Unit 4 Retirement Plans

A stop order can be used to do all of the following EXCEPT: A) give the broker/dealer discretion regarding time and price. B) protect a long position. C) become a market order once the security trades at or through the stop price. D) protect a short position. Your answer, become a market order once the security trades at or through the stop price., was incorrect. The correct answer was: give the broker/dealer discretion regarding time and price. A stop order becomes a market order when the stop price is reached or penetrated. Stops can be used to protect both long and short positions. The stop order does not give the agent or the firm any discretion. Reference: 3.1.4.6 in the License Exam Manual.

Stop order does not give BD discretion as to time and price

All of the following statements concerning IRA contributions are true EXCEPT: A) between January 1 and April 15, contributions may be made for the current year, the past year, or both. B) if you pay your tax on January 15, you can still deduct your IRA contribution even if not made until April 15. C) contributions can be paid into this year's IRA from January 1 of this year until April 15 of next year. D) contributions for the past year may be made after April 15, provided an extension has been filed on a timely basis. Your answer, if you pay your tax on January 15, you can still deduct your IRA contribution even if not made until April 15., was incorrect. The correct answer was: contributions for the past year may be made after April 15, provided an extension has been filed on a timely basis. Contributions can be made to an IRA only until the first tax filing deadline (April 15), regardless of having filed an extension. Reference: 4.1.5.3 in the License Exam Manual.

Contributions for the past year cannot be made by filing an extensions

If an investor received a lump-sum distribution from a 401(k) plan when he left his job, he may roll over his account into an IRA within 60 days. transfer his account without taking possession of the money. keep the funds and pay ordinary income tax. invest in a tax-exempt municipal bond fund to avoid paying tax. A) I and III. B) II and IV. C) III and IV. D) I and II. Your answer, I and II., was incorrect. The correct answer was: I and III. Since the client has already received the lump sum, he may either roll the money into an IRA account within 60 days, or retain the money and pay income tax (and possibly a penalty) on it. Any amount the client does not roll over will be taxed as income even if invested in tax-exempt bonds. A direct custodian-to-custodian transfer is not permitted because the client has already received the distribution.

401 K distribution: IRA within 60 days or keep the funds and pay ordinary income tax

Your married client has an AGI of $105,000 per year and is covered by his employer's defined benefit pension plan. When inquiring about opening a Roth IRA, you would respond that A) the client could open a Roth but, depending on future earnings, might not be able to deduct all of the annual contribution B) the client's earnings exceed the Roth limits so the plan could not be opened C) the client could open the Roth IRA without any restriction D) one cannot be a participant in a qualified plan and a Roth IRA at the same time Your answer, the client's earnings exceed the Roth limits so the plan could not be opened, was incorrect. The correct answer was: the client could open the Roth IRA without any restriction As long as a married couple's AGI does not exceed $193,000 (for 2015), a Roth IRA can be opened without any restrictions. Contributions are never deductible.

Roth IRA can be opened as long as married couple does not exceed $193K Contributions not deductible

Which of the following statements about stock exchanges is TRUE? A) A securities exchange market is an auction market in which prices are established by auction. B) A stock exchange buys and sells stocks itself. C) A securities exchange market is one in which prices are established by negotiations between buyers and sellers. D) Any stock can be listed on any exchange. Your answer, A securities exchange market is one in which prices are established by negotiations between buyers and sellers., was incorrect. The correct answer was: A securities exchange market is an auction market in which prices are established by auction. A stock exchange does not buy or sell stocks itself; it simply supplies the facilities for its members to trade. Prices are established in an auction process rather than by direct negotiations between buyer and sellers, as occurs in the over-the-counter (OTC) market. Only stocks that satisfy the exchange's standards can be listed on the exchange. Reference: 3.1.1.1 in the License Exam Manual.

