Unit 11 Quiz

A retiree is paid an annual amount equal to 30% of the average of his last 3 years' salary. Which of the following retirement plans offers this type of payment? A) Defined benefit. B) Defined contribution. C) Profit-sharing. D) Deferred compensation.

A) Defined benefit.

An unfunded pension liability is generally associated with which type of corporate retirement plan? A) Defined benefit. B) Defined contribution. C) Profit sharing. D) 401(k).

A) Defined benefit.

If a corporation begins a nonqualified retirement plan, which of the following statements is TRUE? A) Employee contributions grow tax deferred if they are invested in an annuity. B) The employer must abide by all ERISA requirements. C) Employer contributions are tax deductible. D) Employee contributions are tax deductible.

A) Employee contributions grow tax deferred if they are invested in an annuity.

A married couple are both employed by firms that cover them under the company pension plans, and each earns approximately $150,000 annually. If they both open a traditional IRA and make the maximum contribution, how much of their contribution could they deduct? A) They are ineligible to deduct any contribution made. B) Both may deduct the entire contribution. C) One spouse only is eligible to deduct their entire contribution. D) Neither is eligible to make a contribution in any amount (deductible or not).

A) They are ineligible to deduct any contribution made.

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

A) contributions are made with pretax dollars at the federal level.

A schoolteacher has a 403(b) tax-qualified deferred retirement plan, into which she has deposited $100,000 over a 12-year period. At retirement, if the teacher withdraws the total value of the account (now $220,000), how much of the withdrawal will be subject to taxation as ordinary income? A) 120,000. B) 220,000. C) 0. D) 100,000.

B) 220,000.

Which of the following investments would be most suitable for an IRA? A) Highly rated GO bond. B) Technology company whose stock shows a high beta. C) Uncovered call on a stock whose price is extremely stable. D) Short sale of a stock which has just started what is expected to be a prolonged decrease in price.

B) Technology company whose stock shows a high beta.

A customer would like to set aside some money for his grandson's college education in an IRA account. Which of the following regarding a Coverdell Education Savings Account (ESA) is TRUE? A) The customer may make annual contributions until the grandson graduates from college. B) The funds must be distributed by the time the grandchild attains age 30, unless they are rolled over. C) The customer may take a deduction for the amount contributed. D) The maximum contribution permitted is $3,000 annually.

B) The funds must be distributed by the time the grandchild attains age 30, unless they are rolled over.

A customer setting up a 529 plan for her son wants to know if the 529 plan from one state can be rolled over to the 529 plan of another state later. Which is the correct response? A) Yes, there are no restrictions on 529 plan rollovers from one states plan to another. B) Yes, but no more than once every 12 months. C) Yes, but only within the first six months of the plans inception. D) No, 529 plan rollovers are not permitted.

B) Yes, but no more than once every 12 months.

Buying municipal bonds would normally NOT be considered suitable for A) a corporation's investment account B) a defined benefit plan portfolio C) a mutual fund portfolio D) an individual investor

B) a defined benefit plan portfolio

The requirements of ERISA apply to pension plans established by: A) public entities only. B) private sector organizations only. C) both public and private sector organizations. D) municipal governments.

B) private sector organizations only.

A self-employed individual has 2 full-time employees and makes the maximum allowable contribution to his own Keogh (HR-10 plan). What percentage of each employee's earned income must he contribute to their plans as eligible employees? A) 10% B) There is no requirement to contribute to the employees' plans C) 25% D) 15%

C) 25%

Which of the following plans is NOT required to meet the nondiscrimination provisions of ERISA? A) Keogh plans. B) 401(k) plans. C) Deferred compensation plans. D) 403(b) plans.

C) Deferred compensation plans.

Two customers in their twenties, married only a few years, should select which investment for their IRAs? A) Oil and gas exploration limited partnerships. B) High yield bond funds. C) Growth-oriented mutual funds. D) High-tech funds.

C) Growth-oriented mutual funds.

If a 40-year-old customer earns $65,000 a year and his 38-year-old spouse earns $40,000 a year, how much may they contribute to IRAs? A) Only the higher wage earner may contribute to an IRA. B) They may contribute up to the maximum annual allowable dollar limit split evenly between both accounts. C) They may each contribute 100% of earned income or the maximum annual allowable dollar limit, whichever is less, to an IRA. D) They may not contribute because their combined income is too high.

C) They may each contribute 100% of earned income or the maximum annual allowable dollar limit, whichever is less, to an IRA.

A distribution has been made from a Coverdell Education Savings account in the amount of $12,000 when the educational expenses were only $10,000. The amount distributed beyond the educational expenses will be: A) taxable to the donor on any portion of the excess representing earnings. B) completely taxable to the donor. C) taxable to the beneficiary on any portion of the excess representing earnings. D) a tax-free distribution.

C) taxable to the beneficiary on any portion of the excess representing earnings.

Payments received by the owner of a 403(b) plan are: A) taxable only to extent of the owner's cost basis . B) not taxable. C) taxable only to extent of earnings. D) 100% taxable.

D) 100% taxable.

