Personal Finance Chap 14

No gift tax is due on gifts to any one person up to what amount of money in any one year as of 2020?

$15,000

Which of the following are the two most popular personal retirement plans?

-IRA -Keogh

When preparing a formal will, one usually uses the services of a(n) ____.

-lawyer

Estate planning is the process of creating a detailed ____ for ____ your assets.

-plan -managing

Which plan's retirement payments are dependent on investment returns?

Defined-contribution plan

Which type of trust allows the trustor to retain the right to end or change the terms of the trust?

Revocable

Which of the following IRAs is used to avoid any penalty required to be paid for transferring money from retirement plan to another?

Rollover IRA

When saving for retirement, which of the following is NOT a good advice?

Saving early in small amounts is not as good as saving later in larger amounts.

When saving for retirement, which of the following is NOT a good advice? Multiple choice question.

Saving early in small amounts is not as good as saving later in larger amounts.

A Roth IRA may be better for you than a traditional IRA depending on your anticipated tax bracket.

True

Under a defined-benefit plan, the plan's actuary determines the annual employer contribution based on how much money will be needed in the fund as each participant in the plan retires.

True

An estate tax is:

a tax collected on the value of property at the time of death

A(n) ____ is a contract purchased from an insurance company that provides an income at regular intervals for a certain number of years or for life.

annuity

A(n) is a contract purchased from an insurance company that provides an income at regular intervals for a certain number of years or for life.

annuity

A(n) ____ includes everything you own.

estate

A(n) ____ tax is a tax on the privilege of making gifts to others.

gift

A(n) ____ will is one that is handwritten.

holographic

A(n) ____ retirement account is a special account in which the person sets aside a portion of income for retirement.

individual

Vesting is an employee's right to:

receive some of the employer's pension plan contributions when leaving before retirement

Which of the following are rules of a SEP IRA?

-Contributions are tax-deductible. -It is an IRA funded by the employer. -Each employee sets up an IRA with a bank or brokerage house.

Sources of retirement income include public ____ plans, employer pension plans, personal retirement plans, and ____.

-pension -savings

Which of the following is not an important document that may be needed at the time of your death?

College diplomas

Which type of trust allows married couples to leave everything to each other tax free?

Credit-shelter

A disclaimer trust is appropriate for ____ who do not yet have enough assets to need a credit-shelter trust but may have sufficient assets in the future.

couples

A(n) ____-shelter trust is one that enables the spouse of a deceased person to avoid paying federal taxes on a certain amount of assets left to him/her as part of an estate.

credit

To reduce your taxable estate, you can:

give away assets during your lifetime

Your right to at least part of the benefits accrued under a pension plan is called ____.

vested

A 401(k) plan is a ____-reduction plan that reduces your salary by the amount of your contributions and results in a lower current tax liability.

wage

A fee for administering a trust is usually based on the ____ of the assets in the trust.

worth

A rollover IRA is a(n) ____ IRA that accepts distributions from a retirement plan or from another ____.

-classic -IRA

The education IRA is also called the:

Coverdell Education Savings Account

A(n) ____ is the creator of a trust.

Grantor

An estate is everything you own.

True

A defined-contribution retirement plan provides an individual ____ for each participant.

account

A(n) ____ trust is designed for a couple that does not yet have enough assets to need a credit-shelter trust but may need one in the future.

disclaimer

If a will is handwritten, it is known a(n):

holographic will

A will is the legal ____ that specifies how you want your property to be ____ after your death.

-document -dispensed

A living trust has the downside that it does not protect one's privacy upon death.

False

A person must work 20 years to be eligible for Social Security retirement benefits.

False

A plan that specifies the benefits the employee will receive at the normal retirement age is called a defined-contribution plan.

False

A trust that you can change during your lifetime is an irrevocable trust.

False

An individual retirement account (IRA) is an account where the employer deposits money for each individual employee.

False

An irrevocable trust is one that the trustee cannot change. The only changes can be made by the trustor.

False

Jointly owned property passes directly to the surviving children and may be appropriate for some assets, such as a home.

False

Many companies are discontinuing defined-benefit plans and moving toward defined-contribution plans, which shifts more responsibility to the company for providing retirement benefits.

False

Which of the following is not a type of will?

Joint tenants will

The two most popular personal retirement plans are individual retirement accounts and ____ accounts.

Keogh

Which of the following expenses will probably be incurred during retirement?

Medical expenses

Work expenses, such as the cost of clothing, transportation, and pension contributions, may not be as much after retirement.

True

Which of the following is NOT a document that will normally be needed at the time of death?

Warranties on various property owned.

One way to ____ (decrease/increase) the tax liability on your estate is to give away assets while you are alive.

decrease

The 403(b) and 401(k) accounts are examples of employee retirement ____-contribution plans.

defined

A pension plan where the employer's contributions are based on how much money will be needed in the fund when each plan participant retires is called a:

defined-benefit plan.

