Retirement plans and special types of accounts

Under UTMA, the custodian must be A) a trustee. B) an adult. C) appointed by the court. D) a member of the minor's family.

B

A grandparent wishes to contribute funds to an account for the benefit of the college education of a grandchild. In which of the following does the donor have the greatest amount of control over the assets in the account? A) A Section 529 plan B) A Coverdell ESA C) An UTMA account D) An UGMA account

A

All of the following statements regarding qualified corporate retirement plans are true EXCEPT A) with defined benefit plans, the employee bears the investment risk B) all qualified retirement plans are either defined contribution or defined benefit plans C) they are covered under ERISA D) all corporate pension and profit-sharing plans must be established under a trust agreement

A

Mrs. Jones, age 70, is retiring, and her employer has 3 investment options for her 401(k). You should advise her to A) do a rollover to a traditional IRA B) take a distribution of 100% of the funds in the account C) leave the investments with her employer D) do a rollover to a variable annuity under a Section 1035 exchange

A

Nonqualified corporate retirement plans differ from qualified retirement plans because nonqualified plan contributions are not exempt from current income tax nonqualified plan earnings accumulate on a tax-deferred basis the corporation need not comply with nondiscrimination rules that apply to qualified plans the corporation must comply with ERISA requirements dealing with communications to plan participants A) I and III B) II and III C) II and IV D) I and II

A

Qualified annuity plans offered under Section 403(b) of the Internal Revenue Code, referred to as tax-sheltered annuities (TSAs), are not available to A) a student at a nonprofit college B) a church minister C) a public school custodian D) a nurse at a nonprofit hospital

A

Since its inception in 1986, virtually all the states have replaced the Uniform Gifts to Minors Act with the Uniform Transfers to Minors Act. It is generally agreed that one of the primary benefits offered by UTMA over UGMA is A) greater flexibility in the type of property that may be transferred B) greater flexibility in naming custodians C) greater flexibility in naming beneficiaries D) mandatory surrender of control at majority

A

Under ERISA Section 404(c), plan participants must be able to reallocate plan assets A) once every 3 months B) annually C) once every week D) daily

A

Which of the following regarding a Roth IRA are TRUE? The contributions are nondeductible. One may not contribute to a Roth IRA if concurrently contributing to a traditional IRA. The contributions are deductible. Withdrawals after age 59½ may be tax free. A) I and IV B) I and II C) III and IV D) II and III

A

Which of the following statements regarding ERISA and qualified plans is CORRECT? A) Qualified plans must meet the requirements of ERISA. B) ERISA requires the fiduciary to invest for maximum gain under the prudent person rule. C) ERISA regulations are primarily focused on the income tax aspects of qualified plans. D) ERISA only applies to defined benefit pension plans.

A

Which of the following transactions for ERISA plans is not specifically prohibited? A) A transfer of plan income or assets for the benefit of a plan beneficiary or plan participant which they are entitled according to the provisions within the plan B) A transfer of plan income or assets to, or use of them by or for the benefit of a disqualified person C) Lending money or extending credit between a plan and a disqualified person D) Any act of a fiduciary by which plan income or assets are used for the fiduciary's own interest

A

Which one of the following statements regarding a characteristic or use of a Roth IRA is CORRECT? A) Roth IRAs are not subject to the minimum distribution rules until the death of the owner-participant of the plan. B) Like regular IRAs, Roth contribution eligibility is restricted by active participation in an employer's retirement plan. C) Like regular IRAs, Roth IRA contributions may not be made after the participant attains age 70½. D) Roth IRA withdrawals are tax-deferred in their entirety regardless of the participant's age at withdrawal.

A

Which one, if any, of these transactions will be treated as a prohibited transaction under the provisions of the ERISA legislation? A) An investment adviser using the interest from plan assets to cover the adviser's office expenses B) The furnishing of office space to a plan trustee for reasonable compensation and fair rental value C) None of these transactions constitute a prohibited transaction under the provisions of the legislation D) A loan between a 401(k) plan and plan participant

A

With respect to a qualified retirement plan, fiduciaries must act in all of the following ways except A) solely in the interest of the sponsoring employer. B) to diversify investments to minimize the risk of large losses, unless doing so is clearly not prudent under the circumstances. C) with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent professional would use. D) solely in the interest of plan participants and beneficiaries.

