Series 6 - Chapter 5 (Some practice Qs)

A self-employed individual purchases a variable annuity with funds contributed to a Keogh account. Once the contract annuitizes, the payments are: A. 100% taxable as ordinary income B. partially taxable as ordinary income and partially a tax-free return of capital C. 100% tax-free return of capital D. tax-deferred until the annuitant reaches age 70½

A. 100% taxable as ordinary income

Which of the following statements concerning non-qualified deferred compensation plans is TRUE? A. An employer may not deduct contributions to the plan in the year they are made B. The plan may not discriminate in favor of highly-compensated executives C. The plan must conform to all ERISA regulations D. If the plan invests in a mutual fund, investment earnings accumulate tax-deferred

A. An employer may not deduct contributions to the plan in the year they are made

If a couple that is not covered by a qualified retirement plan makes $140,000, IRA contributions are: I. permitted II. not permitted III. tax deductible IV. not tax deductible A. I and III B. I and IV C. II and III D. II and IV

A. I and III

Which of the following statements are true regarding ABLE accounts used for individuals with disabilities? I. Contributions are made with after-tax dollars II. Contributions are made with pre-tax dollars III. Distributions are tax-free IV. Distributions are taxable A. I and III B. I and IV C. II and III D. II and IV

A. I and III

Which of the following are formulas used by defined benefit plans? I. Final average pay plan II. Profit-sharing plan III. Dollar times service plan IV. Keogh plan A. I and III B. I and IV C. II and III D. II and IV

A. I and III And a third one is: Career Average Pay

A money purchase plan is what kind of retirement plan? A. Pension plan B. Profit sharing plan C. Defined benefit plan D. Non-qualified plan

A. Pension plan

An individual who has participated in a corporate qualified defined benefit retirement plan for many years retires and begins to receive distributions. How does the IRS tax these payments? A. The payments are 100% ordinary income B. The payments are 100% capital gains C. The payments are part tax-free return of capital and part taxable ordinary income D. The payments are part tax-free return of capital and part taxable capital gains

A. The payments are 100% ordinary income

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

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

A self employed individual earns $240,000 for the year. The maximum deductible contribution that can be made to a defined contribution HR10 plan for this year is: A. $5,000 B. $48,000 C. $49,000 D. $56,000

B. $48,000 The maximum deductible contribution to a defined contribution Keogh is effectively 20% of income (prior to taking the Keogh "deduction") or $56,000 in 2019, whichever is less.

A company has decided to terminate its retirement plan. In order to defer taxation on the distribution, the employee must roll over the funds into an Individual Retirement Account within how many days of the distribution? A. 30 B. 60 C. 90 D. 120

B. 60

Which statement concerning the benefits from ERISA compliance for company retirement plans is TRUE? A. An employee can deduct contributions made by the employer B. An employee is not subject to annual income tax on investment earnings C. An employer can borrow plan assets for business operations D. An employer receives a tax credit for distributions to employees

B. An employee is not subject to annual income tax on investment earnings

Which of the following are characteristics of money purchase Defined Contribution Plans? I. Annual contribution rates are fixed II. Annual contribution rates will vary III. The benefit amount to be received is fixed IV. The benefit amount to be received will vary A. I and III B. I and IV C. II and III D. II and IV

B. I and IV

If a corporation has an unfunded pension liability which of the following statements are true? I. The expected payments from the retirement plan are in excess of the expected future assets in the plan II. The expected payments from the retirement plan are lower than the expected future assets in the plan III. The plan is in default and must be liquidated by the trustee IV. The trustee must insure that future funding is adequate A. I and III B. I and IV C. II and III D. II and IV

B. I and IV It is common for defined benefit pension plans to be underfunded, but the plan trustee is responsible to insure that future funding is adequate as needed. Another way of saying it = the expected future value of fund assets is less than projected benefit claims

The contribution limits for SEP plans are limited to effective rates of: I. 20% of earned income for self-employed persons II. 25% of earned income for self-employed persons III. 20% of compensation for employees IV. 25% of compensation for employees A. I and III only B. I and IV only C. II and III only D. III and IV only

B. I and IV only SAME EXACT rules as HR10 (Keogh Plans)

Which of the following statements concerning qualified and non-qualified retirement plans are correct? I. Qualified plans are not required to meet ERISA non-discrimination standards II. Contributions to qualified plans are made with before-tax dollars III. Non-qualified plans are required to meet ERISA non-discrimination standards IV. Contributions to non-qualified plans are made with after-tax dollars A. I and II only B. II and IV only C. III and IV only D. I, II, III and IV

B. II and IV only

Which of the following is NOT a rule governing employee loans from 401(k) plan accounts? A. The maximum borrowing limit is 50% of the employee's vested account balance, not to exceed $50,000 B. If the account balance is $20,000 or less, 100% of the account value can be borrowed C. The loan must be repaid in 5 years unless it is used to purchase a principal residence D. The plan must charge a fair market rate of interest on the loan

B. If the account balance is $20,000 or less, 100% of the account value can be borrowed...they would only be able to borrow up to $10,000

All of the following statements concerning defined contribution plans and defined benefit plans are correct EXCEPT: A. both defined contribution and defined benefit plans are qualified plans B. with both defined contribution and defined benefit plans, the benefits paid to employees will depend on investment performance C. an actuary is needed to determine the amount of contributions for a defined benefit plan but not for a defined contribution plan D. employees know the amount of benefits they will receive at retirement with a defined benefit plan but not with a defined contribution plan

B. with both defined contribution and defined benefit plans, the benefits paid to employees will depend on investment performance *that's only with defined contribution plan

