Chapter 11: Retirement Plans

Question #81 of 107Question ID: 606778 A corporate profit-sharing plan must be set up under a(n): A)conservatorship. B)administrator. C)beneficial ownership. D)trust.

All corporate pension and profit-sharing plans must be set up under trust agreements. A plan's trustee assumes fiduciary responsibility for the plan. Reference: 11.5.2.1 in the License Exam

Question #8 of 107Question ID: 606739 Which of the following can be rolled over into an IRA? Another IRA Balances from savings accounts Corporate profit-sharing plan Judgments from law suit settlements A)III and IV B)I and III C)I and IV D)II and III

Assets from any qualified corporate plan or from another IRA may be rolled over into an IRA. Reference: 11.2.3 in the License Exam

Question #95 of 107Question ID: 606793 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.

Deferred compensation plans are nonqualified and therefore do not have to meet the nondiscrimination provisions of ERISA. Reference: 11.6 in the License Exam

Question #85 of 107Question ID: 606770 Which of the following individuals are eligible to participate in a tax-sheltered annuity? Maintenance engineer at a state university. Student in a public school system. Minister. Office clerk at a small corporation. A)III and IV. B)I and II. C)I and III. D)II and IV.

Employees of 501(c)(3) and 403(b) organizations (which include charities, religious groups, sports organizations, and school systems) qualify for tax-sheltered annuities (TSAs). Reference: 11.4 in the License Exam

Question #11 of 107Question ID: 606712 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 beneficiary on any portion of the excess representing earnings. B)taxable to the donor on any portion of the excess representing earnings. C)a tax-free distribution. D)completely taxable to the donor.

If a distribution exceeds education expenses, a portion representing earnings will be taxable to the beneficiary and may be subject to an additional 10% penalty tax. Reference: 11.2.5.1 in the License Exam

Question #80 of 107Question ID: 606720 Under a Keogh plan, which of the following is NOT an acceptable investment? A)International bond fund. B)Rare oil painting. C)U.S. government bond. D)Unit investment trust.

Investments not permitted in Keogh plans are commodities, collectibles and antiques, precious metals (other than U.S. government-issued gold and silver coins), and uncovered options. Reference: 11.2.1.1 in the License Exam

Question #100 of 107Question ID: 606747 All of the following are benefits of a traditional IRA EXCEPT that: A)funds may be withdrawn without penalty for certain exemptions. B)no penalty is charged for failing to withdraw funds after age 70½. C)earnings accumulate on a tax-deferred basis. D)contributions may be tax deductible.

Required minimum distributions must begin the year after the account owner reaches age 70½. Reference: 11.2.2 in the License Exam

Question #66 of 107Question ID: 606748 To avoid penalty, a rollover of an IRA may occur no more frequently than: A)quarterly. B)every 5 years. C)semiannually. D)annually.

Securities or funds may be rolled over by the account holder from one IRA to another only once every year. Direct transfers from one account to another, where the account holder does not receive the funds during the transfer, are not restricted in frequency. Reference: 11.2.3.1 in the License Exam

Question #58 of 107Question ID: 606763 A 61-year-old wanting to take a lump-sum distribution from his Keogh will: A)be taxed at long-term capital gains rates. B)incur a 10% penalty. C)be taxed at ordinary income rates. D)incur a 50% penalty.

The distribution described here would be taxed as ordinary income. A 10% penalty would apply if the individual were under age 59½. Reference: 11.3.1 in the License Exam

Question #41 of 107Question ID: 606733 Which of the following investment activities are suitable for an individual retirement account? Writing uncovered calls. Writing covered calls. Buying puts on stock held long. Writing naked puts. A)II and III. B)I and IV. C)I and II. D)II and IV.

Writing uncovered calls and writing naked puts subject the investor to a high degree of risk and are considered unsuitable activities. Reference: 11.2.1.1 in the License Exam

Question #57 of 107Question ID: 606721 To avoid tax and penalty, an IRA may be rolled over once each: A)5 years, by the end of the calendar year. B)year, within 60 days. C)3 years, within 90 days. D)quarter, by the end of the calendar quarter.

IRA rollovers, which must be completed within 60 days, may be done no more often than once a year. Reference: 11.2.3.1 in the License Exam

Question #33 of 107Question ID: 606744 What is the total amount that may be invested in a Coverdell Education Savings Account in 1 year? A)The current maximum per child. B)The current maximum per family member. C)The current maximum per parent. D)The current maximum per couple.

An indexed maximum contribution may be invested in each child's Coverdell Education Savings Account every year. For instance, if a couple has 3 children, they may invest the current maximum into each of 3 accounts. Reference: 11.2.5.1 in the License Exam

Question #4 of 107Question ID: 606698 Which of the following plans is NOT required to meet the nondiscrimination provisions of ERISA? A)403(b) plans. B)Deferred compensation plans. C)401(k) plans. D)Keogh plans.

Deferred compensation plans, by design, are nonqualified and not subject to ERISA. Therefore, they may discriminate as to which persons may participate. Reference: 11.1.2.1 in the License Exam

Question #93 of 107Question ID: 909489 Which of the following statement is TRUE regarding distributions from a Section 529 education savings plan? A)Distributions can be used for K-12 education expenses only. B)Distributions can be used for pre-school education expenses only. C)Distributions can be used for grades K-12 and college education expenses. D)Distributions can be used for college education expenses only.

Distributions from Section 529 plans can be used for grades K-12 as well as college education expenses. Reference: 11.2.5.2 in the License Exam

Question #71 of 107Question ID: 606717 A pension plan might invest in each of the following EXCEPT: A)equities. B)corporate bonds. C)tax-free municipal bonds. D)variable annuities.

It is inappropriate to place tax-free investments into a tax-deferred plan because there is no benefit to the deferral. Reference: 11.2.1.1 in the License Exam

Question #37 of 107Question ID: 606703 Which of the following investments would be most suitable for an IRA? A)Short sale of a stock which has just started what is expected to be a prolonged decrease in price. B)Highly rated GO bond. C)Uncovered call on a stock whose price is extremely stable. D)Technology company whose stock shows a high beta.

Short sales, uncovered calls, and municipal bonds are all inappropriate for individual retirement accounts. Reference: 11.2.1.1 in the License Exam

Question #101 of 107Question ID: 606742 Which of the following statements regarding Coverdell Education Savings Accounts are TRUE? After-tax contributions of up to an indexed maximum per student per year are allowed. Contributions may not be made for students past their 18th birthday. If the account value is not used for educational purposes, it can be rolled over into a traditional IRA. Distributions are always taxable. A)III and IV. B)II and IV. C)I and III. D)I and II.

