Series 65 Unit 18 Checkpoint Exam

Which of the following is not an example of a nonqualified retirement plan? A) A SIMPLE plan B) A payroll deduction plan C) A deferred compensation plan D) A SERP

A. A SIMPLE plan

Under the Uniform Gift to Minors Act (UGMA), all of the following are permissible except A) the donor and the custodian being the same person. B) gifts of securities to a minor. C) the purchase of securities on margin. D) gifts of cash to a minor.

C. the purchase of securities on margin.

Your client, who has not yet attained the age of 59½, wants to take a withdrawal from his traditional IRA. Since the client is not disabled and does not meet any other qualifying reason allowing for an early withdrawal, you explain that the amount taken will be subject to a penalty of A) 6%. B) 15%. C) 50%. D) 10%.

D. 10%.

Which of the following has a use it or lose it provision? A) IRA B) ESA C) HSA D) FSA

D. FSA

Which of the following offers the benefit of tax-deductible contributions? A) Coverdell Education Savings Account (ESA) B) Roth IRA C) Payroll deduction plan D) Health savings account (HSA)

D. Health savings account (HSA)

Martha passed away in November 2023 at the age of 87. Among the assets in her estate was an IRA with a value of $150,000. Martha's son, Jerome, a successful 52-year-old surgeon and a client of yours, was named as the beneficiary of the IRA. From a tax standpoint, which of the following options would you recommend to Jerome? A) Jerome should take the cash now and use the money to fund a new IRA. B) Jerome should use the five-year cash-out option. C) Jerome should take the cash now and use a Section 1035 exchange into an annuity. D) Jerome should use the 10-year cash-out option.

D. Jerome should use the 10-year cash-out option.

Which of the following is a benefit to an employee of a business offering a safe harbor 401(k) using a nonelective formula? A) The employees are guaranteed the ability to consult an investment adviser. B) The plan is free from the top-heavy testing requirements. C) It guarantees that highly compensated employees do not get more of an employer match than employees who are not highly compensated. D) The employer is required to contribute on the employee's behalf even if the employee does not contribute to the plan.

D. The employer is required to contribute on the employee's behalf even if the employee does not contribute to the plan.

In many cases, the exceptions from the early-distribution tax penalty of 10% are the same for both IRAs and qualified plans. However, a specific exception granted to those with qualified plans that is not available to IRA owners is distributions A) for a first-time home purchase. B) for certain medical expenses. C) used for higher education expenses. D) under a QDRO.

D. under a QDRO.

All of the following statements regarding qualified corporate retirement plans are true except A) all qualified retirement plans are either defined contribution or defined benefit plans. B) all corporate pension and profit-sharing plans must be established under a trust agreement. C) defined contribution plans have the same contribution limits as Keogh plans. D) with defined benefit plans, the employee bears the investment risk.

D. with defined benefit plans, the employee bears the investment risk. Explanation With defined benefit plans, the employer (not the employee) bears the investment risk.

Withdrawals during retirement from which of the following accounts would most likely be subject to the greatest amount of taxation? A) Roth IRA B) Qualified variable annuity C) Nondeductible traditional IRA D) Nonqualified variable annuity

B. Qualified variable annuity Explanation The entire amount of the distribution from a qualified annuity will be subject to taxation at ordinary income rates. No tax is due on the Roth IRA, and only the earnings on the nonqualified annuity or nondeductible IRA will be subject to tax. LO 18.e

Which of the following may be purchased in an UTMA but not an UGMA? A) Bank CDs B) Mutual funds C) Real estate D) Individual stocks

C. Real estate

A 40-year-old teacher in the local public school system would find her retirement needs best served by contributing to A) a traditional IRA. B) a 401(k). C) a 403(b). D) a Roth IRA.

C. a 403(b).

Which of the following retirement plans would be appropriate for a highly compensated government employee? A) IRA B) 403(b) C) 401(k) D) 457(b)

D. 457(b)

All of the following statements regarding 529 plans are true except A) contributions are made with pretax dollars at the federal level. B) the beneficiary of a 529 plan may also be the beneficiary of a Coverdell Education Savings Account. C) earnings accumulate tax free if the money is used for qualified educational purposes. D) anyone can make a contribution on behalf of a beneficiary.

A. contributions are made with pretax dollars at the federal level. Explanation Contributions are made with after-tax dollars. Withdrawals are tax free at the federal level if used for qualified education expenses with a limit of $10,000 per year for K-12 tuition expenditures. LO 18.h

Those individuals who are considered parties in interest due to handling the assets of a corporate retirement plans are A) not permitted to use those funds to acquire company assets in an amount beyond the allowable limits. B) encouraged to use plan funds to assist the employer when there is a cash flow crisis. C) not considered to have a fiduciary responsibility. D) able to sell personal securities to the plan if that will benefit plan participants.

A. not permitted to use those funds to acquire company assets in an amount beyond the allowable limits. Explanation The Employee Retirement Income Security Act of 1974 (ERISA) does permit an employee benefit plan to acquire certain company assets subject to statutory limits, generally a maximum of 10% of the plan's assets. LO 18.g

If the administrator of a corporate 401(k) plan ensures that a wide variety of investment alternatives are available to employees along with the ability for the employees to monitor their accounts and make frequent changes as needed, ERISA A) shifts the responsibility for account performance to the employee. B) removes the requirement for top-heavy testing. C) removes the requirement for the plan to provide employees with quarterly reports. D) might find the administrator to be shirking his fiduciary responsibility.