A

Your client's wife retired as a 3rd grade teacher in 2009, where she was covered under the school system's 403(b) plan. If she resumes employment with a corporate employer, and that new employer has a 401(k) plan, is she entitled to defer RMDs from the 403(b) plan past the regular age 70½ date? A) RMDs may be deferred only from the plan sponsored by the current employer. B) RMDs may be deferred as long as the individual is employed on a full-time basis. C) RMDs may be deferred only if the current employer offered a 403(b) plan. D) RMDs may never be deferred for those who were participants in a 403(b) plan.

A

ach of these would be considered an advantage of using a 529 plan rather than a Coverdell ESA to fund a child's future education except A) the 529 plan is counted at a lower percentage of assets when applying for financial aid. B) the 529 plan allows for higher contribution levels. C) the 529 plan has no age limits. D) the 529 plan has no earnings limitation on the donor.

A

Under which of the following circumstances would a premature distribution from a traditional IRA be exempt from the premature distribution penalty? A) When the distribution is paid in equal annual amounts over the owner's life B) When the account is fully funded with nondeductible contributions C) A distribution taken to satisfy the terms of a court-ordered property settlement D) A distribution taken at age 55 if the owner is retired

A A distribution from an IRA taken in equal annual amounts over the owner's life is not subject to the 10% premature distribution penalty even if started before age 59½. This is one of the exceptions that apply to IRAs. The exception for qualified domestic relations orders (QDROs) and for retirement at age 55 apply to employer-sponsored plans but not to IRAs.

Which of the following statements regarding Section 529 plans is CORRECT? A) Qualified expenses could include tuition for attendance at a foreign university. B) Qualified expenses would include all residence costs incurred by a full-time student. C) Funds not used for qualified expenses by age 30 must be distributed or rolled over. D) Residents of some states receive a deduction on their federal income tax returns.

A As of the date of this question, there are approximately 330 institutions of higher learning located outside of the United States where Section 529 plans may be used to pay qualified expenses. The expense for room and board (residence cost) qualifies only to the extent that it isn't more than the greater of the following 2 amounts: The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution It is the Coverdell ESA that has the age 30 requirement and some states offer deduction on the state income tax return, not the federal one.

If Gerald turned age 70 on November 15, 2016, when was he required to take his first IRA distribution? A) 1-Apr-18 B) 31-Dec-16 C) 1-Apr-17 D) 31-Dec-17

A Because his birthday is late in the year, Gerald will not attain age 70½ until May 15, 2017, so his required beginning date was April 1, 2018 (the year following the date Gerald attains age 70½).

A single individual earning $250,000 a year may open a Coverdell ESA not open a Coverdell ESA open a 529 college savings plan not open a 529 college savings plan A) II and III B) II and IV C) I and III D) I and IV

A There are income limits that apply to Coverdell ESAs. Single individuals earning more than $110,000 per year are not permitted to open a Coverdell account, and married couples lose the ability to contribute when earnings exceed $220,000. However, there are no income limits restricting who is eligible to open and contribute to a Section 529 college savings plan.

All of the following statements regarding qualified corporate retirement plans are true EXCEPT A) with defined benefit plans, the employee bears the investment risk B) they are covered under ERISA C) all corporate pension and profit-sharing plans must be established under a trust agreement D) all qualified retirement plans are either defined contribution or defined benefit plans

A 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.

Question ID: 1180672 ERISA regulation does not apply to public school district retirement plans publicly traded utility company retirement plans federal government employee retirement plans A) I and II only B) I and III only C) I only D) I, II, and III

B

Under ERISA, a pension portfolio manager may engage in writing covered options A) under any circumstances B) only if it fits with the objectives of the plan C) only during declining markets D) at no time; writing options is too high a risk

B

Under ERISA, all of the following retirement plans must set standards for vesting, eligibility, and funding EXCEPT A) corporate pension plans B) deferred compensation plans C) Keogh plans D) profit-sharing plans

B

A disadvantage of a defined benefit pension plan to the employee is that A) the risk of fund performance is borne by the employer. B) at retirement, the employee may not be earning as much as when he was at her peak earning power. C) the funds are an integral part of the retirement planning process. D) the individual is guaranteed a payout at the time of her retirement by her employer.