Coverdell Education Savings Accounts allow after-tax contributions of up to $2,000 per student, per year, for children until their 18th birthday. If the accumulated value in the account is not used by age 30, the funds must be distributed and subject to income tax and a 10% penalty, or rolled over into a different Coverdell ESA for another family member. Reference: 11.2.5.1 in the License Exam

Question #28 of 107Question ID: 606786 Under ERISA, all of the following retirement plans must set standards for vesting, eligibility, and funding EXCEPT: A)profit-sharing plans. B)corporate pension plans. C)Keogh plans. D)deferred compensation plans.

Deferred compensation plans are not qualified plans and may be discriminatory. Keogh, profit-sharing, and corporate pension plans must meet set standards for vesting, eligibility, and funding under ERISA. Reference: 11.6 in the License Exam

Question #106 of 107Question ID: 606757 Under Keogh plan provisions, a full-time employee is defined as one working at least how many hours per year? A)500. B)1000. C)100. D)2000.

Full time employment is defined as 1,000 hours or more per year, regardless of the number of days, weeks, or months worked. Reference: 11.3.1 in the License Exam

Question #69 of 107Question ID: 606730 A customer who has just started an IRA will be vested: A)in 5 years. B)immediately. C)at age 70. D)in 2 years.

Investors are always vested immediately in their IRAs. Reference: 11.2.1 in the License Exam

Question #19 of 107Question ID: 721459 Someone considering saving for retirement in a Roth IRA could correctly be told that contributions are made with pretax dollars earnings accumulate tax free distributions are not taxable if a holding period is satisfied cost basis is always taxable at the time of distribution A)II and IV B)II and III C)I and II D)I and III

Contributions to Roth IRAs are made with after-tax dollars and distributions are received tax free (both cost basis and earnings) if holding period requirements are met. Reference: 11.2.4 in the License Exam

Question #77 of 107Question ID: 606772 Which of the following are qualified plans? Payroll deduction. Deferred compensation. Defined benefit. Keogh. A)II and IV. B)III and IV. C)I and III. D)I and II.

Defined benefit and Keogh plans are funded with pretax contributions and are thus qualified plans. Payroll deduction and deferred compensation plans are funded with after-tax contributions and are thus nonqualified plans. Reference: 11.5.1 in the License Exam

Question #107 of 107Question ID: 606722 Your customer opens a Coverdell ESA for his niece. In order to meet qualified education expenses of $9,000, she takes a distribution of $10,000. The amount of the distribution in excess of her education expenses that represents earnings in the account will be A)taxable to the uncle, the donor to the plan B)nontaxable to either party C)taxable to the niece, the beneficiary of the plan D)automatically reinvested back into the plan

Any excess distribution representing earnings that is not used to meet qualified education expenses is taxable to the beneficiary who took the distribution. Reference: 11.2.5.1 in the License Exam

Question #104 of 107Question ID: 606725 A businessowner pays himself a salary of $80,000 per year. He employs his spouse and pays her $45,000 per year. What is the maximum contribution that they may make to their traditional IRAs? A)They can each contribute 100% of earned income or the maximum allowable limit, whichever is less, to their individual IRAs. B)They cannot make contributions, because their joint incomes are too high. C)No traditional IRA contributions can be made by businessowners or their spouses. D)They can contribute 100% of the lower income to one IRA only.

They both may make annual contributions of 100% of earned income up to the maximum allowable limit, whichever is less, to their own respective IRAs. Reference: 11.2 in the License Exam

Question #105 of 107Question ID: 606741 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.

Under most circumstances, the annual contribution to a SEP IRA will be higher than those allowed for ESAs or traditional or Roth IRAs. Reference: 11.2.6 in the License Exam

Question #98 of 107Question ID: 606768 Payments received by the owner of a 403(b) plan are: A)taxable only to extent of earnings. B)taxable only to extent of the owner's cost basis . C)100% taxable. D)not taxable.

When TSA funds are withdrawn, they are fully taxed at ordinary income rates. Funds were contributed pretax and earnings accumulate tax deferred. Because no taxes were ever paid, the full withdrawal is taxable. Reference: 11.4 in the License Exam

Question #102 of 107Question ID: 721460 Which of the individuals described below would NOT be permitted to open an IRA? A)A corporate officer who is covered by a company sponsored 401(k) plan B)A self-employed attorney who already has a Keogh plan established C)An individual with current income consisting of dividends and capital gains only D)A divorced person whose sole income is alimony and child support from a former spouse

An IRA contribution may be made only from earned income. While dividends and interest are investment income, alimony has been deemed to represent earned income. Individuals may contribute to an IRA even if they are already covered by a corporate pension plan or Keogh plan. However, although a contribution can be made, it may or may not be deductible, depending on the individual's income. Reference: 11.2.1 in the License Exam

Question #103 of 107Question ID: 901857 A businessman owns a small incorporated manufacturing company. Comfortable with the risks associated with the equity markets, the owner lays out an objective to save for retirement and provides a plan that employees can contribute to save for retirement as well. Which option listed below is the best choice to suitably meet the objective? A)Section 529 plan B)401(k) plan C)Traditional IRA D)403(b) plan

For a company incorporated in the private sector, a 401(k) (a defined contribution) plan will meet the objective. 403(b) plans (tax-sheltered annuities or TSAs) are utilized in the public sector (i.e., educational institutions, tax-exempt organizations, and religious organizations) and therefore not suitable here. IRAs are plans that individuals can set up for retirement saving and Section 529 plans are specifically designed to allow one to save for education. Reference: 11.5.2.3 in the License Exam

Question #22 of 107Question ID: 606789 Regulations regarding how contributions are made to tax-qualified plans relate to which of the following ERISA requirements? A)Vesting. B)Reporting and disclosure. C)Nondiscrimination. D)Funding.

Funding covers how an employer contributes to, or funds, a retirement plan. Reference: 11.6 in the License Exam

Question #10 of 107Question ID: 606790 All of the following statements regarding a qualified pension plan are true EXCEPT A)it must comply with nondiscrimination rules B)it must cover all of its eligible employees C)it requires advance approval from the IRS D)growth in the account is tax-free

Growth in qualified pension plans, as well as other qualified plans, is tax deferred, not tax-free. All growth is taxable at the time of distribution. Reference: 11.6 in the License Exam

Question #79 of 107Question ID: 606710 Qualified distributions from Roth IRAs are: A)taxable only to the extent of earnings. B)tax deferred. C)tax free. D)100% taxable.

If a withdrawal from a Roth IRA is a qualified distribution, the withdrawal is tax free. A qualified distribution is made after a 5-year holding period and after the taxpayer has reached age 59½. Reference: 11.2.4 in the License Exam

Question #45 of 107Question ID: 606718 Which of the following securities is the least suitable recommendation for a qualified retirement account plan account? A)Investment-grade municipal bond. B)A rated corporate bond. C)Treasury bill. D)Blue-chip common stock.