A. shifts the responsibility for account performance to the employee. Explanation Under Section 404(c) of the Employee Retirement Income Security Act of 1974 (ERISA), when the employees have adequate control of their own investments and sufficient alternatives, the responsibility for account performance is shifted from the administrator to the employee. LO 18.g

In almost all states, the Uniform Gift to Minors Act (UGMA) account has given way to the Uniform Transfers to Minors Act (UTMA) account. Although there are more similarities than differences between them, one of those differences is that A) some states permit transfer of ownership in UTMA accounts to be delayed beyond the age of majority. B) the account is in the name of the minor in an UTMA account. C) the donor retains control over the investments with an UTMA account. D) there is more investment flexibility in the UGMA account.

A. some states permit transfer of ownership in UTMA accounts to be delayed beyond the age of majority.

One of your customers passed away recently. The customer had an IRA with you and had his sister listed as the beneficiary. Other assets included the home and furnishings and a brokerage account at another firm. The titling on that brokerage account was the customer and his son, JTWROS. The customer's will specified that 100% of his assets should pass to his daughter. Based on this information, the estate settlement will have A) the daughter getting the home and furnishings, the son receiving the brokerage account, and the sister getting the IRA. B) the daughter receiving everything as stated in the will. C) the daughter getting the home and furnishings and the IRA, with the son receiving the brokerage account. D) the daughter getting the home and furnishings and the brokerage account, with the sister receiving the IRA.

A. the daughter getting the home and furnishings, the son receiving the brokerage account, and the sister getting the IRA.

All of these are reasons a corporation might choose to establish a nonqualified plan rather than a qualified plan except A) the employer can take a tax deduction at the time the contribution is made to the plan. B) the corporation can exclude rank-and-file employees from a nonqualified plan. C) a nonqualified plan typically has lower administrative costs. D) a nonqualified plan has more design flexibility than a qualified plan.

A. the employer can take a tax deduction at the time the contribution is made to the plan. Explanation Employers are not permitted to take a tax deduction until the assets are received by the executive as income after the deferral period. LO 18.e

All of the following are advantages of a 401(k) plan except A) the employer may make unlimited contributions, which generate unlimited tax deductions for the business. B) tax deferral on the plan earnings is advantageous to employees. C) the owner of the business may participate in the plan. D) employees and the business may reduce current taxes.

A. the employer may make unlimited contributions, which generate unlimited tax deductions for the business.

An individual has a substantial vested interest in his 401(k) plan at work. Which of the following is not an exception to the premature distribution penalty tax? A) Distribution made pursuant to a qualified domestic relations order B) Distribution of up to $10,000 made to purchase a principal residence C) Distribution because of an employee's death or disability D) Distribution to pay certain medical expenses

B. Distribution of up to $10,000 made to purchase a principal residence

Assuming all withdrawals are equal, which of the following would subject a 60-year-old investor to the least amount of tax? A) Traditional IRA B) Roth IRA C) Nonqualified variable annuity D) 403(b) plan

B. Roth IRA

Which of the following is not true concerning a Coverdell Education Savings Account (ESA)? A) A beneficiary's unused balance may be rolled over to an ESA account for another child. B) The beneficiary may be the contributor's child or grandchild or the child of a friend of the contributor. C) In order for the withdrawal to be considered qualified, it may be used only for postsecondary education expenses. D) The maximum contribution is $2,000 per beneficiary.

C. In order for the withdrawal to be considered qualified, it may be used only for postsecondary education expenses.

Jill's bank, where she has her traditional deductible contributory IRA, is recommending that she roll over her IRA into a Roth IRA to benefit from the tax-free status of the withdrawals when she retires. (Jill is now 32 years old.) Which of the following is a consequence if Jill follows the bank's recommendations? A) No tax will occur, provided the rollover is completed within 60 days. B) The amount attributable to growth must be declared as income. C) The entire amount rolled over must be declared as income. D) Rolling over a traditional IRA to a Roth IRA will negate the tax-free status of future withdrawals.

C. The entire amount rolled over must be declared as income.

Each of the following individuals is eligible to participate in a Keogh plan except A) an engineer employed by a corporation who earns $5,000 making public speeches in her spare time. B) a securities analyst employed by a major research organization who makes $2,000 giving lectures in his spare time. C) an executive of a corporation who receives $5,000 in stock options from his company. D) a self-employed doctor in private practice.

C. an executive of a corporation who receives $5,000 in stock options from his company.

All of the following statements regarding 529 plans are true except A) contributions to a 529 plan may be subject to gift taxation. B) the assets in the account are controlled by the account owner, not the child. C) eligibility is affected by the income level of the contributor. D) states impose very high overall contribution limits.

C. eligibility is affected by the income level of the contributor.

If your customer works as a nurse in a public school and wants to know more about participating in the school's 403(b) plan, it would be accurate to make each of the following statements except A) distributions before age 59½are typically subject to penalty. B) contributions are made with pretax dollars. C) she is not eligible to participate. D) mutual funds and annuities are available investment vehicles.

C. she is not eligible to participate.

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

D. the corporation is obligated to make annual contributions at the rate stated in the plan.