B

A self-employed CPA has earned $38,000 from his practice; he also earned $2,300 interest on his savings. What is the basis for his deposit into his defined contribution Keogh (HR-10) account this year? A) $2,300 B) $38,000 C) $40,300 D) $35,700

B

Allowable investments in an IRA would include A) rare stamps B) U.S. government-issued silver eagles C) collectible art D) cash value life insurance

B

An employer offers its employees the opportunity to use tax-deductible funds to pay for health costs, as long as they enroll in a high-deductible health plan. This would be a description of A) an ETF. B) an HSA. C) a TSA. D) a FSA.

B

Harry Thomas has turned 19 and decided that he is going to join the Marines and postpone going to college. If Harry decides to stay in the military, the unused funds contributed to his Coverdell ESA A) must be distributed to Harry no later than 30 days after his 21st birthday B) may be transferred into another Coverdell ESA for Harry's 25 year-old cousin, Julia C) must be returned to the donor with tax plus a 10% penalty on the earnings D) must remain in the plan until Harry's 30th birthday

B

In the administration of a qualified retirement plan, which of the following individuals is considered to be a fiduciary? A) A highly-compensated employee who participates in the plan B) A financial planner acting as a trustee over the plan assets C) A CPA who prepares the plan's Form 5500 for an annual fee D) The marketing director of the plan sponsor

B

One benefit of a 457 plan that is not found in any other employer-sponsored tax-qualified plan is A) earnings on the contributions are not taxed until the funds are withdrawn. B) penalty-free withdrawals at any age for any reason. C) the plan may allow for employer matching of contributions. D) contributions are made on a pre-tax basis.

B

One of your clients has made plans to get an advanced degree by enrolling in the local community college in three years. At the same time, her child expects to be entering veterinary school. What would you recommend as the most appropriate tool to accumulate funds for both of them? A) Variable annuities B) Section 529 plans C) Coverdell ESAs D) UTMA accounts

B

One of your clients has recently turned 70½ and has questions about RMDs. The client has a traditional IRA, a rollover IRA, and 401(k) plans from 2 previous employers. When computing the RMDs, the RMD from each IRA is computed and may be made from one or both of them the RMD from each IRA is computed and must be paid from that IRA both 401(k)s are combined to compute the required distribution, which may be made from one or both of them the RMD from each 401(k) is computed and must be paid from that 401(k) A) II and IV B) I and IV C) II and III D) I and III

B

What is the proper course of action for the fiduciary of a trust that has a portfolio made up of 10% cash and 90% stock of one company that has recently experienced a 40% market gain? A) Begin diversifying the equity portfolio B) Maintain the current allocation if, while acting in the capacity of trustee, he believes it aligns with the goal of the trust C) Use the cash to acquire more shares of the stock D) Increase the cash position to 25% by taking some of the profits off the table

B

Which of the following does not provide for a change of beneficiary? A) Roth IRA B) UTMA account C) Coverdell ESA D) Section 529 plan

B

Which of the following statements is TRUE regarding Section 529 plans? Funds withdrawn for qualified education expenses are always free of federal income tax. Funds withdrawn for qualified education expenses are always free of state income tax. The maximum contribution limits are determined on a federal level. The maximum contribution limits are determined on a state level. A) II and IV B) I and IV C) I and III D) II and III

B

Which of the following statements regarding Roth IRAs is NOT true? A) Distributions prior to age 59½ may be subject to penalty. B) Roth IRAs have higher contribution limits than traditional IRAs. C) There is no age limit on making contributions to Roth IRAs. D) Roth IRAs do not have required distributions.

B

Which of the following statements regarding Roth IRAs is TRUE? A) Roth IRA withdrawals are tax free in their entirety regardless of the participant's age at withdrawal. B) Roth IRAs are not subject to the minimum distribution rules until the death of the owner/participant of the plan. C) Like traditional IRAs, Roth IRA contributions may not be made after the participant reaches age 70½. D) Like traditional IRAs, Roth contribution eligibility is restricted by active participation in an employer's retirement plan.

B

Which of the following statements regarding a traditional IRA for someone filing a 2019 tax return is TRUE? A) Distributions before age 59½ are subject to a 10% penalty in lieu of income taxes. B) The income and capital gains earned in the account are tax deferred until the funds are withdrawn. C) Distributions without penalty may begin after age 59½ and must begin by April 1 of the year preceding the year an individual turns 70½. D) A traditional IRA allows a maximum tax-deductible annual contribution of $5,500 per individual or $11,000 per couple.