Municipal bonds provide tax-exempt interest payments and, consequently, offer lower yields. Because earnings in a qualified retirement plan account grow tax deferred, the municipal bond is not a suitable investment. In addition, they will be fully taxed on withdrawal. Reference: 11.2.1.1 in the License Exam

Question #60 of 107Question ID: 606713 All of the following statements regarding 529 plans are true EXCEPT: A)the assets in the account are controlled by the account owner, not the child. B)contributions to a 529 plan may be subject to gift taxation. C)states impose very high overall contribution limits. D)the income level of the contributor can affect the annual contribution amount.

Unlike Coverdell ESAs, the income level of the contributor will not affect annual contributions under a Section 529 plan. Reference: 11.2.5.2 in the License Exam

Question #25 of 107Question ID: 606711 A grandchild inherits his grandfather's IRA from which mandatory distributions had already begun. With regard to future distributions, which option is allowed? A)The grandchild must wait until age 59½ to begin taking distributions. B)The grandchild must begin taking minimum required distributions based on his own life expectancy. C)A lump sum distribution liquidating the account must be taken immediately upon inheritance. D)The grandchild may wait until age 79½ and begin mandatory distributions.

When a grandchild inherits an IRA from which mandatory distributions have already begun, payout must continue but is now based on the life expectancy of the new owner. Reference: 11.2 in the License Exam

Question #1 of 107Question ID: 606781 An employer-sponsored retirement plan that pays a specific benefit to participants at their normal retirement age is a: A)defined benefit plan. B)supplemental employee retirement plan. C)defined contribution plan. D)section 401(k) plan.

A traditional defined benefit plan promises to pay a specific benefit to a participant at his normal retirement age as specified by the plan document. Reference: 11.5.1 in the License Exam

Question #54 of 107Question ID: 606729 Distribution from a traditional IRA can begin at age 59½ and must begin no later than: A)an age as determined by IRS life expectancy tables using the account holders year of birth. B)15 years from the individual's date of retirement. C)age 65. D)age 70½.

The owner of a traditional IRA has until April 1 of the year after the year in which he turns age 70½ to begin withdrawing from the account. Reference: 11.2.2 in the License Exam

Question #56 of 107Question ID: 606764 All of the following are true of an HR-10 Plan EXCEPT: A)the plan does not require a sole proprietor making a contribution to his HR-10 plan to make contributions for eligible employees. B)the plan allows a self-employed person to create and maintain a retirement plan. C)the plan is subject to maximum contribution amounts. D)this is a qualified plan subject to the requirement of having an IRS-approved plan document in place.

This is a qualified form of retirement plan. A self-employed person must also make contributions on behalf of any eligible employees if he is making a contribution on his own behalf. Reference: 11.3.1 in the License Exam

Question #5 of 107Question ID: 606731 If your 50-year-old client wants to withdraw funds from his traditional IRA, the early withdrawal will be taxed as: A)capital gains. B)ordinary income. C)ordinary income plus a 10% penalty. D)capital gains plus a 10% penalty.

An early withdrawal from an IRA is taxed as ordinary income plus a 10% penalty. Reference: 11.2.2 in the License Exam

Question #18 of 107Question ID: 606705 Which of the following statements about a Coverdell Education Savings Account (ESA) is NOT true? A)Contributions of $2,000 per child per year are allowed. B)The funds grow income tax deferred and, if used for elementary, secondary, or college educational expenses, the earnings are tax free. C)Contributions are tax deductible, subject to a modified AGI phaseout. D)Contributions can be made to this type of plan and a Section 529 plan in the same year for the same beneficiary.

Contributions to an ESA are not tax deductible. Reference: 11.2.5.1 in the License Exam

Question #49 of 107Question ID: 606774 Compared to defined contribution plans, defined benefit plans give the highest return to employees who: are highly compensated. receive lower compensation. have fewer years until retirement have many years left until retirement A)II and III. B)I and III. C)II and IV. D)I and IV.

Highly compensated employees who have fewer years until retirement will experience advantages over other employees with this type of plan. Their retirement benefits are predefined and generally linked to the compensation level they attained while employed. After a short time with the company, a person may qualify for benefits comparable to those it would have taken many years to attain under a defined contribution plan. Reference: 11.5 in the License Exam

Question #32 of 107Question ID: 606758 Each of the following individuals is eligible to participate in a Keogh plan EXCEPT: A)a securities analyst employed by a major research organization who makes $2,000 giving lectures in his spare time. B)a self-employed doctor in private practice. C)an executive of a corporation who receives $5,000 in stock options from his company. D)an engineer employed by a corporation who earns $5,000 making public speeches in her spare time.

Individuals with income from self-employment may participate in Keogh plans. Stock options, capital gains, dividends, and interest are not considered income earned from self-employment. Reference: 11.3 in the License Exam

Question #61 of 107Question ID: 909490 All of the following are true regarding Section 529 education savings plans EXCEPT A)high contribution limits B)tax-free withdrawal at the federal level for qualified education expenses C)not subject to income limitations D)tax-deductible contributions at the federal level

Contributions are made with after-tax dollars and are not deductible. Reference: 11.2.5.2 in the License Exam

Question #20 of 107Question ID: 606792 Under ERISA, a plan trustee wishing to write uncovered calls may do so: A)under no circumstances. B)without restriction. C)if approved by the IRS in writing. D)if explicitly allowed in the plan document.

ERISA prohibits retirement plan trustees from making investments that are excessively speculative; an uncovered call writer has unlimited risk. Reference: 11.6 in the License Exam

Question #83 of 107Question ID: 606726 Each of the following are permitted to open an IRA EXCEPT: A)a divorced mother whose sole income is alimony and child support. B)a self-employed attorney who has a Keogh plan. C)an individual whose sole income consists of dividends and capital gains. D)a corporate officer covered by a 401(k) plan.

An IRA contribution can be made only from earned income. Dividends and interest are investment income, but alimony is considered compensation for purposes of an IRA by the IRS even though it is not deemed to be earned income. Individuals can contribute to an IRA even if they are already covered by a corporate pension plan or Keogh plan. However, although a contribution can be made, it may or may not be deductible depending on the individual's income. Reference: 11.2 in the License Exam

Question #64 of 107Question ID: 721458 How often will the IRS allow a Health Savings Account (HSA) to be funded via an IRA distribution without paying federal taxes or penalties on the distribution? A)There are no funding limits when HSAs are funded from another qualified account. B)Never, taxes and penalties for early distributions are always due. C)One time. D)Once each calendar year.

