Series 65 Unit 18

George and Martha Washington are both in their mid-70s, are very active in their community, and both plan to start working part time at the local community bank. They would like to contribute a small portion of their earnings to some form of retirement plan. Which of the following choices would be the most appropriate for this couple?

A Roth IRA

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

A) FSA

Which of the following statements regarding a traditional IRA for someone filing a 2023 tax return is true? A) The income and capital gains earned in the account are tax deferred until the funds are withdrawn. B) Distributions without penalty may begin after age 59½ and must begin by April 1 of the year preceding the year an individual turns 73. C) Distributions before age 59½ are subject to a 10% penalty in lieu of income taxes. D) With sufficient earned income, a taxpayer who contributes $6,500 to a Roth IRA can also contribute $6,500 to a traditional IRA.

A) The income and capital gains earned in the account are tax deferred until the funds are withdrawn.

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

A) the purchase of securities on margin

Based on the SECURE Act 2.0, an individual who is 73 on November 15, 2023, has an IRA's first required minimum distribution date of

April 1, 2024.

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) 501(c)(3) B) 457 C) 403(b) D) 401(k)

B) 457

Which of the following employer-sponsored plans would never be covered by ERISA? A) 403(b) B) Deferred compensation C) 401(k) D) Defined benefit pension

B) Deferred compensation

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

B) Roth IRA

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

C) 457 plan

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

C) 457(b)

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

C) Health savings account (HSA)

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

D) A SIMPLE plan

Which of the following individuals is clearly eligible to make a catch-up contribution? A) Sam, who has completed 15 years of service B) Emily, who is fully vested C) Roger, who has completed 1 year of service D) Hannah, who is 55 years old

D) Hannah, who is 55 years old

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

D) Real estate

A 45-year-old employment counselor has a Keogh plan for himself and 3 full-time employees who have been working for him for the past 4 years. If he earns $150,000 this year and contributes the maximum amount allowed to his Keogh plan, how much may he invest in an IRA?

He may contribute 100% of earned income or the maximum allowable IRA limit, whichever is less.

Employee contributions to a 401(k) plan are subject to I. Social Security taxes II. federal unemployment taxes III. federal income tax withholding IV. state income tax withholding

I and II

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?

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

A 40-year-old teacher in the local public school system would find her retirement needs best served by contributing to

a 403(b).

Gail's minimum required distribution this year from her IRA is $5,000. If she takes $8,000, the penalty will be

$0 There is no penalty if a participant withdraws more than the required minimum distribution.

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

10%.

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 of up to $10,000 made to purchase a principal residence B) Distribution because of an employee's death or disability C) Distribution to pay certain medical expenses D) Distribution made pursuant to a qualified domestic relations order

A) Distribution of up to $10,000 made to purchase a principal residence

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

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

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

A) Qualified variable annuity

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.

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

A) the maximum allowable cash contribution is the same

If an individual leaves her current employer and takes a new job, which of the following cannot be done with the assets in her 401(k) plan? A) Keep them in the plan. B) Roll them over into a variable life insurance policy. C) Roll them over into a traditional IRA. D) Roll them over into the new employer's 401(k) plan.

B) Roll them over into a variable life insurance policy.

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

B) The cost to attend a summer camp

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 employer is required to contribute on the employee's behalf even if the employee does not contribute to the plan. C) The plan is free from the top-heavy testing requirements. D) It guarantees that highly compensated employees do not get more of an employer match than employees who are not highly compensated.

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

Which of the following is an allowable early withdrawal from a traditional IRA without penalty? A) A person withdraws funds from his IRA to buy a principal residence after he sold his first home as a result of medical expenses. B) A single parent withdraws funds from her IRA to pay for the education of a nephew. C) A wealthy individual withdraws $10,000 from his IRA to purchase his first principal residence. D) A single parent supplements a home equity loan with $5,000 from her IRA to pay for an additional home (a vacation home)

C) A wealthy individual withdraws $10,000 from his IRA to purchase his first principal residence.

