either defined contribution or defined benefit plans.

B -- read over options

In almost all states, the Uniform Gift to Minors Act (UGMA) account has given way to the Uniform Transfers to Minors Act (UTMA) account. Although there are more similarities than differences between them, one of those differences is that A) there is more investment flexibility in the UGMA account. B) the donor retains control over the investments with an UTMA account. C) the account is in the name of the minor in an UTMA account. D) some states permit transfer of ownership in UTMA accounts to be delayed beyond the age of majority.

D

In many cases, the exceptions from the early-distribution tax penalty of 10% are the same for both IRAs and qualified plans. However, a specific exception granted to those with qualified plans that is not available to IRA owners is distributions A) for certain medical expenses. B) for a first-time home purchase. C) used for higher education expenses. D) under a QDRO.

D

Which of the following is true of the tax consequences when a participant in a noncontributory pension plan withdraws a monthly income at retirement? A) The income is partly taxed as ordinary income and partly taxed as capital gains. B) The income is taxable as capital gains. C) The income is nontaxable. D) The income is taxable as ordinary income.

D

In general, in a defined benefit plan, the pension to be received upon retirement is based on the number of years of service and the individual's

final average salary

Which of the following may be purchased in an UTMA but not an UGMA?

real estate

Mrs. Jones, age 70, is retiring, and her employer has three investment options for her 401(k). You should advise her to

rollover into IRA