Chapter 10 Finance Quiz

Scotty and Kirk own a speedboat together. They are not related but have been friends since childhood. They own equal shares of the boat. When thinking about the future, Kirk would like to pass his share of ownership to his son, Leonard. How must Scotty and Kirk title the boat?

Tenancy in common.

Somerset, age 43, is self-employed and started saving for retirement 8 years ago using a Roth IRA. He liked the idea of someday taking distributions on a tax-free basis. Unfortunately, he has recently run into some business troubles and needs to raise cash quickly. He would like to take a distribution from his Roth IRA immediately. Which of the following statements is true for Somerset?

As long as he only takes out his contributions—not the account earnings—the distribution will be tax- and penalty-free.

Which of the following refers to someone who died without a will?

Intestate.

Which of the following requires financial professionals to act in the best interest of the client at all times and to fully disclose any and all conflicts of interests?

Fiduciary standard.

Which of the following refers to legal documents that allow a named person, often an agent, to act on your behalf?

Power of attorney (POA).

What is the difference between defined benefit plans and defined contribution plans?

Defined benefit plans guarantee payments to retirees, whereas defined contribution plans make contributions to retiree accounts without making guarantees.

Why do some dislike the probate process?

Because probate is public and difficult to maintain privacy for the deceased person and his or her heirs.

Roger is currently age 68. He is creating a retirement income plan. As such, he needs to estimate his future required distributions from his retirement plans. Help Roger by telling him when he must begin taking distributions from his Roth IRA.

He never needs to take a distribution.

In what ways are 401(k) plans, 403(b) plans, and 457 plans similar?

hey each provide employees tax-advantaged opportunities to save for retirement.

Which of the following is true regarding 401(k) plans? I. 401(k) plans are primarily funded by employees. II. 401(k) plans are primarily funded by employers. III. Investments grow tax-deferred in 401(k) plans. IV. Employers may provide matching contributions to 401(k) plans.

I, III, and IV only.

Xavier recently graduated from college with a degree in mechanical engineering. He currently makes $87,000 per year. He has aspirations to move up with his firm and eventually earn much more. If his plan works out, he will be paying more taxes sometime in the future. Which of the following retirement plan options should Xavier choose today?

Roth IRA.

Which of the following refers to owning property equally with another person and each of you has the rights of survivorship?

Joint tenancy with right of survivorship.

Which of the following refers to the court-supervised process of distributing assets and paying debts after someone's death?

Probate.

A legal document that dictates your desire to distribute your property after death is called a:

will.

Mark, age 56, is a single man and died intestate. In addition to household and personal items, he had $450,000 in 401(k) retirement assets. Who will receive the 401(k) plan?

Whomever Mark listed as the account beneficiary.