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

C) An investment adviser using the interest from plan assets to cover the adviser's office expenses

Under the Uniform Gifts to Minors Act, Ralph wants to give some stock to his brother's son, Jose. His nephew's father, Bob, is the legal guardian. If Ralph wants to name himself as custodian, which of the following needs to be done? A) Ralph must receive legal permission to act as custodian. B) Ralph must have the permission of the guardian. C) Ralph must open the account and name himself as the custodian. D) Ralph must file the proper legal documents.

C) Ralph must open the account and name himself as the custodian.

The donor to a 529 plan has decided to move the existing plan to one offered by another state. Which of the following statements is not true? A) If there is a distribution of the assets, the rollover must be completed within 60 days. B) Unless a change of beneficiary is involved, only one rollover is permitted in a 12 month period. C) This may be done, but only if the entire account is rolled over. D) Even though these plans are generally under state control, the rollover rules are federal law.

C) This may be done, but only if the entire account is rolled over.

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) contributions are made with pretax dollars. B) mutual funds and annuities are available investment vehicles. C) she is not eligible to participate. D) distributions before age 59½are typically subject to penalty.

C) she is not eligible to participate.

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) with defined benefit plans, the employee bears the investment risk. D) defined contribution plans have the same contribution limits as Keogh plans.

C) with defined benefit plans, the employee bears the investment risk

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) Rolling over a traditional IRA to a Roth IRA will negate the tax-free status of future withdrawals. D) The entire amount rolled over must be declared as income.

D) 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) a self-employed doctor in private practice. D) an executive of a corporation who receives $5,000 in stock options from his company.

D) 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) states impose very high overall contribution limits. C) the assets in the account are controlled by the account owner, not the child. D) eligibility is affected by the income level of the contributor.

D) eligibility is affected by the income level of the contributor.

Prohibited investments in an IRA would include all of the following except A) gems. B) stamps. C) artwork. D) municipal bonds.

D) municipal bonds.

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

D) the employer can take a tax deduction at the time the contribution is made to the plan.

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

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

A nurse has been participating in her employer's qualified retirement plan. Upon leaving the clinic, she wishes to know what options she has that will keep the money growing tax-deferred without current tax consequences. You would tell her that I. she may arrange for a direct rollover of the plan assets into an IRA II. she may take a distribution and roll over the plan assets into an IRA as long as it is completed within 30 days III. she may take a distribution and roll over the plan assets into an IRA as long as it is completed within 60 days IV. her only option is to withdraw the funds, pay the taxes and begin a new IRA

I and III

Distributions from which of the following can be rolled over into an IRA? I. Another IRA II. Corporate pension plan III. Corporate profit-sharing plan IV. Keogh plan

I, II, III, and IV

Which of the following is (are) true regarding qualified pension plans? I. They must not discriminate. II. They must have a vesting schedule. III. They must be in writing. IV. Every month the employer must update the current status of all accounts.

I, II, and III

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?

IRS

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?

Maintain the current allocation if, while acting in the capacity of trustee, he believes it aligns with the goal of the trust

The contribution limit has to be aggregated when participating in both

a 401(k) and a 403(b)

For purposes of the maximum allowable annual contribution, an individual would have to aggregate contributions made to

a 401(k) and a 403(b).

Marv teaches literature at the local high school and makes about $60,000 per year. He could maximize his annual retirement savings by participating in

a 403(b) plan.

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 457 Plan.

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 457 plan.

Those individuals who are considered parties in interest due to handling the assets of a corporate retirement plans are

not permitted to use those funds to acquire company assets in an amount beyond the allowable limits.

A customer earns $31,432 this year and mistakenly overcontributes to her IRA. To avoid paying a penalty, she should

remove the excess, plus associated growth, from the IRA

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

shifts the responsibility for account performance to the employee.

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

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

When a corporation establishes a qualified money purchase plan,

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

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

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

An investor wishes to use funds in his IRA to purchase a condominium for personal use. Under current regulations,

this would be a prohibited transaction.

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

under a QDRO.