A customer is employed by a company with a pension plan, to which the company contributed $10,000. The employee has made voluntary contributions to the plan of $4,000. The account is now worth $20,000. The customer leaves the company at age 60 and will need access to the funds for retirement income. How much should the customer roll over into an IRA? A. 0 B. $10,000 C. $16,000 D. $20,000

C. $16,000 Seems like, in it's simplest form: Total account worth - Customer's cost basis (what they've contributed)

Which statements are true regarding the tax treatment of contributions and earnings in an employer-sponsored non-qualified retirement plan? I. Contributions are deductible to the employer II. Contributions are not deductible to the employer III. Earnings on plan assets are taxable annually to the employer IV. Earnings on plan assets build tax-deferred until distributions commence A. I and III B. I and IV C. II and III D. II and IV

C. II and III

Which of the following statements concerning a defined contribution plan are correct? I. An actuary is needed to determine the amount of contributions II. The employer selects the level of benefits to be paid out at retirement III. The employees know how much the employer is contributing each year IV. The benefits paid to employees will depend on investment performance A. I and II B. II and III C. III and IV D. I, II, III, IV

C. III and IV

Contributions to which of the following accounts may be income tax deductible? A. Coverdell ESA B. Roth IRA C. Traditional IRA D. 529 Plan

C. Traditional IRA

The main reason why a corporation will adopt a non-qualified retirement plan is to increase retirement benefits for: A. all of its employees B. its low-earning employees C. its high-earning employees D. its longest-standing employees

C. its high-earning employees

Under ERISA, the name for any scheduled delay in the employee's full ownership of an employer's contributions to a retirement plan is: A. funding B. non-discrimination C. vesting D. allocating

C. vesting

A customer earns $300,000 per year as a self employed doctor, and contributes the maximum permitted amount to a defined contribution Keogh plan. The doctor has a full time nurse earning $30,000 per year. The contribution to be made for the nurse is: A. $3,000 B. $3,750 C. $6,000 D. $7,500

D. $7,500

Which statement about Roth 401(k) plans is FALSE? A. Roth 401(k) accounts require distributions in the year after reaching age 70½ B. Roth 401(k) accounts do not have maximum income limitations for contributions C. Matching contributions to a Roth 401(k) must be made to an employee's Traditional 401(k) account D. Contributions to a Roth 401(k) account reduce the employee's taxable income for the year

D. Contributions to a Roth 401(k) account reduce the employee's taxable income for the year Earnings build without annual taxes due. When distributions commence, each payment is tax-free.

Which statements are true regarding the 529 college savings plan established by State A? I. Contributors must be residents of State A II. Contributors may be residents of any State III. The beneficiary may use the funds only to attend college in State A IV. The beneficiary may use the funds to attend college in any State A. I and III B. I and IV C. II and III D. II and IV

D. II and IV

Which statements are true? I. SIPC guarantees pension plans from default of the sponsor II. PBGC (Pension Benefit Guaranty Corporation) guarantees pension plans from default of the sponsor III. Insurance coverage is provided to all qualified pension plans IV. Insurance coverage is only provided to qualified defined benefit plans A. I and III B. I and IV C. II and III D. II and IV

D. II and IV Established by ERISA to insure corporate pension plans, it insures primarily defined-benefit plans and pays benefits in the event of an employer default.

Which choices best describe a 529 Plan? I. Municipal bond fund II. Municipal security III. Regulated by the SEC IV. Regulated by the MSRB A. I and III B. I and IV C. II and III D. II and IV

D. II and IV They're sponsored by the state

A secretary, age 50, has contributed $8,000 to a 401(k) plan. The account has a current value of $15,000. The secretary wishes to make a partial withdrawal of $8,000 from the plan. Which statement is true regarding the tax treatment of this withdrawal? A. The IRS considers the withdrawal a tax-free return of the original capital invested B. The IRS excludes $1,000 of the withdrawal from income tax and taxes the balance of $7,000 as ordinary income C. The cost basis of the withdrawal is zero, and the entire $8,000 is taxable as long-term capital gain D. The cost basis of the withdrawal is zero, and the entire $8,000 is taxable as ordinary income

D. The cost basis of the withdrawal is zero, and the entire $8,000 is taxable as ordinary income You have to first think about the tax treatment of the contributions (in this case, they're pre-tax dollars). Any withdrawal will be taxed.

At age 63, Cindy took early retirement after working 20 years at her company. How will the distributions to Cindy from the company's non-qualified retirement plan be treated for income tax purposes? A. The distributions will be taxed as ordinary income plus a 10% penalty tax B. The distributions will be partially tax free and partially taxed as ordinary income plus a 10% penalty tax C. The distributions will be partially tax free and partially taxed as ordinary income D. The distributions will be taxed as ordinary income

D. The distributions will be taxed as ordinary income

A 40-year old individual earned wages of $25,000. The individual is in the 15% income tax bracket and contributed $6,500 to an IRA. What are the tax consequences of this contribution? A. The individual can deduct $6,000 from gross income B. The individual will owe a 15% excise tax on the contribution C. The individual will lose any deduction and owe a 6% excise tax D. The individual will receive the maximum deduction of $6,000 and owe a 6% excise tax on the excess contribution

D. The individual will receive the maximum deduction of $6,000 and owe a 6% excise tax on the excess contribution

All of the following statements concerning defined benefit plans are correct EXCEPT: A. employees are guaranteed they will not outlive benefits B. PBGC coverage protects benefits for employees C. older workers prefer these plans to defined contribution plans D. investment risk is carried by the employees

D. investment risk is carried by the employees

For a qualified retirement plan 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. the date the tax return is filed

D. the date the tax return is filed