quiz 6

Which of the following expenses tend to decrease for retirees? I. mortgage payments II. medical and dental costs [LO 6.5] (A) I only (B) II only (C) Both I and II (D) Neither I nor II

(A) I only

Which of the following statements regarding a Roth IRA is (are) correct? I. Contributions can be made even after the owner attains age 70½ if he has earned income. II. Distributions must begin no later than when the owner attains age 70½. [LO 6.7] (A) I only (B) II only (C) Both I and II (D) Neither I nor II

(A) I only

Which of the following statements regarding qualified plans is (are) correct? I. Distributions can be rolled into an IRA. II. A SEP is a qualified plan that uses an IRA. [LO 6.7] (A) I only (B) II only (C) Both I and II (D) Neither I nor II

(A) I only

Which of the following correctly describes the unit-benefit formula found in defined-benefit pension plans? [LO 6.7] (A) It directly ties the participant's pension benefit to both service and salary. (B) It bases the participant's pension benefit on final average salary only. (C) It provides each participant with the same pension benefit. (D) It provides each participant with a flat benefit amount for each year of service.

(A) It directly ties the participant's pension benefit to both service and salary.

Which of the following statements concerning contributions to traditional IRAs is correct? [LO 6.9] (A) Contributions may be used to buy life insurance policies. (B) Contributions may be deductible or nondeductible. (C) Contributions may be commingled with a taxpayer's other assets. (D) The maximum contribution is 10 percent of the taxpayer's income.

(B) Contributions may be deductible or nondeductible.

Which of the following statements concerning defined-contribution plans is (are) correct? I. The employer assumes the preretirement inflation and investment risks. II. All contributions are allocated to the accounts of individual employees. [LO 6.7] (A) I only (B) II only (C) Both I and II (D) Neither I nor II

(B) II only

All of the following statements regarding SIMPLE plans are correct EXCEPT [LO 6.7] (A) Assets cannot be invested in life insurance or collectibles. (B) Participants are allowed to borrow from their accounts. (C) Participants must be fully vested in all benefits at all times. (D) Any type of business entity can establish a SIMPLE plan.

(B) Participants are allowed to borrow from their accounts.

Which of the following types of retirement plans is a qualified plan? [LO 6.6] (A) a SIMPLE plan (B) a 401(k) plan (C) a SEP plan (D) a 403(b) plan

(B) a 401(k) plan

Which of the following statements concerning Roth IRAs is (are) correct? I. Contributions are not deductible. II. Qualifying withdrawals are not subject to income tax. [LO 6.9] (A) I only (B) II only (C) Both I and II (D) Neither I nor II

(C) Both I and II

Which of the following statements regarding a 403(b) plan is (are) correct? I. It allows deferrals in the form of a salary reduction chosen by the employee. II. It can be used in conjunction with most other retirement plans. [LO 6.7] (A) I only (B) II only (C) Both I and II (D) Neither I nor II

(C) Both I and II

All of the following statements regarding a reverse mortgage are correct EXCEPT [LO 6.10] (A) It typically is available only when the home is the borrower's principal residence. (B) If property values erode, the lender may end up with a loss. (C) It typically is available regardless of the borrower's age. (D) It does not have to be repaid as long as the borrower lives in the home.

(C) It typically is available regardless of the borrower's age.

Nonqualified retirement plans are potentially subject to all of the following problems EXCEPT [LO 6.8] (A) somewhat inflexible withdrawal provisions (B) the forfeiture or loss of benefits (C) nondiscrimination rules that limit benefit amounts (D) the threat of immediate taxation that would reduce the benefit amount

(C) nondiscrimination rules that limit benefit amounts

All of the following statements concerning simplified employee pension plans (SEPs) are correct EXCEPT [LO 6.7] (A) Contributions typically are allocated as a level percentage of compensation. (B) The allocation formula may be integrated with Social Security. (C) All employer contributions are 100 percent vested at all times. (D) Employers are required to make annual contributions in each plan year.

(D) Employers are required to make annual contributions in each plan year.

All of the following statements regarding defined-benefit plans are correct EXCEPT [LO 6.7] (A) Plan contributions are not allocated to individual employee accounts. (B) The employer assumes the risk of preretirement inflation and investment performance. (C) The costs associated with a defined-benefit plan are unpredictable. (D) The law specifies the maximum allowable annual contribution that can be made for an employee.

(D) The law specifies the maximum allowable annual contribution that can be made for an employee.

Which of the following is a method for determining retirement income that assumes that the standard of living enjoyed during the years just prior to retirement will be the determining factor for the standard of living during retirement? [LO 6.5] (A) the expense method (B) the capital-utilization method (C) the capital-retention method (D) the replacement-ratio method

D) the replacement-ratio method