B

Which of the following statements regarding participant loans in a 401(k) plan are CORRECT? The maximum allowable loan amount is the lesser of $50,000 or 50% of the participant's vested account balance. Unless the loan is taken out for the purpose of a mortgage on the participant's principal residence, repayment must be completed within 60 months of obtaining the loan. Payback of the loan will be through payroll deduction. Default on the loan will result in the IRS treating the loan as a distribution. A) II and III B) I, II, III, and IV C) III and IV D) I and II

B

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) taxable to the niece, the beneficiary of the plan C) automatically reinvested back into the plan D) nontaxable to either party

B

With regard to ERISA and a qualified retirement plan, which of the following would NOT constitute a conflict of interest between the plan and a fiduciary? A) A fiduciary sells a real estate investment to the plan at the current market rate. B) The fiduciary receives fees for acting as a trustee to the plan. C) A fiduciary offers reduced commissions to the plan for transactions that are executed through his employing financial institution. D) A fiduciary participates in a transaction on the plan's behalf that involves a party with interests adverse to those of the plan, to ensure favorable terms for the plan.

B A fiduciary may receive compensation from the plan's sponsor for acting as a trustee, if fees are reasonable and consistent with duties performed. When one is acting as a fiduciary for a retirement plan, no self-dealing is permitted. That means no buying from or selling to the plan.

An investor wishes to use funds in his IRA to purchase a condominium for personal use. Under current regulations, A) real estate, like life insurance, cannot be purchased in an IRA. B) this would be a prohibited transaction. C) this would not be a prohibited transaction unless the investor personally used the property more than 14 days per year. D) real estate, such as a personal condominium, would be a permitted investment.

B An IRA may invest in real estate if it is for business purposes only. If done improperly, serious problems with the IRS can result. If it is done as a truly hands-off investment, it is unlikely that there will be an issue. However, the moment the participant derives any personal benefit from the property, it becomes a prohibited transaction.

Under the UTMA, which of the following statements is NOT true? A) Only an adult can make a gift to a minor. B) The maximum amount of money an adult can give to a minor in any one year is $15,000 C) An UTMA account may have only one custodian for only one minor. D) Once a gift is given to a minor, it cannot be reclaimed.

B Any adult can give a gift to a minor in a custodial account. There is no limitation on the size of the gift. However, any gift in excess of $15,000 (or such higher number as indexing provides for) will possibly subject the donor to a gift tax liability.

A 40-year-old schoolteacher would find her retirement needs best served by contributing to A) a 401(k) B) a 403(b) C) a Roth IRA D) a traditional IRA

B Employees of the public school system are eligible to participate in a 403(b) retirement plan. This plan offers the opportunity to contribute far more than could be contributed to an IRA.

Gaston is a police officer and wishes to contribute to a retirement plan sponsored by the city. Gaston wants the flexibility of being able to have unfettered penalty-free access to his funds before reaching age 59½. This can only be accomplished if Gaston contributes to A) a SEP-IRA. B) a 457 plan. C) a 401(k) plan. D) a 403(b).

B The 457 plan is unique in that it is the only tax-qualified retirement plan permitting withdrawals, for any reason, before reaching 59½ without penalty. All qualified plans have exceptions to the 10% penalty tax, but only the 457 allows the withdrawals for any reason.

A client has made both tax-deductible and nondeductible contributions to a traditional IRA. When distributions are taken from the IRA, A) they are treated as being from the nondeductible portion first and the deductible portion last B) they are taxed on a pro rata basis C) that portion derived from the nondeductible contributions is not subject to penalty if withdrawn before age 59½ D) they are treated as being from the tax-deductible portion first and the nondeductible last

B The portion of the distribution that is nontaxable must be prorated with amounts that are taxable. For instance, if the individual contributed $2,000 in after-tax amounts and $8,000 in pre-tax amounts, a distribution of $5,000 would be prorated to include $1,000 after-tax and $4,000 in pre-tax assets

Under the Uniform Transfers to Minors Act, Ralph wants to give some stock to his brother's son, Jose. Jose's father, Bob, is the legal guardian, but he has failed the Series 7 exam 11 times. Which of the following is CORRECT? A) Uncle Ralph cannot be the custodian, because he is not the legal guardian. B) Either Ralph or Bob can be the custodian. C) Ralph can be the custodian only if the securities are on the legal list of the state. D) Bob cannot be the custodian because he is not qualified.