Health Savings Accounts (HSAs) are qualified employer sponsored plans. The IRS allows a one-time funding distribution from an IRA to a qualified HSA without paying federal taxes or penalties on the IRA distribution. Reference: 11.2.3.3 in the License Exam

Question #88 of 107Question ID: 606697 If a corporation begins a nonqualified retirement plan, which of the following statements is TRUE? A)Employer contributions are tax deductible. B)Employee contributions are tax deductible. C)The employer must abide by all ERISA requirements. D)Employee contributions grow tax deferred if they are invested in an annuity.

Earnings accumulate tax deferred if the plan is funded by an investment vehicle that offers tax deferral, such as an annuity contract. Tax has been paid on all amounts the employees and the employer contribute to the plan. Nonqualified plans need not comply with all ERISA requirements. Reference: 11.1.2 in the License Exam

Question #47 of 107Question ID: 606759 When operating a Keogh plan, a self-employed individual must make contributions for A)all employees scheduled to work for 1,000 hours per year or more B)full-time employees who are at least 21 years old and have worked for the company for at least one year C)all employees D)part-time employees who have worked for the company for 3 or more years

Employees must be covered under a Keogh plan if they are at least 21 years old, have been employed a minimum of 1 year, and work full-time (at least 1,000 hours per year). Keogh plans do not include employees who are under 21 or have just started working with the employer. Reference: 11.3.1 in the License Exam

Question #89 of 107Question ID: 606776 Which of the following plans requires an actuary's services? A)401(k). B)Defined contribution. C)Defined benefit. D)Profit-sharing.

In a defined benefit plan the payout is established, and employers must contribute annually to assure payment of the benefit amount. An actuary must calculate the annual contribution amount necessary to meet the benefit requirement. Reference: 11.5.1 in the License Exam

Question #43 of 107Question ID: 606724 What is the latest date that an IRA participant may make an IRA deposit for the current year? A)April 15 of the following year. B)July 15 of the following year, if extensions have been filed. C)April 15 of the current year. D)December 31 of the current year.

Contributions to IRAs can be made up to April 15 of the year following the year for which the contribution is being made. Reference: 11.2 in the License Exam

Question #24 of 107Question ID: 606716 Under what circumstances would the fiduciary of a qualified corporate retirement plan be permitted to write covered calls on the securities in the portfolio? A)If specifically approved by the covered employees B)If specifically approved by the SEC C)Under no circumstances D)If this strategy is consistent with the objectives of the plan

As covered calls are not considered to be a speculative option strategy they would be permitted as long as the strategy is deemed prudent and is consistent with the objectives of the plan. No outside approval is required. Reference: 11.2.1.1 in the License Exam

Question #6 of 107Question ID: 606723 Which of the following regarding a Roth IRA are TRUE? The contributions are nondeductible. Contributions must cease at age 70½. Withdrawals must begin at age 70½. Withdrawals after age 59½ can be tax free. A)I and IV. B)II and IV. C)II and III. D)I and III.

With a Roth IRA, the contributions are not deductible from current income. Withdrawals after age 59½ are tax free, provided the account has been open for at least 5 years. There is no age at which withdrawals must begin or contributions must cease. Reference: 11.2.4 in the License Exam

Question #52 of 107Question ID: 606707 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)by April 1, the year after the owner turns 70½. D)once the owner retires.

Minimum distributions from a traditional IRA must begin by April 1 of the year after the owner turns 70½. Reference: 11.2.2 in the License Exam

Question #63 of 107Question ID: 606791 All of the following qualified plans are covered by ERISA guidelines EXCEPT: A)private sector plans. B)public sector plans. C)profit-sharing plans. D)401(k) plans.

Public sector plans are not covered by ERISA guidelines. Corporate and certain union retirement plans are subject to ERISA guidelines. Reference: 11.6 in the License Exam

Question #9 of 107Question ID: 606773 Which of the following types of retirement plans would be most beneficial to a young employee of a corporation? A)Defined benefit pension plan. B)Profit-sharing plan. C)Keogh plan. D)Defined contribution pension plan.

The most beneficial corporate pension plan for a younger employee would be the defined contribution plan. The employee has many years to go in the workforce, so the investments made with the defined contributions will have a maximum time period to grow. Reference: 11.5.2 in the License Exam

Question #50 of 107Question ID: 909492 Which two statements are true regarding Section 529 education savings plans? Contributions are considered gifts under federal law. Contributions are tax deductible under federal law. Earnings generated are taxable each year. Earnings generated are tax deferred. A)II and IV B)II and III C)I and III D)I and IV

Under federal law, contributions made into Section 529 plans are considered gifts and are not deductible at the federal level. Furthermore, earnings generated each year are tax deferred and, on withdrawal, are tax free at the federal level-if used for qualified education expenses. Reference: 11.2.5.2 in the License Exam

Question #26 of 107Question ID: 606701 Which of the following would be the least appropriate investment in a traditional IRA for a 67-year-old client? A)Corporate bonds. B)Variable annuities. C)Treasury notes. D)Common stock.

Why buy a tax-deferred product in a tax-deferred account? A variable annuity will provide no additional tax savings and will likely increase the expense of the IRA. In addition to sales and surrender charges, variable annuities may impose other charges such as mortality and expense risk charges, administrative fees, etc. In less than 4 years, your client will have to begin making withdrawals regardless of any surrender charges the annuity may impose. Reference: 11.2.1.1 in the License Exam

Question #14 of 107Question ID: 606696 Which of the following statements regarding qualified retirement plans are TRUE? Contributions are made with pretax dollars. Contributions are made with after-tax dollars. Distributions are 100% taxable. Distributions are taxable only to the extent of earnings. A)II and III. B)II and IV. C)I and III. D)I and IV.

With qualified plans, participants receive a tax deduction for contributions to their plan. As earnings accumulate tax-deferred, distributions, which consist of tax-deferred earnings and contributions for which the participant received a tax deduction, are 100% taxable. Reference: 11.1.1 in the License Exam

Question #67 of 107Question ID: 901854 A deferred compensation plan would be most suitable for A)an employer with a few highly paid employees that are near retirement age and want to reduce current taxes B)an employer who wants a retirement plan to benefit the younger employees of the company C)an employer who wants to provide a plan for all of the firms employees who are in lower tax brackets D)an employer who wants employees to make their own set contributions to a plan as an incentive for them to remain with the firm

Deferred compensation plans are nonqualifed plans that allow an employer to select employees to participate in the plan. These plans are more suitable for highly compensated employees that are just a few years from retirement allowing them to defer earnings and taxation until then. Offering this type of plan to young employees is less suitable due to the risk that the business could fail, or the risk that they may leave the firm prior to retiring and thus forfeit any benefit. Defined contribution plans are considered more suitable for those further from retirement. Reference: 11.1.2.1 in the License Exam

Question #51 of 107Question ID: 606787 The primary purpose for creating ERISA was to: A)provide all employees, both government and nongovernment, with an additional source of retirement income in the event that the Social Security system defaults. B)establish a means for self-employed persons to provide for their own retirement. C)protect employees from the mishandling of retirement funds by corporations and unions. D)promote a retirement fund for government employees.

