STC Chap 2 Qs
An 75-year old individual has contributed $40,000 to a qualified plan that currently has a value of $100,000. If she decides to take a lump-sum distribution of the total value, she is taxed on: None of the $100,000 $40,000 $60,000 $100,000
$100,000 Since contributions to a qualified plan are made in pre-tax dollars, this results in a zero cost basis (i.e., none of the funds have been taxed). As a result, when distributions are made, the entire amount is taxable as ordinary income.
Which of the following choices is considered a qualified retirement plan? 401(k) plan An IRA A 529 plan A Roth IRA
401(k) plan Qualified is an ERISA term associated with certain work sponsored retirement plans. Typically, these qualified plans grow tax-deferred and are funded with pretax dollars through employee and/or employer contributions. Traditional IRAs, Roth IRAs, and 529 plans are individually funded vehicles that have nothing to do with the client's employer or ERISA.
Signatures of which tenants must be obtained when opening a joint account? Only one, the tenant with authority to trade in the account. Only one, the tenant with the greatest percent interest in the account. All tenants, but only one has authority to trade in the account. All tenants, and all have authority to trade in the account
All tenants, and all have authority to trade in the account When opening a joint account signatures of all tenants must be obtained. In addition, all tenants have the ability to trade in the account, but if securities are liquidated the check must be payable to all tenants.
After opening an account with a firm a customer must receive an updated privacy notice: Semi-annually. Annually. Bi-annually. A privacy notice need not be provided after opening an account.
Annually.
Which of the following statements is NOT TRUE concerning a 403(b) plan? A tax-exempt employer can establish the plan. Employees of certain tax-exempt organizations are permitted to make pre-tax contributions. Employees of certain tax-exempt organizations are permitted to claim a tax credit based on the amount of their contributions. Employees of certain tax-exempt organizations are not taxed on the earnings until they withdraw funds from their accounts.
Employees of certain tax-exempt organizations are permitted to claim a tax credit based on the amount of their contributions. A 403(b) is a type of retirement plan for employees of tax-exempt organizations (i.e., 501(c)(3) organizations), which include religious and charitable entities. Eligible participants also include employees of public schools and colleges. Similar to 401(k) plans, the contributions can be made in pre-tax dollars up to certain limits and the earnings in the account are tax deferred. Employees cannot claim a tax credit on their contributions.
A registered person of a broker-dealer has an existing account at another firm and has followed the proper procedures to open the account. The current responsibility of the registered person is to: Obtain her employing firm's prior written consent in order to purchase any securities in the account Obtain her employing firm's prior verbal consent in order to purchase any securities in the account Notify her clients that she has an existing account at another member firm to trade securities Follow her employing firm's guidelines when trading securities
Follow her employing firm's guidelines when trading securities Employees of broker-dealers who intend to open outside brokerage accounts for the purpose of executing securities transactions are required to obtain the prior written consent of their firm. Once the employee obtains her employing firm's written consent, she must follow the firm's guidelines when trading securities.
Which of the following statements is TRUE regarding a Coverdell Education Savings Account? The maximum contribution is $6,000. If the funds are not used for educational expenses, the account may be used for tax-deferred retirement savings Contributions must be invested conservatively Grandparents may make contributions for their grandchildren until the children reach the age of 18
Grandparents may make contributions for their grandchildren until the children reach the age of 18 A parent, grandparent, or any other person whose adjusted gross income is within certain limits may contribute a maximum of $2,000 per year to an account that is established for the benefit of a child who is under the age of 18. If the withdrawals are not used to pay for the child's education expenses, then the earnings portion of the withdrawal is subject to taxation as ordinary income plus a 10% tax penalty is assessed.
A new customer wants to open an account at a brokerage firm to purchase municipal securities. The Municipal Securities Principal of the branch is out of the office for the day, but the customer is adamant about the account being opened right away. What action can be taken? Explain to the customer that no orders can be entered until the account has been approved by a Municipal Securities Principal. Any securities must be purchased in another account and then transferred to the customer's account after the account has been approved by a Municipal Securities Principal Execute any customer orders and have the account approved when the Municipal Securities Principal returns to the office. Have the General Securities Principal of the branch approve the account.
Have the General Securities Principal of the branch approve the account. According to MSRB rules, either a Municipal Securities Principal (i.e., Series 53) or General Securities Principal (i.e., Series 24) is permitted to review and approve the opening of a customer's account. However, the review of transactions in municipal securities on a daily basis may only be performed by a Municipal Securities Principal.
Which TWO of the following statements are TRUE concerning Section 457 plans? These plans are state-sponsored and used to fund higher education expenses These plans are used to fund retirement These plans grow tax-deferred These plans grow tax-free I and III I and IV II and III II and IV
II and III A Section 457 plan is a type of qualified retirement plan used by many public sector workers. 457 plans grow on a tax-deferred basis and are generally subject to the same contribution limits as 401(k) and 403(b) plans. Each has similar tax features and contribution allowances. The difference between the plans is the type of employee who may use them. A 401(k) plan is used primarily by for-profit employees, a 403(b) plan by nonprofit employees, and a 457 plan by some local government workers. State-sponsored, higher education savings plans that may be opened by an investor are referred to as Section 529 plans, not 457 plans.
According to FINRA which TWO of the following are not required when opening a cash account for a customer? Name Signature Is customer of legal age Social Security Number I and III II and III II and IV III and IV
II and IV FINRA requires the customer's name and residence address, if the customer is a of legal age, name or names of registered representatives servicing the account and the signature of the principal approving the account when opening a cash account. FINRA does not require the customer's signature, nor does it require his or her social security number.