B Under UTMA, a custodian is required. Any adult can be the custodian and there are no other specific requirements, nor does the custodian have to be a member of the family.

It would be incorrect to state that a lump-sum distribution from a 401(k) before retirement may be A) eligible to be transferred to a Roth IRA B) tax free if the recipient is disabled C) subject to ordinary income tax and penalty D) eligible to be rolled over into a traditional IRA

B distribution to someone who is disabled is free of the 10% penalty tax but is still subject to taxation as ordinary income. Distributions from a qualified retirement plan (e.g., a 401(k) plan) prior to retirement are subject to tax and possible penalty unless the funds are rolled over or transferred into a traditional IRA. If, instead, the move is made into a Roth IRA, there is no penalty, but tax would be due just the same as if one converted from a traditional to a Roth IRA.

A 457 plan could cover which of the following? Employees of a corporation Independent contractors providing services to the county Employees of a nonincorporated business City employees A) II and III B) I and IV C) II and IV D) I and III

C

An employer whose 401(k) plan complies with ERISA Section 404 is placing investment risk with the A) employer B) Securities and Exchange Commission C) plan participant D) Internal Revenue Service

C

An investment policy statement would likely include expected returns of the recommended strategy and the expected range of these returns recommended allocations among differing asset classes strategies used for selecting specific stocks in the equity portion of the portfolio disclosure of the fees that the adviser will earn for implementing the recommended strategy A) I only B) II, III, and IV C) I, II, and III D) I and II

C

Dr. Smith is resigning from the clinic where he was an employee covered under its profit-sharing plan. The plan document requires distribution of vested amounts once an employee leaves the clinic. Under the Internal Revenue Code, what can he do to avoid current-year taxation of the distribution? A) Invest the distribution in municipal bonds B) Invest the distribution in a government zero-coupon bond C) Roll over the distribution into an IRA within 60 days D) Place the distribution in a Keogh Plan

C

Harry Thomas has turned 19 and decided that he is going to join the Marines and postpone going to college. If Harry decides to stay in the military, the unused funds contributed to his Coverdell ESA A) must remain in the plan until Harry's 30th birthday B) must be returned to the donor with tax plus a 10% penalty on the earnings C) may be transferred into another Coverdell ESA for Harry's 25 year-old cousin, Julia D) must be distributed to Harry no later than 30 days after his 21st birthday

C

One of your clients is discussing various options for funding his IRA. Current tax law would permit investing in which of the following vehicles? Collectible stamps issued by the U.S. Postal Service Gold or silver coins minted by the U.S. Treasury Department Fixed annuities REITs A) II and IV B) I and III C) II, III, and IV D) I, II, III, and IV

C

Section 404(c) of ERISA deals with A) distribution options B) eligibility requirements C) fiduciary responsibilities D) tax qualification of the plan

C

The main disadvantage of a contributory defined contribution pension plan is that A) the employees can choose the amount they wish to invest. B) the employer contributed toward the retirement planning of the employee. C) the actual sum an employee will receive at retirement is unknown. D) at retirement, the client might want to use the retirement fund to generate income in retirement, possibly by purchasing an annuity.

C

The term security would include which of the following? A) 403(b) plans B) Coverdell ERAs C) Section 529 plans D) Indentures

C

Two years after their wedding, Pam and Jim became the proud parents of child. Both grandparents want to help ensure educational funds for their new grandchild by using the Coverdell ESA. Assuming they are within the earnings limitations, which of the following would be permitted? A) $2,000 from Pam's parents and $2,000 from Jim's parents into separate ESAs B) $2,000 from Pam's parents and $2,000 from Jim's parents into a single ESA C) $1,000 from Pam's parents and $1,000 from Jim's parents into separate ESAs D) $2,000 from Pam's mother, $2,000 from Pam's father, $2,000 from Jim's mother, and $2,000 from Jim's father

C

Under ERISA, a fiduciary must act in all of the following ways EXCEPT A) in accordance with the governing plan documents unless they are not consistent with ERISA B) solely in the interest of plan participants and beneficiaries C) confining investments to only those most likely to achieve growth D) with care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character

C

Under ERISA, a pension portfolio manager may engage in writing covered options A) at no time; writing options is too high a risk B) under any circumstances C) only if it fits with the objectives of the plan D) only during declining markets

C

Under UTMA, which of the following are allowable distributions for the benefit of the minor? A) Clothing expense for child who has gone thru a growth spurt B) A percentage of housing expenses, such as the utilities for his bedroom C) The cost to attend a summer camp D) A percentage of food expense

