SIE flashcards ch 14
(T/F): Only one person must provide information to open a joint account.
false each owner must provide information to open a joint account
(T/F): Regardless of income level, a contribution is always permitted in any type of IRA.
false high income individuals may lose the ability to contribute to Roth IRAs but contribute to Traditional IRAs
(T/F): All corporate officers may effect transactions for the corporation.
false only those named in the corporate resolution
(T/f0: Discretionary orders must be confirmed with the client before being entered.
false
(T/F): A withdrawal of up to $10,000 may be taken from an IRA for the purchase of a vacation home.
false a penalty fee withdrawal from an IRA is only permitted for a first time purchase of a home
What is the maximum annual IRA contribution for a 58-year-old who only has investment income?
$0 since he has no earned income
A withdrawal of up to $______ may be taken without penalty from an IRA for a first-time purchase of a home.
$10,000
What is required for an account being opened for a client who wishes to engage in short selling stock?
1) principal's signature 2) client's signature (since the activity requires a margin account)
Qualified plan withdrawals prior to age 59 1/2 are taxable and also subject to a ____% IRS early withdrawal penalty.
10%
The maximum contribution to an IRA is ____% of earned income up to $_______.
100% $6,000
For how long may a not held order be maintained?
A not held order will be considered a day order.
Who may enter orders in a joint account?
Any owner named on the account
When must clients be given an Option Disclosure Document?
at or prior to account approval
An investor had granted power of attorney to his son. If the client dies, is the power of attorney still valid?
No power of attorney is cancelled at the time of the owner's death
An individual turns age 72 in December. When must she begin the RMDs from her IRA?
by April 1 of the following year
RRs must examine what document to open any corporate account?
corporate resolution
What are the general characteristics of a Joint Tenants in Common (JTIC) account?
it has multiple owners and each has trading rights if one owner dies his account value passes to his estate
What are the general characteristics of a traditional IRA account?
it is an individual retirement account in which the money grows tax deferred
What document allows a BD to lend customer securities to someone wishing to sell them short?
loan consent agreement
Must the custodian in an UGMA account be a parent?
no any adult may be custodian
____________ authorization is required for a client's wife to effect trades in his account.
third party
(T/F): Contributions made to qualified retirement plans are tax-deductible.
true
(T/F): Qualified plans receive favorable tax treatment by the IRS.
true
(T/F):To avoid a late withdrawal penalty, IRAs have a required minimum distribution (RMD) provision.
true
Identify the acronym: UGMA/UTMA
uniform gifts to minor act/ uniform transfers to minors act (governs custodial/ minor's accounts)
When is an individual (single filer) eligible to make tax-deductible contributions to a Traditional IRA?
when not covered by an employer sponsored plan or when covered by a plan and below an adjusted gross income limit
How are withdrawals from Roth IRAs treated for tax purposes?
withdrawals are tax free if the account is open for at least five years and is not considered an early withdrawal
How are withdrawals from a Roth IRA treated for tax purposes?
withdrawals will be tax free if the account is open for at least 5 years and is not considered an early withdrawal
When must IRA rollovers be completed?
within 60 days
How much may a married couple earning $325,000 contribute to a Roth IRA?
$0 since the couple's income exceeds the income threshold
What is the typical cost basis for a participant in a qualified retirement plan?
$0 since these plans are typically funded pre tax
A contribution of $_______ may be made to a Spousal IRA for a non-working spouse.
$6,000
Annuity withdrawals prior to age 59 1/2 will be subject to a ___% IRS penalty plus __________________ of earnings.
10% federal taxation earnings
What percentage of income from a qualified plan is typically taxable?
100% since qualified plans are normally funded with pre tax funds and have a zero cost basis
When an individual reaches age ______, he may begin withdrawing from an IRA without penalty.
59 1/2
When an individual reaches age ______, they may begin withdrawing from an IRA without penalty.
59 1/2
A rollover of qualified plan money from one account to another must be completed within ____ days of withdrawal.
60 days
A ___________________ is required to open an account for a partnership.
a partnership agreement
Who is eligible to make tax-deductible contributions to an IRA?
a person not covered by an employer plan or if covered a person who meets the income restriction
When may an individual withdraw money from an IRA without penalty?
after he turns 59 1/2
What are the general characteristics of a corporate account?
an account opened and owned by a business entity that has valid corporate resolution
After what age may traditional IRA plan contributions no longer be made?
as long as an individual has earned income she's able to contribute to a traditional IRA regardless of her age
When must an Options Disclosure Document (ODD) be delivered to a client?
at or prior to the time the account is approved for options trading
When must a margin disclosure document be provided to a client?
at the time the account is opened
Why is an IRA trustee-to-trustee transfer not considered a rollover?
because the proceeds are not directed to the owner
When must IRA withdrawals begin in order to avoid the late withdrawal penalty?
by April 1st of the year after an individual turns age 72
IRA contributions must be made in what form?
cash
Both the ____________ and the ____________ are required for a corporation to open an options or margin account.
corporate resolution corporate charter
Custodians have a ____________ duty to do what is best for the minor.
custodians have a fiduciary duty to do what is best for the minor
For what reasons may an individual take an early withdrawal from his IRA without penalty?