ERISA was created to protect the retirement funds of union members and employees of large corporations. ERISA guidelines state that all qualified retirement plans must be in writing, segregate funds from corporate or union assets, make prudent investments, report to participants annually, and not be discriminatory. All of these activities are audited under ERISA. Reference: 11.6 in the License Exam

Question #31 of 107Question ID: 606728 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)5%. B)25%. C)10%. D)15%.

Except in the case of death, disability, or certain other qualifying reasons, withdrawals made before the account owner reaches age 59½ are subject to one-time penalties of 10% of the gross amounts withdrawn in addition to ordinary income taxes. Reference: 11.2.2 in the License Exam

Question #90 of 107Question ID: 606754 Your customer, a resident of New York, wants to open up a Section 529 plan for his 10-year-old son. Because his son wants to attend Notre Dame, your customer wants to start a plan sponsored by the state of Indiana. You should: A)explain that the potential state tax benefits available to residents of New York may not be available when opening an out-of-state plan. B)not open the plan. C)open the plan as instructed by your customer. D)explain that the potential federal tax benefits available to residents of New York may not be available when opening out-of-state plans.

Many states offer tax benefits to residents who open 529 plans in their home state. These benefits are generally not available when opening out-of-state plans. Federal tax benefits are available regardless of the state where the plan is opened. Reference: 11.2.5.2 in the License Exam

Question #99 of 107Question ID: 606719 A 45-year-old employment counselor has a Keogh plan for himself and three full-time employees who have been working for him for the past 4 years. If he earns $150,000 this year and contributes the maximum amount allowed to his Keogh plan, how much may he invest in an IRA? A)He may have an IRA but may not make a contribution for this year. B)He may invest any amount up to 100% of his earned income. C)He may contribute 100% of earned income or the maximum allowable IRA limit, whichever is less. D)He may not have an IRA.

Regardless of how much is invested in a Keogh plan, an investor may still invest in an IRA if he has earned income. The maximum contribution to an IRA is 100% of earned income or the maximum allowable limit, whichever is less. In this individual's case, however, the contribution would probably be nondeductible. Reference: 11.2.1 in the License Exam

Question #36 of 107Question ID: 606769 A teacher has a 403(b) plan and the school system he works for has deposited $10,000 into his plan over a 12-year period. At retirement, if the teacher withdraws the total value of $16,000, on what amount does he pay tax? A)16,000. B)6,000. C)8,000. D)10,000.

A 403(b) plan is a qualified retirement plan; contributions to the plan are made before taxes and the growth of the contract is tax-deferred. Any distribution from a 403(b) plan is fully taxable to the participant at the ordinary income tax rate. Reference: 11.4 in the License Exam

Question #39 of 107Question ID: 606777 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)Profit-sharing. C)Deferred compensation. D)Defined contribution.

A defined benefit retirement plan establishes, in advance, the payout to be received by the retiree. Reference: 11.5.1 in the License Exam

Question #62 of 107Question ID: 606779 The amount paid into a defined contribution plan is set by the: A)employer's profits. B)ERISA-defined contribution requirements. C)trust agreement. D)employee's age.

A defined contribution plan's trust agreement contains a section explaining the formula(s) used to determine the contributions to the retirement plan. Reference: 11.5.2 in the License Exam

Question #84 of 107Question ID: 606734 A registered representative (RR) is explaining the characteristics of a Coverdell ESA to a customer. Which of the following statements regarding this type of savings account is CORRECT? Contributions are tax deductible. Contributions are not tax deductible. When used for qualified educational expenses, withdrawals are taxable. When used for qualified educational expenses, withdrawals are not taxable. A)II and IV. B)II and III. C)I and IV. D)I and III.

Contributions to a Coverdell Education Saving Account (ESA) are made with after- tax dollars. Distributions used for qualified educational expenses are tax free. Reference: 11.2.5.1 in the License Exam

Question #53 of 107Question ID: 606775 Which of the following statements are TRUE regarding tax-deferred, noncontributory, defined benefit plans? Contribution amounts are fixed. Contribution amounts vary. Benefit payments are fixed. Benefit payments vary. A)I and IV. B)II and III. C)I and III. D)II and IV.

In an employer-sponsored defined benefit plan, the contribution amounts vary according to the assumptions used. The benefit amount, however, will be fixed per person based on a formula combining age, years of service, salary, etc. Reference: 11.5.1 in the License Exam

Question #38 of 107Question ID: 606762 If your 40-year-old client wants to withdraw funds from her Keogh, her withdrawal will be taxed as: A)capital gains. B)capital gains plus a 10% penalty. C)ordinary income. D)ordinary income plus 10% penalty.

An early withdrawal from a Keogh is taxed in the same way as an early withdrawal from an IRA - as ordinary income plus a 10% penalty. Reference: 11.3.1 in the License Exam

Question #21 of 107Question ID: 606785 Buying municipal bonds would normally NOT be considered suitable for A)a corporation's investment account B)a defined benefit plan portfolio C)an individual investor D)a mutual fund portfolio

A defined benefit plan is a form of qualified tax-deferred corporate pension plan. Tax-free municipal bonds would never be considered suitable for a tax-deferred account. An individual investor, a mutual fund portfolio and a corporate investment account could call benefit from receiving tax-free municipal bond interest. Reference: 11.5.1 in the License Exam

Question #35 of 107Question ID: 606706 Two customers in their twenties, married only a few years, should select which investment for their IRAs? A)High-tech funds. B)Oil and gas exploration limited partnerships. C)High yield bond funds. D)Growth-oriented mutual funds.

A growth mutual fund may be appropriate for a young couple's IRA account; all other selections incur high risk that is not appropriate for a retirement account. Reference: 11.2 in the License Exam

Question #68 of 107Question ID: 606788 The requirements of ERISA apply to pension plans established by: A)municipal governments. B)private sector organizations only. C)public entities only. D)both public and private sector organizations.

ERISA was established to protect the retirement funds of employees working in the private sector only. It does not apply to employees of public sector entities, such as city and state governments. Reference: 11.6 in the License Exam

Question #55 of 107Question ID: 606708 In an IRA, a 6% penalty will be levied if the account owner: A)makes a premature withdrawal. B)changes the beneficiary designation more than once during any calendar year. C)fails to make a contribution by April 15. D)makes an excess contribution.