All of the following must meet the nondiscrimination provisions of the Employee Retirement Income Security Act (ERISA) EXCEPT: A) Keogh plans. B) profit-sharing plans. C) 401(k) plans. D) deferred compensation plans.

D) deferred compensation plans.

Which of the following individuals are eligible to participate in a tax-sheltered annuity? I. Maintenance engineer at a state university. II. Student in a public school system. III. Minister. IV. Office clerk at a small corporation.

I and III

All of the following regarding savings incentive match plans for employees (SIMPLEs) are true EXCEPT A) employers can not make matching contributions for employees B) employee contributions are pretax C) SIMPLEs are retirement plans for small businesses with fewer than 100 employees D) catch-up contributions for those age 50 and older are permitted

A) employers can not make matching contributions for employees

If your 40-year-old client wants to withdraw funds from her Keogh, her withdrawal will be taxed as: A) ordinary income plus 10% penalty. B) capital gains plus a 10% penalty. C) ordinary income. D) capital gains.

A) ordinary income plus 10% penalty.

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

A) the income level of the contributor can affect the annual contribution amount.

Under ERISA, a plan trustee wishing to write uncovered calls may do so: A) under no circumstances. B) if explicitly allowed in the plan document. C) if approved by the IRS in writing. D) without restriction.

A) under no circumstances.

To avoid tax and penalty, an IRA may be rolled over once each: A) year, within 60 days. B) 5 years, by the end of the calendar year. C) 3 years, within 90 days. D) quarter, by the end of the calendar quarter.

A) year, within 60 days.

A corporate profit-sharing plan must be set up under a(n): A) administrator. B) trust. C) beneficial ownership. D) conservatorship.

B) trust.

A distribution from a corporate pension plan to be rolled over into an IRA must be completed within how many days to maintain its tax-deferred status? A) 90. B) 30. C) 60. D) 45.

C) 60.

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

C) A SEP IRA.

Which of the following would be the least appropriate investment in a traditional IRA for a 67-year-old client? A) Corporate bonds. B) Treasury notes. C) Variable annuities. D) Common stock.

C) Variable annuities.

In an IRA, a 6% penalty will be levied if the account owner: A) makes a premature withdrawal. B) fails to make a contribution by April 15. C) makes an excess contribution. D) changes the beneficiary designation more than once during any calendar year.

C) makes an excess contribution.

Under a Keogh plan, which of the following is NOT an acceptable investment? A) International bond fund. B) U.S. government bond. C) Unit investment trust. D) Rare oil painting.

D) Rare oil painting.

Each of the following are permitted to open an IRA EXCEPT: A) a corporate officer covered by a 401(k) plan. B) a divorced mother whose sole income is alimony and child support. C) a self-employed attorney who has a Keogh plan. D) an individual whose sole income consists of dividends and capital gains.

D) an individual whose sole income consists of dividends and capital gains.

Minimum distributions from a traditional IRA must begin: A) a year after the owner turns 59½. B) as soon as the owner turns 70½. C) once the owner retires. D) by April 1, the year after the owner turns 70½

D) by April 1, the year after the owner turns 70½

All of the following statements about SEP IRAs are true EXCEPT A) SEP IRAs allow employers to make contributions B) SEP IRAs are established for small business owners and their employees C) the retirement account is usually set up at a bank or other financial institution D) catch-up contributions for employees age 50 or older are not permitted with SEPs

D) catch-up contributions for employees age 50 or older are not permitted with SEPs

If your 50-year-old client wants to withdraw funds from his traditional IRA, the early withdrawal will be taxed as: A) ordinary income. B) capital gains. C) capital gains plus a 10% penalty. D) ordinary income plus a 10% penalty.

D) ordinary income plus a 10% penalty.

All of the following are TRUE concerning a Coverdell Education Savings Account (ESA) EXCEPT A) the beneficiary may be the contributor's child or grandchild or child of a friend of the contributor B) a beneficiary's unused balance may be rolled over to an ESA account for another child C) the maximum annual contribution is $2,000 per beneficiary D) unused balances may be used for any purpose the beneficiary chooses

D) unused balances may be used for any purpose the beneficiary chooses

Which of the following statements regarding Coverdell Education Savings Accounts are TRUE? I. After-tax contributions of up to an indexed maximum per student per year are allowed. II. Contributions may not be made for students past their 18th birthday. III. If the account value is not used for educational purposes, it can be rolled over into a traditional IRA. IV. Distributions are always taxable.

I and II

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

I and IV

Which two statements are true regarding Section 529 college savings plans? I. Contributions are considered gifts under federal law. II. Contributions are tax deductible under federal law. III. Earnings generated are taxable each year. IV. Earnings generated are tax deferred.

I and IV

Which of the following statements are TRUE regarding tax-deferred, noncontributory, defined benefit plans? I. Contribution amounts are fixed. II. Contribution amounts vary. III. Benefit payments are fixed. IV. Benefit payments vary.

II and III

Which of the following statements regarding Roth IRAs are TRUE? I. Contributions are made with pretax dollars. II. Earnings can accumulate tax free. III. Distributions are not taxable if an age requirement and holding period are met. IV. Distributions in excess of growth are always taxable.

II and III