stock exchange is an auction

A customer would like to set aside some money for his grandson's college education in an Education IRA. Which of the following regarding an Education IRA is TRUE? A) The funds must be distributed by the time the grandchild attains age 30, unless they are rolled over to an ESA established in the name of a family member. B) The maximum contribution permitted is $2,000 annually per donor. C) The customer may take a deduction for the amount contributed. D) The customer may make annual contributions until the grandson graduates from college. Your answer, The customer may take a deduction for the amount contributed., was incorrect. The correct answer was: The funds must be distributed by the time the grandchild attains age 30, unless they are rolled over to an ESA established in the name of a family member. The maximum annual contribution to an Education IRA, better known as a Coverdell ESA, is $2,000 per beneficiary (child). Contributions are not deductible and must cease when the beneficiary reaches age 18. If the accumulated value in the account is not used by age 30, the funds must be distributed and the earnings are subject to income tax and a 10% penalty. Taxes and penalties can be avoided if the account is rolled over into a different Coverdell ESA for another family member.​

In an education IRA funds must be distributed by the time the grandchild attains age 30, or roll over to another family member

Which of the following would be permitted to open an IRA? An individual whose sole income consists of dividends and capital gains. A divorced mother whose sole income is alimony and child support. A self-employed attorney who has a Keogh plan. A corporate officer covered by 401(k). A) III and IV. B) I, II, III and IV. C) II, III and IV. D) I and II. Your answer, III and IV., was incorrect. The correct answer was: II, III and IV. An IRA contribution can only be made by someone who has earned or otherwise eligible income. Earned income is defined as salary, wages, commissions, and tips. Alimony, (but not child support) is considered eligible income for an IRA. Individuals can contribute to an IRA even if they are covered by a corporate pension plan or Keogh plan. Although a contribution can be made, it may or may not be deductible depending on the individual's income. Dividends and capital gains are not considered earned income.

careless divorced mother has alimony that's earned income

All of the following statements regarding qualified corporate retirement plans are true EXCEPT: A) all corporate pension and profit-sharing plans must be established under a trust agreement. B) all qualified retirement plans are either defined contribution or defined benefit plans. C) with defined benefit plans, the employee bears the investment risk. D) defined contribution plans have the same contribution limits as Keogh plans. Your answer, defined contribution plans have the same contribution limits as Keogh plans., was incorrect. The correct answer was: with defined benefit plans, the employee bears the investment risk. With defined benefit plans, the employer (not the employee) bears the investment risk. The employer must fund the defined benefits, regardless of the investment performance of funds set aside for this purpose. The retiree receives a defined benefit regardless of investment performance. All corporate pension and profit-sharing plans must be established under a trust agreement. All qualified retirement plans are either defined contribution or defined benefit plans. Defined contribution plans have the same contribution limits as Keogh plans. Reference: 4.4.2 in the License Exam Manual.

defined benefit plans: the employee does not bear the risk

A buy stop order may be used for all of the following EXCEPT: A) to acquire a long position as a stock breaks through resistance. B) to protect a profit in a long position. C) to protect against loss in a short position. D) to protect a profit in a short position. Your answer, to acquire a long position as a stock breaks through resistance., was incorrect. The correct answer was: to protect a profit in a long position. Buy stop orders go into effect when the price of the security reaches or exceeds the specified "stop" price. As such, they are commonly used by short sellers who either wish to protect a profit they've already made, or protect against a loss if the stock should go up. Buy stops can also be used by those wishing to acquire stock when it breaks through a resistance level. However, when one is already long the stock, turning in an order to buy more is not going to offer any protection. Reference: 3.1.4.6 in the License Exam Manual.

buy stop used by short sellers to protect a profit or protect against loss

Which of the following is (are) TRUE regarding qualified pension plans? They must not discriminate. They must have a vesting schedule. They must be in writing. Every month the employer must update the current status of all accounts. A) I, II and III. B) III only. C) I and III. D) I, II, III and IV. Your answer, I, II, III and IV., was incorrect. The correct answer was: I, II and III. An employer must update the status of all employees at least annually, not monthly.

employer only has to update status of current accounts annually