Excess contributions to an IRA are subject to a 6% penalty tax. Reference: 11.2 in the License Exam

Question #72 of 107Question ID: 721457 An individual, age 40, at a median income level and covered by an employer sponsored retirement plan wants to save more for retirement. Which of the following is the most suitable recommendation? A)A traditional IRA as there will be no limit to the amount of the contribution that can be deducted B)A Roth IRA, as long as the individual's income level does not exceed the maximum allowed to make a contribution (phase-out schedule) C)A hedge fund utilizing high risk, high potential yield strategies D)An investment account utilizing only tax-free municipal bond mutual funds

Given the limited information the Roth IRA is the most suitable as long as the investor's income level does not limit via the phase-out schedule what can be contributed to the IRA. Dollars invested will grow and distributions will be tax free as long as the dollars have been in the account for five years once the IRA owner has reached age 59 1/2. Because the individual is covered by an employer-sponsored plan we know that the contribution to a traditional IRA may not be fully tax-deductible if at all and the earnings would be taxable when distributed. Growth in an investment account would be taxable and the utilization of tax-free municipal bonds with low yields are unlikely to accommodate saving for retirement. Hedge funds utilizing high risk investment strategies are inappropriate for retirement saving. Reference: 11.2.4 in the License Exam

Question #12 of 107Question ID: 606771 Which of the following would NOT be eligible for a tax-sheltered 403(b) annuity? A)Professor at a land grant college. B)Student at a private college. C)Custodian at a municipal public school. D)Employee of a county high school.

All of the individuals listed meet the requirement of being a school system employee except for the student, who is a client, rather than an employee, of the school system. Reference: 11.4 in the License Exam

Question #44 of 107Question ID: 606745 Which of the following statements regarding both traditional and Roth IRAs is TRUE? A)Withdrawals at retirement are tax free. B)Contributions are tax deductible. C)Distributions must begin in the year after the owner reaches age 70½. D)Contribution limits are the same.

The common factor for both traditional and Roth IRAs is that contribution limits are identical. Reference: 11.2.1 in the License Exam

Question #92 of 107Question ID: 606737 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 funds must be distributed by the time the grandchild attains age 30, unless they are rolled over. B)The maximum contribution permitted is $3,000 annually. C)The customer may take a deduction for the amount contributed. D)The customer may make annual contributions until the grandson graduates from college.

The maximum annual contribution to an ESA is $2,000. Contributions are not deductible and must cease when the beneficiary reaches age 18. Any unused balance must be rolled over or distributed by the time the beneficiary attains age 30. Amounts not used for one child may be rolled over tax free to the account of another child of the same family only once during any 12-month period. Reference: 11.2.5.1 in the License Exam

Question #74 of 107Question ID: 606767 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)220,000. B)100,000. C)120,000. D)0.

The retirement plan is qualified, which means that contributions were made with pretax dollars. The teacher must pay taxes on the total value of the account when withdrawn. Reference: 11.4 in the License Exam

Question #46 of 107Question ID: 606794 Which of the following would make an employee ineligible to participate in a company's qualified retirement plan? A)He has been with the company for only 2 years. B)He is only 20 years old. C)He is not a member of the company's management team. D)He works only 1,200 hours a year for the company.

Under the Employee Retirement Income Security Act, anyone over the age of 21, management or not, who has been with the company for at least 1 year, and who works 1,000 or more hours per year for the company, must be allowed to participate in the company's qualified plan. Reference: 11.6 in the License Exam

Question #3 of 107Question ID: 606732 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)They may each contribute 100% of earned income or the maximum annual allowable dollar limit, whichever is less, to an IRA. B)Only the higher wage earner may contribute to an IRA. C)They may not contribute because their combined income is too high. D)They may contribute up to the maximum annual allowable dollar limit split evenly between both accounts.

No matter how much income individuals or couples receive, they may contribute to their IRAs if they have earned income. Each is entitled to contribute 100% of earned income up to the maximum allowed. However, if either or both of them are covered under a qualified plan, limits may exist on the deductibility of the contributions. Reference: 11.2.1 in the License Exam

Question #40 of 107Question ID: 606752 A member firm's customer is requesting that IRA contributions converted from a traditional IRA to a Roth IRA now be moved back to a traditional IRA. This is A)called a rollover and allowed by the IRS as long all requirements are met B)never allowed under any circumstances C)called a re-characterization and is allowed by the IRS so long as certain requirements are met D)called a re-characterization and is permitted under all circumstances and within any time frame

The IRS allows an individual to re-characterize contributions made to one type of IRA as if they had been made to another type of IRA as long as the requirements as to when the re-characterization can occur have been met. Reference: 11.2.4.1 in the License Exam

Question #70 of 107Question ID: 606694 One of your customers has maintained a traditional IRA for the past 15 years. Some of his annual contributions were not tax deductible due to his income level and participation in another qualified plan. At age 60, the customer elects to make a lump-sum withdrawal. Which of the following statements is TRUE? A)The portion representing earnings from the nondeductible contributions is tax free, while the balance is taxable as ordinary income. B)The portion representing earnings and principal from the nondeductible contributions is tax free, while the balance is taxable as ordinary income. C)The portion representing principal from the nondeductible contributions is tax free, while the balance is taxable as ordinary income. D)The entire withdrawal is taxable as ordinary income.

All earnings, whether from deductible or nondeductible contributions, are tax deferred. Therefore, all earnings are taxable as ordinary income on withdrawal. Only the nondeductible contribution is returned tax free. Reference: 11.1.1 in the License Exam

Question #42 of 107Question ID: 606740 All of the following statements about SEP IRAs are true EXCEPT A)the retirement account is usually set up at a bank or other financial institution B)catch-up contributions for employees age 50 or older are not permitted with SEPs C)SEP IRAs allow employers to make contributions D)SEP IRAs are established for small business owners and their employees

An employee age 50 or older is permitted to make catch-up contributions to a SEP. Reference: 11.2.6 in the License Exam

Question #13 of 107Question ID: 606738 An employee not covered under his company's pension plan has been contributing to a traditional IRA for 5 years. If he leaves his current job, starts a new job, and is covered under the new corporation's pension plan, which of the following statements is TRUE? A)The money in his IRA must be combined with any money he will receive from the pension plan. B)Contributions to his traditional IRA may continue. C)Contributions to his IRA must stop; the money in the account will be frozen, but interest and dividends can accrue tax-free until he retires. D)His traditional IRA must be closed.

An employee covered under a qualified retirement plan may continue to own and contribute to an IRA. The contributions to a traditional IRA may not be fully tax-deductible, depending on the amount of compensation earned, but the employee benefits from the tax deferral of IRA earnings. Reference: 11.2.1 in the License Exam

Question #76 of 107Question ID: 606780 An unfunded pension liability is generally associated with which type of corporate retirement plan? A)401(k). B)Defined contribution. C)Defined benefit. D)Profit sharing.