death disability qualified higher education home buyer ($10,000 limit), birth or adoption of a child ($5,000 limit)
What are some of the possibilities for avoiding premature distribution penalties in IRAs?
death or disability of the owner education expenses first time home buyer or annuitization of distribution
How must a client's authorization be obtained to enter discretionary orders, orally or in writing?
discretionary authorization must be in written form
Anyone with __________ income may contribute to an IRA.
earned income
The ___________ bears the investment risk in a defined contribution plan.
employee
Describe the employees who must be eligible to contribute to an ERISA qualified plan.
employees who are 21 years or older with one year of full time service
The ___________ bears the investment risk in a defined benefit plan.
employer
At death, assets held in a minor's account become a part of her _______.
estate
(T/F):When a client grants third-party authorization to another person, the account becomes a joint account.
false
(T/f): Money may be withdrawn from a joint account in one owner's name.
false any checks should be in both parties' names
(T/F): Client signature is required when opening either a cash or margin account.
false client signature is required when opening a margin account but not a cash account
(T/F): Not held orders may only be executed in a discretionary account.
false discretionary power of attorney is not required
(T/F): A power of attorney given to an agent (RR) must be renewed.
false powers of attorney do not have to be renewed
(T/F): Required minimum distributions apply to Roth IRA accounts.
false required minimum distributions apply to traditional IRA accounts not Roth IRAs
(T/F): Customers are required to sign the Loan Consent Agreement.
false signing the agreement is optional
(T/F): An IRA trustee-to-trustee transfer must be completed within 60 days.
false the 60 day rule applies to IRA rollovers
(T/F): Custodial accounts are solely carried in the name of the minor.
false the account is in the custodian's name for the benefit of the minor
(T/F): Earnings generated in a qualified retirement plan are tax-free.
false the earnings are tax deferred
(T/f): Principals must approve discretionary orders prior to entry.
false the orders must be approved promptly afterward
(T/F): An RR may sell stock from a client's non-discretionary account if a negative report is released.
false without written authorization an RR may not choose the security to buy for or sell from a client's account
If Joe is 55 years old, how much could he contribute to his IRA?
for anyone 50 or older an additional $1,000 is allowed making the maximum contribution $7,000
In general, a 401(k) plan is available to individuals who work for a ____________ corporation.
for profit corporation
The ________________ Agreement describes the customer's pledging of securities as collateral to the BD.
hypothecation agreement
f an IRA owner takes receipt of the assets for up to 60 days before reinvesting in a new plan, this is a _________.
if an IRA owner takes receipt of the assets for up to 60 days before reinvesting in a new plan this is a rollover
As it relates to IRAs, what is the difference between a rollover and a trustee-to-trustee transfer?
in a rollover the proceeds are directed to the owner but in a transfer the proceeds are directed to another institution
In what form must IRA contributions be made?
in cash
Identify the acronym: IRA
individual retirement account
Is margin permitted in a minor's account?
no securities must be fully paid
Is discretionary authorization required to enter a not held order?
no since discretion is limited to time and price on not held orders
Is an UGMA account considered a joint account?
no the assets are the property of the child
A qualified annuity contract or retirement plan is typically funded with _____- tax funds.
pre tax funds
ERISA gave the U.S. Government jurisdiction over ___________________ plans.
private pension plans
Prior to age 59 1/2, penalty-free withdrawals from an IRA may be taken for ______________________ expenses.
qualified educational expenses
____________ governs the extension of credit by BDs.
regulation T
What is the difference between a revocable and irrevocable trust?
revocable trusts can be changed after they are established while irrevocable trusts cannot be changed
Employer contributions into an employee qualified plan are _______________ to the employer.
tax-deductible
How is a Roth IRA contribution different from a Traditional IRA contribution?
the Roth IRA contribution is always made on an after tax basis
When a child reaches legal age, what action is taken in the custodial account?
the custodian must transfer the assets to the owner
What happens to the deceased's portion in a joint account with tenants-in-common?
the deceased's portion goes to his estate for tax purposes
What federal law requires employers to provide a high degree of fiduciary responsibility to group plan participants?
the employee retirement income security act (ERISA)
When withdrawing from a qualified plan, how is the distribution taxed?
the entire withdrawal is taxed since these plans are normally funded pre tax and have a zero cost basis
Custodial accounts are opened under whose Social Security number?
the minor's
Whose Social Security number is listed on a custodial account?
the minor's
In an IRA rollover, to whom are the funds directed?
the owner
What is waived for a first-time homebuyer in the event of an IRA distribution?
the penalty is waived however taxes are still levied
There is a ____% penalty for early withdrawals from an IRA.
there is a 10% penalty for early withdrawals from an IRA
In a Roth IRA, when must withdrawals begin in order to avoid a late withdrawal penalty?
there is no withdrawal requirement for Roth IRAs
What is needed to exercise discretion over a client's account?
written power of attorney
66 of 176May an 85-year-old continue to contribute to a Roth IRA?
yes provided she has earned income
May a custodian make speculative investments in a minor's account?
yes provided they are suitable based on the objectives
According to ERISA, are there any standards that must be followed regarding how money is invested?
yes the pan's trustee must abide by the Uniform Prudent investor Act
