Unit 24

All of the following statements regarding 529 plans are true EXCEPT A) contributions are made with pretax dollars at the federal level B) earnings accumulate tax free if the money is used for qualified educational purposes C) a beneficiary of a 529 plan may also be the beneficiary of a Coverdell Education Savings Account D) anyone can make a contribution on behalf of a beneficiary

A

Which of the following has a "use it or lose" it provision? A) FSA B) HSA C) ESA D) IRA

A

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

If your customer works as a nurse in a public school and wants to know more about participating in the school's 403(b) plan, it would be accurate to make each of the following statements EXCEPT A) contributions are made with pretax dollars B) she is not eligible to participate C) distributions before age 59½ are normally subject to penalty D) mutual funds and annuities are available investment vehicles

B

Assuming all withdrawals are equal, which of the following would subject a 60-year-old investor to the least amount of tax? A) Non-qualified variable annuity B) Traditional IRA C) Roth IRA D) 403(b) plan

C

For which of the following employer-sponsored qualified plans is it mandatory that annual contributions be made? A) Deferred compensation plan B) Defined benefit plan C) Money purchase pension plan D) Profit-sharing plan

C

Which of the following may be purchased in an UTMA, but not an UGMA? A) Individual stocks B) Bank CDs C) Real estate D) Mutual funds

C

What term is used to describe which employees will be covered by a pension plan? A) Party in interest B) Funding C) Vesting D) Eligibility

D

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

D

All of the following statements regarding 529 plans are true EXCEPT A) eligibility is affected by the income level of the contributor B) contributions to a 529 plan may be subject to gift taxation C) the assets in the account are controlled by the account owner, not the child D) states impose very high overall contribution limits

A

Martha passed away in November 2020 at the age of 87. Among the assets in her estate was an IRA with a value of $150,000. Martha's son, Jerome, a successful 52-year-old surgeon and a client of yours, was named as the beneficiary of the IRA. From a tax standpoint, which of the following options would you recommend to Jerome? A) Jerome should use the 10-year cash-out option. B) Jerome should take the cash now and use a Section 1035 exchange into an annuity. C) Jerome should use the 5-year cash-out option. D) Jerome should take the cash now and use the money to fund a new IRA.

A

Your client who has not yet attained the age of 59 ½ wants to take a withdrawal from his traditional IRA. Not being disabled or meeting any other qualifying reason allowing for an early withdrawal you explain that the amount taken will be subject to a penalty of A) 10% B) 50% C) 15% D) 6%

A

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

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 made pursuant to a qualified domestic relations order C) Distribution to pay certain medical expenses D) Distribution of up to $10,000 made to purchase a principal residence

D

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) able to sell personal securities to the plan if that will benefit plan participants C) encouraged to use plan funds to assist the employer when there is a cash flow crisis D) not considered to have a fiduciary responsibility

A

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

A

Jill's bank, where she has her traditional deductible contributory IRA, is recommending that she roll over her contributory 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) The amount attributable to growth must be declared as income. B) The entire amount rolled over must be declared as income. C) Rolling over a traditional IRA to a Roth IRA will negate the tax-free status of future withdrawals. D) No tax will occur, provided the rollover is completed within 60 days.

B

Which of the following is NOT true concerning a Coverdell Education Savings Account (ESA)? A) A beneficiary's unused balance may be rolled over to an ESA account for another child. B) In order for the withdrawal to be considered qualified, it may only be used for post-secondary education expenses. C) The maximum contribution is $2,000 per beneficiary. D) The beneficiary may be the contributor's child or grandchild or child of a friend of the contributor.

B

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

C

In almost all states, the UGMA account has given way to the 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 account is in the name of the minor in an UTMA account C) the donor retains control over the investments with an UTMA account D) transfer of ownership may be delayed to as late as age 25 in some states' UTMA accounts

D

Under the Uniform Gift to Minors Act, all of the following are permissible EXCEPT A) gifts of cash to a minor B) the donor and the custodian are the same person C) gifts of securities to a minor D) the purchase of securities on margin

D

Which of the following is NOT an example of a non-qualified retirement plan? A) A payroll deduction plan B) A deferred compensation plan C) A SERP D) A SIMPLE plan

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 a first-time home purchase B) used for higher education expenses C) for certain medical expenses D) under a QDRO

D