Dennis, Al, and Dan have opened a securities account with your firm as tenants in common. All of the following are TRUE, EXCEPT: If Dennis dies, his interest in the account will pass to Al and Dan You may accept an order from either Dennis, Al, or Dan Checks issued by your firm from the account will be in the name of all three co-owners When opening the account, you should obtain Social Security numbers from all three co- owners
If Dennis dies, his interest in the account will pass to Al and Dan In a tenants-in-common account, the interest of a deceased owner passes to the estate of the deceased. The surviving owners of the account (Al and Dan) would receive the securities if the account was a joint tenants with rights of survivorship account.
An individual transferring an IRA from one trustee to another: Must be at least 59 1/2 to avoid penalties Will receive a check that must be rolled over within 60 days of receipt to avoid taxes Is not subject to taxes or penalties May only do so once each year
Is not subject to taxes or penalties A transfer of funds from one trustee to another is not considered a distribution or a rollover. There is neither a limit to the number of transfers that an individual may do, nor are there any taxes or penalties. This differs from receiving a distribution from a retirement plan. The distribution must be rolled over into another qualified plan, within 60 days of receiving the money, in order to avoid taxes and penalties. Rollovers may be done only once each year.
An employee of a brokerage firm has decided to open an account with an investment company to purchase various mutual funds under the company's complex of funds. The employee: Must provide written notice to the employing firm of the account opening Must provide written notice to the employing firm of the new account and written notice to the investment company of the employment with the brokerage firm Is prohibited from opening the account May open the account without notifying either firm
May open the account without notifying either firm Written notification is not required when opening an account with another member firm if the transactions will be limited to redeemable investment company shares, variable contracts, or unit investment trusts.
Before accepting a delivery versus payment (DVP) order from a customer, a broker-dealer must: Notify FINRA Obtain the name of the customer's agent from the customer Receive approval of the trade from the contrabroker Notify the appropriate banking regulator
Obtain the name of the customer's agent from the customer Prior to accepting a DVP (Delivery versus Payment) or RVP (Receipt versus Payment) order from a customer, a broker-dealer must receive the name of the customer's agent and the customer's account number. The order ticket must be marked DVP or RVP.
A customer would like to open an account designated by number. The registered representative should: Open the account Not open the account because it is a violation of SEC rules Open the account if the customer signs a written statement acknowledging the account is the customer's Not open the account because it is a violation of industry rules
Open the account if the customer signs a written statement acknowledging the account is the customer's A customer may open a numbered account for reasons of confidentiality. However, the registered representative should open the account only if the customer signs a written statement acknowledging the fact that the account is the customer's. This must be kept on file at the brokerage firm.
All of the following must be addressed in the written supervisory procedures (WSP), EXCEPT: Approval of new accounts Procedures designed to ensure taxes are paid in ERISA qualified accounts Communication between research and investment banking An identity theft prevention program
Procedures designed to ensure taxes are paid in ERISA qualified accounts
The written supervisory procedures (WSP) manual of a broker-dealer would NOT include the: Nature of a firm's business activities Responsibilities of all supervisors Procedures that must be followed in the event of a catastrophic business disruption Identity of those responsible for implementing the procedures
Procedures that must be followed in the event of a catastrophic business disruption The WSP manual includes the policies and procedures governing all aspects of a firm's business as well as identifying those responsible for implementing the procedures. The procedures that must be followed in the event of an emergency or significant business disruption are included in the firm's Business Continuity Plan.
A registered representative discovers that one of her customers is on the Office of Foreign Assets Control (OFAC) list. The RR or another person at her firm must notify: The Office of the Comptroller of the Currency The Treasury Department The SEC FINRA
The Treasury Department Firms are prohibited from transacting business with individuals and entities that are identified on the Office of Foreign Assets Control (OFAC) list. If a registered representative discovers that one of the owners or beneficiaries of an account is on the OFAC list (or if someone on the list tries to open an account with his firm), the RR or another person from her firm should contact the U.S. Treasury Department immediately. The Financial Crimes Enforcement Network (FinCEN) and OFAC are both a part of the Treasury Department.
A customer wants to open a cash account. What information is NOT required on the new account form? The name of the registered representative responsible for the account Whether the customer is of legal age The customer's signature The branch manager's approval
The customer's signature The name of the registered representative and the signature (approval) of the branch office manager must always be included on a new account form. The customer's signature is required for a margin account but not for a cash account. The registered representative must determine whether the customer is of legal age.
On May 25, the president of MaxCo bought 3,000 shares of MaxCo stock in the open market at $33. Two months later, the stock has increased to $40. If the president now wants to sell the shares: Permission must be granted by the MaxCo board of directors The profit from the trade must be forfeited according to the short-swing profit rule Notification must be made to the corporation's legal counsel Permission must be granted by FINRA
The profit from the trade must be forfeited according to the short-swing profit rule The Securities Exchange Act of 1934 prohibits insiders from making short-swing profits. A short-swing profit is a profit made on stock held by insiders for less than six months. If the president of MaxCo sold stock two months after it was purchased, MaxCo could sue for recovery of the profit. Under Rule 144, the six-month holding period applies only to restricted stock and, since the stock was purchased in the open market, the shares would be considered control stock.
A Form 3 must be filed: Within two business days of becoming a director Within two business days of the date on which a director buys or sells securities Within 10 days of becoming a director Within 10 days of the date on which a director buys or sells securities
Within 10 days of becoming a director A person must file Form 3 with the SEC within 10 days of becoming an insider. An insider is defined as any director or officer of a corporation or any person with beneficial ownership of more than 10% of issuer's equity securities. Form 4 must be filed within two business days of the date on which an insider changes his ownership position (i.e., buys or sells).