An unfunded liability is one that has been incurred but does not have to be paid until a future date, and for which sufficient money to meet the obligation has not been set aside. Defined benefit plans guarantee a specific payout in the future and require an actuary to determine the monies that must be set aside today to meet this future obligation. If sufficient monies are not set aside or if poor investment performance wipes out a portion of these funds, an unfunded liability results. Reference: 11.5.1.1.1 in the License Exam

Question #59 of 107Question ID: 606760 IRAs and Keogh plans are similar in each of the following ways EXCEPT: A)the maximum allowable cash contribution is the same. B)distributions without penalty may begin as early as age 59-½. C)taxes on earnings are deferred. D)rollovers are allowed once every 12 months and must be completed within 60 days.

Both IRAs and Keogh plans have maximum annual allowable contribution limits but they are significantly higher in a Keogh Plan. Reference: 11.3.1 in the License Exam

Question #2 of 107Question ID: 606699 All of the following statements regarding 529 plans are true EXCEPT: A)anyone can make a contribution on behalf of a beneficiary. B)contributions are made with pretax dollars at the federal level. C)earnings accumulate tax free if the money is used for qualified educational purposes. D)a beneficiary of a 529 plan may also be the beneficiary of a Coverdell Education Savings Account.

Contributions are made with after-tax dollars. Withdrawals are tax free at the federal level if used for qualified higher education expenses. Reference: 11.2.5.2 in the License Exam

Question #23 of 107Question ID: 606727 Which of the following statements regarding Roth IRAs are TRUE? Contributions are made with pretax dollars. Earnings can accumulate tax free. Distributions are not taxable if an age requirement and holding period are met. Distributions in excess of growth are always taxable. A)II and III. B)I and III. C)II and IV. D)I and IV.

Contributions to Roth IRAs are made with after-tax dollars. Distributions are received tax free if the account holder is at least 59½ and has held the account for at least 5 years. Reference: 11.2.4 in the License Exam

Question #29 of 107Question ID: 606761 A 52-year-old dentist has a balance of $150,000 in his Keogh plan, composed of $100,000 of contributions and $50,000 of earnings. If the dentist withdrew $100,000 from the Keogh plan, which of the following statements are TRUE? The entire withdrawal is taxable. The entire withdrawal is not taxable. The entire withdrawal is subject to a 10% penalty tax. Only the portion of the withdrawal representing earnings ($50,000) is subject to a 10% penalty. A)II and III B)I and III C)III and IV D)I and II

Contributions to qualified plans are made with pretax dollars and earnings grow on a tax-deferred basis, so the cost basis is zero. Therefore, any distributions will be taxed as ordinary income. In addition, there is a 10% penalty on withdrawals made prior to reaching age 59-½. Reference: 11.3.1 in the License Exam

Question #34 of 107Question ID: 901855 Having a child 5 years of age, a couple wants to begin saving for her college education. They can currently budget $350 per month toward the goal. They know that college costs 13 years in the future needs to be factored, but they are not too comfortable with market risk. Which would best suitably align with their profile? A)529 prepaid tuition plan B)Coverdell Education Savings Account (ESA) C)Money market mutual fund D)Variable annuity plan

Coverdell ESAs and 529 plans are the only choices here specifically associated with saving for education. Because the Coverdell ESA can only accept $2,000 per child, per year, and the couple can currently invest more than twice that amount, the 529 plan is the better choice. Additionally, being concerned about inflation and not comfortable with market risk, investing in a 529 prepaid tuition plan enables them to purchase tomorrow's tuition at today's prices. Reference: 11.2.5.2 in the License Exam

Question #87 of 107Question ID: 606715 Which of the following statements regarding Coverdell ESAs is TRUE? A)Contributions are not tax deductible, and distributions are tax free when used for qualified educational expenses. B)Contributions are tax deductible, and distributions are always taxable. C)Contributions are not tax deductible, and distributions for any reason are tax free. D)Contributions are tax deductible, and distributions for any reason are tax free.

Coverdell ESAs offer after-tax contributions of up to $2,000 per student per year for children under age 18. Distributions are tax free as long as the funds are used for education. Reference: 11.2.5.1 in the License Exam

Question #17 of 107Question ID: 606695 All of the following are true regarding nonqualified deferred compensation plans EXCEPT: A)employees may use accumulated funds as collateral for a bank loan. B)IRS approval is not needed for deferred compensation plans. C)the plans need not be offered to all employees. D)income taxes on compensation are not due until constructive receipt.

Deferred compensation is a promise made by an employer to defer a certain amount of an employee's salary upon retirement. The employee has no rights to the money until retirement, death, or disability, and thus cannot use it as collateral. Reference: 11.1.2.1 in the License Exam

Question #91 of 107Question ID: 606751 For individual retirement accounts, the IRS mandates that if distributions do not begin by April 1 of the year after the individual turns age 70 ½, a 50% insufficient distribution penalty applies. The amount to be withdrawn each year is based on IRS life expectancy tables. These IRA distribution concepts are known as required beginning date (RBD) required minimum distribution (RMD) lock-up provisions vesting A)III and IV B)II and III C)II and IV D)I and II

For individual retirement accounts, the IRS mandates that distributions must begin by April 1 of the year after the individual turns age 70 ½. This is known as the "required beginning date" (RBD). The amount to be withdrawn each year is based on IRS life expectancy tables. This is known as the "required minimum distribution" (RMD). Reference: 11.2.2 in the License Exam

Question #96 of 107Question ID: 606753 One of your customers, age 45, estimates that his annual earnings will be below the Roth IRA contribution ceiling limit and makes his Roth contribution early in the year. To his pleasant surprise, he receives a year-end bonus in December of that year, but, unfortunately, it puts his earnings over the Roth IRA earnings limit for allowing contributions. As the customer's registered representative, and given these circumstances, you could suggest that the customer A)roll over the Roth into a traditional IRA B)take out the contribution in the form of a withdrawal C)leave the contribution in the Roth because a bonus does not impact the allowable earnings limit for making contributions to a Roth IRA D)re-characterize the Roth contribution made into a traditional IRA

Given the circumstances, the best suggestion would be to re-characterize the contribution to a traditional IRA so that the rules for contributing to a Roth IRA will not have been broken, as earnings applicable would include bonuses. Taking the money out in the form of a withdrawal would not have allowed the amount to be there for the required 5 years nor would the customer have reached the age of 59 ½ yet; therefore, the withdrawal would be taxable. A rollover allows retirement money to move from one qualified plan to another but does not address re-characterizing the contributions made. Reference: 11.2.4.1 in the License Exam

Question #7 of 107Question ID: 901856 An investor, age 40, earns $65,000 annually and contributes 3.5% to his employer's 401(k) plan. With the 401(k), his only retirement savings, he wants to do more for retirement and hopes to invest in such a way as to have some tax-free income when he takes distributions later in life. Which of the following is the most suitable given the investor's goals and objectives? A)Traditional IRA B)Municipal bonds C)Roth IRA D)A nonqualified variable annuity

Given the investor's current age (40), a safe assumption is that the Roth IRA will have been owned for at least 5 years before any distributions would be taken. Roth IRAs allow for tax-free distributions when owned for 5 years and the recipient is age 59 1/2 or older, traditional IRAs do not. Municipal bonds offer tax-free interest but do not grow tax-deferred and VAs should be used only after contributions to employer-sponsored plans and IRAs are maxed out. Reference: 11.2.4 in the License Exam

Question #30 of 107Question ID: 721456 All of the following statements regarding nonqualified deferred compensation plans are true EXCEPT: A)Board members are not eligible for these plans as they are not considered employees. B)Plans must be nondiscriminatory and cannot favor employees serving in certain capacities. C)Employees have no right to plan benefits if the business fails. D)Benefits payable to employees at retirement are taxable.