C

What is the total amount that may be invested in a Coverdell Education Savings Account in 1 year? A) The current maximum per parent B) The current maximum per couple C) The current maximum per child D) The current maximum per family member

C

When a corporation establishes a qualified money purchase plan, A) discrimination in favor of lower-compensated employees is encouraged B) the employee is obligated to make annual contributions at the rate stated in the plan C) the corporation is obligated to make annual contributions at the rate stated in the plan D) the corporation can adjust the contribution rate based on company profits

C

Which of the following employer-sponsored plans allows coverage to discriminate in favor of key employees? A) 401(k) plan B) 403(b) plan C) 457 plan D) Defined benefit pension plan

C

Which of the following employer-sponsored plans is NOT covered by ERISA? A) Defined benefit pension B) 403(b) C) Deferred compensation D) 401(k)

C

Which of the following is NOT required under ERISA Section 404(c)? A) Plan participants must have access to a broad range of investment alternatives. B) Individual accounts must be provided for each plan participant. C) All plan participants must have been employed by the plan sponsor for a minimum of 3 years. D) Each plan participant must have the ability to exercise independent control over assets in her account.

C

Which of the following is the most suitable investment for the IRAs of a young couple with a combined annual income of $80,000? A) Initial public offerings of small companies B) Partnership interests in an oil and gas drilling program C) Shares of a growth fund D) Options on large-cap common stock

C

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) I and III C) I and II D) II and IV

C

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

C

Which of the following statements regarding loans from 401(k) plans is NOT correct? A) They must be adequately secured. B) They must be made in accordance with the loan provisions stipulated in the 401(k) plan. C) They must be made available to highly compensated employees in amounts greater than that made available to other employees. D) They must bear a reasonable rate of interest.

C

You are discussing features of qualified pension plans with a client. You state that in one type of plan "the eventual amount of pension benefits will depend upon the fund's investment performance." You must be referring to which of the following? A) IRA B) Defined benefit C) Defined contribution plan D) Deferred compensation plan

C

A nonqualified plan designed to provide additional retirement benefits limited to a select group of management or highly-compensated employees is called A) a payroll deduction plan. B) a defined benefit plan. C) a SERP. D) a defined contribution plan.

C A supplemental executive retirement plan (SERP) is a nonqualified plan designed to provide additional retirement benefits limited to a select group of management or highly-compensated employees. It is probably not a testable point, but these are frequently funded with cash value life insurance policies. Defined benefit and defined contribution plans are qualified - the question states, nonqualified. A payroll deduction plan is usually nonqualified, but that is most often used by lower income employees; it is definitely not an executive's plan.

When completing an individual tax return on Form 1040, one of the most important numbers is the adjusted gross income (AGI). Which of the following would NOT be included in AGI? A) Alimony received from pre-2019 divorce decree B) Qualifying dividends on common stock C) Salary and commissions D) Tax-exempt interest received from municipal bonds

D

Which of the following statements regarding Coverdell ESAs and QTPs is NOT correct? A) If a portion or all of the withdrawal (QTP) is spent on anything other than qualified higher education expenses, the distributee will be taxed at her own tax rate on the earnings portion of the withdrawal. B) QTPs are extremely useful tools that provide significant tax savings, allow for substantial investments for a child's education and provide a tool for avoidance of gift and estate taxes if used correctly. C) Coverdell ESAs currently permit up to $5,000 in annual contributions, whereas QTPs allow large contributions reaching as high as $300,000 and above. D) Coverdell ESAs are designed to offer tax benefits to those individuals who wish to save money for a child/grandchild's higher education expenses.

C Coverdell ESAs currently permit up to $2,000 in annual contributions, whereas QTPs (Section 529 Plans) allow large contributions reaching as high as $300,000, (each state sets its own limit) and above. When nonqualifying distributions are taken, any taxes are the responsibility of the distributee, defined by the IRS as the beneficiary (student) of the plan. Those who contribute to either of these are moving assets out of their estate and, in the case of the QTP, it may be front-loaded using the annual gift tax exclusion for up to 5 years. In both plans, distributions made for qualified expenses are tax-free.

