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Series 6

Retirement and College Savings Plans - Review Questions




  1. Paul Ryder is a stay-at-home dad. His wife, Wendy Ryder, works full time. What is the maximum amount this couple may contribute in 2007 as a tax-deductible contribution to a spousal IRA?
    1. $4,000 or 100% of Wendy's yearly earned income, whichever is less
    2. $8,000 or 100% of Wendy's annual income, whichever is less
    3. 25% of Wendy's annual income, to a maximum contribution of $40,000
    4. $5,000 to Wendy's individual account only

  2. What is the penalty for making withdrawals from an IRA prior to reaching 59.5?
    1. There is no penalty if the person is retired
    2. The tax rate associated with the person's income tax bracket
    3. 25%
    4. 10%

  3. What is the age at which IRA withdrawals must start to avoid a tax penalty?
    1. 59.5
    2. 65
    3. 68
    4. 70.5

  4. All of the following statements concerning 401(k) plans are TRUE EXCEPT:
    1. The plans are funded with pre-tax dollars.
    2. Employers may match employee dollars.
    3. The maximum contribution is 25% or $40,000, whichever is less.
    4. Earnings grow tax-deferred.

  5. An early withdrawal from an IRA is permitted under which circumstance?
    1. Death or disability
    2. General economic collapse
    3. No-fault business failure
    4. Destitution

  6. Each of the following is an example of a qualified retirement plan EXCEPT:
    1. Defined-contribution plan
    2. Individual retirement account
    3. Pension and profit-sharing plan
    4. Defined-benefit plan

  7. Which of the following determines the amount paid into a defined-contribution plan?
    1. The formula contained within the plan's trust agreement
    2. The employee's age
    3. The employer's profits
    4. ERISA

  8. A qualified profit-sharing plan has all of the following features, EXCEPT:
    1. The contribution is tax-deductible to the employee.
    2. The beneficiary may average out the income at retirement.
    3. The contribution is taxable upon payment at retirement.
    4. The employer reports the contribution.

  9. Deferred-compensation plans are:
    1. often used as a method of saving for retirement on a tax-deferred basis
    2. subject to the same nondiscrimination requirements as 401(k) plans
    3. often used as a way to reward key employees
    4. an example of a qualified retirement plan

  10. In order to be qualified, an employer-sponsored retirement plan must meet ERISA standards regarding all of the following EXCEPT:
    1. The investment of plan assets
    2. The performance of the investments
    3. Eligibility
    4. Vesting
  11. If Tom opens a Coverdell ESA for his grandson, what is the most that he may contribute in 2007?
    1. $11,000
    2. $4,000
    3. $3,000
    4. $2,000

  12. Which of the following persons would be eligible to participate in a 403(b) plan?
    1. An engineer
    2. A self-employed individual
    3. A teacher at a university
    4. A member of a trade association

  13. According to ERISA, which of the following would NOT be a prohibited transaction if performed by a party in interest?
    1. Employing consultants to administer the plan
    2. Using plan assets for the party in interest's own benefit
    3. Making a loan to the plan
    4. Leasing office space to the plan

  14. Which of the following statements regarding Roth IRAs is TRUE?
    1. Withdrawals must be made after 70.5.
    2. Contributions are tax-deductible.
    3. Participation in an employer-sponsored plan may determine if a contribution is tax-deductible.
    4. Earnings are withdrawn tax-free after age 59.5, as long as the account has been open at least five years.

  15. Smokey Jones works for Planetville Records in Rococomo, Florida. If he stays with the company for 25 years, he will receive roughly 55% of his annual salary for the remainder of his life once he turns 65. This is an example of what kind of plan?
    1. A 401(k)
    2. A 403(b)
    3. A defined-contribution plan
    4. A defined-benefit plan

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