A pension plan is a retirement plan that is funded, at least in part, by a(n) ____.

employer

A(n) ____ will probably be your most valuable asset in retirement, so it is important to consider carefully what size of payments you can afford.

home

A testamentary trust is especially beneficial if your beneficiaries are ____ (inexperienced/experienced) in financial matters.

inexperienced

A testamentary trust is especially beneficial if your beneficiaries are ____ (inexperienced/experienced) in financial matters..

inexperienced

As you consider your retirement living expenses, remember to plan for ____.

inflation

With a Roth IRA, contributions are not tax-deductible, but ____ accumulate tax-free.

interest

A(n) ____ trust cannot be changed by the creator (trustor).

irrevocable

Estate planning involves the planning for the administration and disposition of property during one's ____ and at death.

life

A(n) ____ trust is created during the trustor's (creator's) lifetime and provides benefits during the trustor's lifetime.

living

A(n) ____ will is a document in which you state whether you want to be kept alive by artificial means if you become terminally ill and unable to make such a decision.

living

A(n) ____ will is one that is usually prepared with the assistance of an attorney.

living

A(n) _____ trust is also known as an inter vivos trust.

living

The belief that you have plenty of time to start saving for retirement is a common ____ about the retirement years.

mistake

With a _____ plan, your employer promises to set aside a certain amount of money for you each year.

money-purchase

Both revocable and irrevocable trusts avoid the lengthy process of:

probate.

With a money-____ pension plan, the employer promises to set aside a certain amount of money for you each year.

purchase

A ____ trust is a trust whose terms the grantor retains the right to change.

revocable

A(n) ____ employee pension plan is an individual retirement account funded by an employer.

simplified

In a _____ plan, your employer's contribution is used to buy stock in the company for you.

stock bonus

A(n) ____ is a legal arrangement through which one's assets are held by a trustee.

trust

A ____ could be a person or a bank that administers a trust.

trustee

Sources of retirement income usually include:

-public pension plans -payments from annuities -employer pension plans

With a(n) ______, your employer will often match your contributions up to a specific dollar amount or percentage of your salary.

401(k) plan

For a traditional IRA in 2020, you can contribute up to $6,000 per year if you are under age 50 and up to $____ if you are age 50 or older.

7000

Which of the following is not a question you should ask if your company offers a private employer pension plan?

How much of my benefits will the company keep when I retire?

Which of the following statements are true of estate planning as part of the retirement and financial planning process?

-Estate planning involves planning how to distribute your assets at death through a manner you have specified. -Estate planning involves building assets through savings, investing, and insurance.

Which of the following are true about the rules of a Roth IRA?

-Five years after establishing the account, you can withdraw tax-free distributions if you are at least age 59.5. -Earnings accumulate tax-free. -Contributions are not tax-deductible. -You can make contributions after age 70.5.

Which of the following are rules of the education IRA?

-It provides tax-free distributions. -You can contribute up to $2,000 per year per child under age 18. -Contributions do not reduce current taxes.

Which of the following are myths about retirement planning?

-Medicare will cover all my medical expenses. -I can depend on Social Security and pension plan to pay my living expenses. -There's plenty of time for me to start saving for retirement. -Your pension benefits will increase to stay up with inflation.

Which of the following are advantages of a living trust?

-Privacy -Avoidance of probate -Transfer of management responsibilities

The two most important initial questions to ask about a private pension plan are:

-When do I become eligible for pension benefits? -What will be the benefits?

Which of the following statements are true about a formal will?

-Witnesses of the formal will must not be beneficiaries. -It must be signed. -It must involve at least two witnesses. -It is usually prepared with the help of an attorney.

Which of the following are rules of the traditional IRA?

-You can contribute up to $6,000 to a traditional IRA if you are under age 50. -You can contribute up to $7,000 to a traditional IRA if you are over age 50.

The expenses that may be lower or eliminated during retirement include:

-clothing -income taxes -transportation

The financial decisions related to housing as you try to maximize current income and prepare for retirement might include:

-considering a smaller house that is less costly to maintain than a larger home. -selling your home and buying a smaller less expensive home.

The move by most companies to ____-____ plans sometimes called individual account plan has forced employees to take more responsibility for retirement.

-define -contribution

The advantages of a testamentary trust are:

-good if estate taxes are high -valuable if your beneficiaries are inexperienced in financial matters

Jointly ____ property passes directly to the joint owner and may be appropriate for some ____, such as a home.

-held -assets

The expenses that typically increase as a result of retirement include:

-recreation -health insurance -medical costs

A ____ (Roth/traditional) IRA may be better for you than a ____ (Roth/traditional) IRA if you are saving for your first home at an age lesser than 59.5 years and have had your account open for at least five years, as contributions can be withdrawn at any age and without penalty.

-roth -traditional

With a(n) ____ bonus plan, your employer's contribution is used to buy shares of your employer's stock, which is held in ____ until you retire.

-stock -trust

The four types of wills are:

-traditional marital share wills -simple wills -stated amount wills -exemption trust wills

If you are born after 1928, you become eligible for Social Security retirement benefits if you have earned credits based on ____ quarters of work and payment into the system through the Social Security tax.

40

Which plan's retirement payments are determined by the employer and specifies what you will receive at retirement age?

Defined-benefit plan

Which of the following is a document where you state whether you wish to be kept alive by artificial means if you become terminally ill?

Living will

Which of the following is not considered an alternative to living off your retirement income?

Traveling around the world

Estate planning is part of the overall process of financial and retirement planning.

True

The contributions and earnings of an employer-sponsored pension plan remain tax-deferred until you withdraw them.

True

The use of an emergency fund during retirement is for unexpected situations that arise.

True

Which of the following statements is true?

You may need to decide between spending and saving during retirement.

A federal tax collected on the value of a deceased person's property at the time of his or her death is called a(n) ____ tax.

estate

No ____ tax is due on gifts up to $15,000 for 2020 to any one person in any one year.

gift

Expenses that may increase as a result of retirement include recreation, health insurance, and ____ care.

health

An annuity is a contract that could provide retirement income for a set number of years or for ____.

life

One tip for saving for retirement is to keep your money in your former employer's retirement plan once you leave a job, or you can:

roll over the money into an IRA.