A pension plan administrator would probably be able to qualify for the exemption offered under the safe harbor provisions of 404(c) of ERISA if the plan offered which of the following choices? A) DEF Long-term Investment Grade Bond Fund; PQR U.S. Government Bond Fund; STU High Yield Bond Fund B) PQR U.S. Government Bond Fund; GHI Money Market Fund; VWX Global Bond Fund C) ABC Large-Cap Growth Fund; DEF Long-term Investment Grade Bond Fund; GHI Money Market Fund D) ABC Large-Cap Growth Fund; JKL Small-Cap Technology Fund; MNO International Equities Fund

C In order to qualify for the safe harbor under 404(c), the portfolio selections must include at least 3 different asset classes, such as equity, debt, and cash equivalent. All equities or all debt won't qualify.

When a nonspouse inherits an IRA, the beneficiary can choose from all of the following options EXCEPT A) withdrawing all of the funds immediately B) opening a separate inherited IRA in the name of the deceased FBO the beneficiary C) withdrawing the funds over a 5-year period following the death of the owner D) keeping the money in the deceased's IRA

D

Although not required by DOL regulations, if a plan administrator prepared a written investment policy statement meeting ERISA requirements, you would expect to find all of the following EXCEPT A) methods to be used for determining how the plan will meet future cash flow needs B) investment philosophy C) performance measurement parameters D) the identity of the specific securities to be chosen for the portfolio

D

If a 41-year-old investor who earns $26,000 this year overcontributes to his IRA, how much will be subject to the 6% penalty? A) His original cost base B) There will be no penalty C) His original cost base plus the contribution D) The amount by which he over contributed

D

Maria, age 49, was discussing with some coworkers the recent family vacation she took. She commented that she was able to afford it by taking a penalty-free withdrawal from her retirement plan. Based on that statement, Maria must be covered under A) a 403(b) plan. B) a 401(k) plan. C) a defined benefit plan. D) a 457 plan.

D

Under ERISA, a fund manager wishing to write uncovered calls may do so A) without restrictions B) if approved by the IRS in writing C) if explicitly allowed in the plan document D) under no circumstances

D

What is the latest date that an IRA participant may make an IRA deposit for the current year? A) July 15 of the following year, if extensions have been filed B) December 31 of the current year C) April 15 of the current year or the first business day following if the 15th is a Saturday or Sunday D) April 15 of the following year or the first business day following if the 15th is a Saturday or Sunday

D

Which of the following is an allowable early withdrawal from a traditional IRA without a tax penalty? A) A single parent supplements a home equity loan with funds from her IRA to pay for a second home. B) A single parent withdraws funds from her IRA to pay for the education of a nephew. C) A person withdraws funds from his IRA to pay for elective cosmetic surgery. D) A wealthy individual withdraws $10,000 from his IRA to purchase his first principal residence.

D

Which of the following statements regarding a traditional IRA is TRUE? A) Distributions before age of 59½ are subject to a 10% penalty in lieu of income taxes. B) Distributions without penalty may begin after the age of 59½ and must begin by April 1 of the year before an individual turns 70½. C) Because contributions to a traditional IRA are not currently tax deductible, all qualifying withdrawals are tax free. D) The income and capital gains earned in the account are tax deferred until the funds are withdrawn.

D

Money in an UTMA may be used to pay for certain expenses relating to the minor. Which of the following would be permitted usage of funds in an UTMA? A) Paying for the minor's share of the heating and lighting expenses B) A new suit C) Milk, bread, and eggs D) A vacation trip to Orlando

D Although the custodian has wide latitude in how money in this account may be spent, in general, it is not permitted to use it for the basic necessities, such as food, clothing, and shelter.

Harry, age 52, is an unmarried individual currently earning $55,000 per year. He consults you about the possibility of establishing both a traditional IRA and a Roth IRA this year and making contributions to each. You have determined that Harry should make a $3,000 contribution to the traditional IRA for this year. What amount, if any, can Harry also contribute to the Roth IRA? A) $0 B) $2,500 C) $3,000 D) $4,000

D Contribution amounts to the traditional and Roth IRA must be aggregated for purposes of determining a total amount. In addition, because Harry is over age 50, he is permitted a $1,000 catch-up contribution. Currently, his total allowable contribution is $7,000; Harry can contribute an additional $4,000 to the Roth IRA.