Needing no IRS approval, nonqualified deferred compensation plans may be discriminatory and offered only to certain employees such as key executives. An agreement between a company and an employee in which the employee agrees to defer some income until retirement, the benefits payable at retirement would be taxable at that time. Board members are not considered to be employees and therefore not eligible for these plans. Reference: 11.1.2.1 in the License Exam

Question #73 of 107Question ID: 654901 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 only within the first six months of the plans inception. C)No, 529 plan rollovers are not permitted. D)Yes, but no more than once every 12 months.

Rollovers from one states plan to another states plan are permitted but no more than once every twelve months. Reference: 11.2.5.2 in the License Exam

Question #27 of 107Question ID: 606709 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)45. B)30. C)60. D)90.

Rollovers from pension plans into IRAs must be accomplished within 60 days in order to retain tax-deferred status. Reference: 11.2.3.1 in the License Exam

Question #15 of 107Question ID: 721461 All of the following regarding savings incentive match plans for employees (SIMPLEs) are true EXCEPT A)employers cannot 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

SIMPLEs are retirement plans for businesses with fewer than 100 employees that have no other retirement plan in place. The employee makes pretax contributions into a SIMPLE up to an annual contribution limit which can include catch-up contributions for those age 50 and older. The employer is permitted to make matching contributions for employees. Reference: 11.5.2.2 in the License Exam

Question #65 of 107Question ID: 606782 When does pension payment liability affect the credit rating of a municipality? A)When funds needed to make payments exceed funds available. B)When the return on funds invested to meet future needs exceeds anticipated payments. C)Pension liability cannot affect the rating of municipal debt. D)When funds are invested presently to meet future pension needs.

The credit rating for a municipality's debt would be adversely affected if funds needed to make payments exceeded funds available. This is an unfunded pension liability and can result if monies set aside to make future payments are not enough or if poor investment decisions deplete the funds. Reference: 11.5.1.1.1 in the License Exam

Question #86 of 107Question ID: 606749 Which of the following statements CORRECTLY describe a Roth IRA? The maximum annual contribution is 100% of earned income or a maximum allowable dollar limit, whichever is greater. The maximum annual contribution is 100% of earned income or a maximum allowable dollar limit, whichever is less. Contributions are tax deductible. Contributions are not tax deductible. A)II and III. B)I and III. C)II and IV. D)I and IV.

The maximum annual contribution to a Roth IRA is 100% of earned income, not to exceed a maximum allowable dollar limit. Contributions are made with after-tax dollars. Reference: 11.2.4 in the License Exam

Question #75 of 107Question ID: 606736 All of the following are TRUE concerning a Coverdell Education Savings Account (ESA) EXCEPT A)the maximum annual contribution is $2,000 per beneficiary B)unused balances may be used for any purpose the beneficiary chooses C)a beneficiary's unused balance may be rolled over to an ESA account for another child D)the beneficiary may be the contributor's child or grandchild or child of a friend of the contributor

The maximum contribution permitted for any beneficiary is $2,000 per year. The beneficiary need not be related to the contributor(s). ESA accounts may be rolled over to change investment vehicles or to change beneficiaries. Account balances may be used for education only. Reference: 11.2.5.1 in the License Exam

Question #82 of 107Question ID: 909491 One of your customers set up a Section 529 plan for a child of one of his neighbors and contributed to it for some years. When the child reached age 17, it was obvious that he had no plans to pursue education beyond high school and your customer decided to redesignate the account. Which of the following would be a permissible new beneficiary? A)One of the children of another of your customer's neighbors B)The original beneficiary's younger sister C)The winner of an informal essay contest to be held among high-school aged children in the neighborhood D)One of the donor's own grandchildren

There are few restrictions on who may be the first beneficiary of a Section 529 plan. However, if the beneficiary is redesignated, the new beneficiary must be a close family member of the first. Reference: 11.2.5.2 in the License Exam

Question #94 of 107Question ID: 606704 One of your customers, age 52, wishes to open an IRA. His annual income is over $200,000 and consists entirely of income from rental real estate and income from a trust fund. What amount may your customer contribute this year to his IRA? A)5000. B)0. C)4000. D)3500.

To open an IRA, a person needs earned income. Income from rental real estate is passive income while income from a trust fund is portfolio income. This customer has no earned income. Reference: 11.2 in the License Exam

Question #97 of 107Question ID: 606766 Which of the following is a tax-qualified retirement plan for employees of nonprofit organizations? A)Keogh plan. B)403(b). C)401(k) payroll deduction plan. D)SEP IRA.

Under Section 403(b) of the Internal Revenue Code, employees of nonprofit organizations (such as hospitals and schools) may make tax-deductible contributions from their paychecks into a retirement plan operated through their employer. Reference: 11.4 in the License Exam

Question #16 of 107Question ID: 606765 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)There is no requirement to contribute to the employees' plans B)10% C)25% D)15%

When a self-employed individual makes the maximum contribution to his own Keogh (HR-10 plan), he must contribute 25% of any eligible employees' earned income to their plans. Reference: 11.3.1 in the License Exam

Question #48 of 107Question ID: 606700 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)Neither is eligible to make a contribution in any amount (deductible or not). C)One spouse only is eligible to deduct their entire contribution. D)Both may deduct the entire contribution.

While each are eligible to make the maximum contribution, at this income level, neither spouse, both covered under employer sponsored plans, would be eligible to deduct their contributions to their respective IRAs. Reference: 11.2.1 in the License Exam

Question #78 of 107Question ID: 606746 All of the following statements concerning IRA contributions are true EXCEPT: A)you may make contributions for the past year after April 15, provided you have filed an extension on a timely basis. B)you may contribute to this year's IRA from January 1 of this year until April 15 of next year. C)if you file your tax on January 15, you may deduct your IRA contribution even if it is not made until April 15. D)between January 1 and April 15, you may make contributions for the current year, the past year, or both.

You may contribute to an IRA only until the first tax filing deadline (April 15) even if you filed an extension. Reference: 11.2 in the License Exam