IRAs and Keogh plans are similar in the following ways EXCEPT A) deferral of taxes B) there is a 50% tax penalty for insufficient distributions C) distributions without penalty can begin as early as age 59½ D) identical amounts of contributions are allowed

D IRAs and Keogh plans do not have identical contribution amounts; IRAs allow a maximum of $6,000 per individual or $12,000 per couple per year (with a catch-up of $1,000 for each individual aged 50 or older), whereas Keogh plans allow substantially more. Both IRAs and Keoghs allow tax-deferred growth until the individual withdraws the funds. IRAs and Keoghs have premature distribution penalties before age 59½. Once the participant reaches 70½, required minimum distributions must be made or a 50% tax penalty will be assessed.

A single individual earning $250,000 a year may open a Coverdell ESA not open a Coverdell ESA open a 529 college savings plan not open a 529 college savings plan A) II and IV B) I and IV C) I and III D) II and III

D There are income limits that apply to Coverdell ESAs. Single individuals earning more than $110,000 per year are not permitted to open a Coverdell account, and married couples lose the ability to contribute when earnings exceed $220,000. However, there are no income limits restricting who is eligible to open and contribute to a Section 529 college savings plan.

Mary teaches physics at the local high school and makes about $70,000 per year. She could maximize her annual retirement savings by participating in A) a 403(b) plan and an IRA. B) an employer-funded 401(k) plan. C) a 403(b) plan. D) a 403(b) and a 457 plan.

d

Without the need to meet any special conditions, a participant in which of the following retirement plans would be able to withdraw funds prior to age 59½ and not incur a 10% tax penalty? A) 457 B) 403(b) C) 501(c)(3) D) 401(k)

a

An employer wishing to offer a retirement plan with a goal of retaining key employees would probably start with A) a deferred compensation plan B) a defined benefit plan C) a SEP IRA D) a payroll deduction plan

a Because the deferred compensation plan allows the employer to discriminate, it is a popular choice for offering special benefits to retain key employees. Defined benefit plan will be the answer to a question dealing with offering maximum benefits to older employees.

One of your clients, a couple in their early 30s, asks you to recommend a plan to save for their newborn child's education. They are only able to contribute $1,800 per year. Which of the following would most likely be the best fit for their situation? A) Coverdell ESA B) UTMA C) Section 529 plan D) Equity index annuity

a The key to this choice is the contribution level. The Coverdell ESA has a maximum annual limit of $2,000 and offers tax-free growth. Why not the Section 529 plan? Invariably, that will be the correct choice when the question involves higher contribution amounts or tax benefits on a state level. When the couple can only contribute $1,800 per year, it seems logical to assume that they are in a low tax bracket where those benefits would be of minimal value. UTMA offers less flexibility and the annuity would not be suitable for anyone wishing to use the funds prior to age 59½.

IRAs and Keogh plans are similar in each of the following ways EXCEPT A) distributions without penalty may begin as early as age 59½ B) rollovers are allowed once every 12 months and must be completed within 60 days C) taxes on earnings are deferred D) the maximum allowable cash contribution is the same

d Both IRAs and Keogh plans have maximum annual allowable contribution limits but they are significantly higher in a Keogh Plan.

When a nonspouse inherits an IRA, the beneficiary can choose from all of the following options EXCEPT A) opening a separate inherited IRA in the name of the deceased FBO the beneficiary B) keeping the money in the deceased's IRA C) withdrawing the funds over a 5-year period following the death of the owner D) withdrawing all of the funds immediately

b

Which of the following plans does NOT allow a catch-up contribution for individuals who are at least 50 years old? A) IRA B) 529 C) 401(k) D) 403(b)

b

Who is obligated for the payment of taxes in an UTMA account? A) Parent B) Child C) Custodian D) Donor

b

One of the advantages of using a 529 plan rather than a Coverdell ESA to fund higher education is A) the 529 plan is a security while the ESA is not. B) contributions to a 529 plan are tax deductible. C) there is no age limit by which time the funds must be used. D) the 529 allows you to change the beneficiary to another member of the beneficiary's family.

c

A QDRO is a judgment, decree, or order for a qualified retirement plan to pay child support, alimony, or marital property rights to a spouse, former spouse, child, or other dependent of a participant. The QDRO must contain certain specific information as stated in whose regulations? A) ERISA B) NASAA C) DOL D) IRS

d

An individual covered under a traditional IRA would NOT be able to also maintain which of the following? A) A 401(k) and a 457 B) A Roth IRA C) A 403(b) and a 457 D) A 401(k) and a 403(b)

d