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Series 7 by Chapter > Retirement and Education Savings Accounts > Flashcards

Retirement and Education Savings Accounts Flashcards

1
Q

True or False: A withdrawal of up to $10,000 may be taken from an IRA for the purchase of a vacation home.

A

False. A penalty free withdrawal from an IRA is only permitted for a first-time purchase of a home.

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2
Q

True or False: Required minimum distributions apply to SEP IRAs.

A

True. Required minimum distributions apply to IRA SEP plans.

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3
Q

True or False: SEPs require employees to become immediately vested in the full amount contributed.

A

True

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4
Q

When is an individual (single filer) eligible to make tax-deductible contributions to a Traditional IRA?

A

When not covered by an employer-sponsored plan or when covered by a plan and below an adjusted gross income limit.

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5
Q

How much may be contributed to a Coverdell each year?

A

An after-tax contribution of $2,000 is allowed per year.

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6
Q

May an individual with a Keogh Plan also fund an IRA?

A

Yes, but since the Keogh is a qualified plan, the IRA contributions may not be tax-deductible.

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7
Q

What is the maximum annual contribution to a 457?

A

18,000

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8
Q

Only one IRA rollover is allowed per rolling ____ months.

A

Only one IRA rollover is allowed per rolling 12 months.

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9
Q

Who is eligible to contribute to a qualified annuity?

A

Public school employees [403(b)] and certain non-profit organization employees [501(c)3]

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10
Q

What is the maximum annual contribution to a 401(k)?

A

18,000

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11
Q

How are withdrawals from a Traditional IRA treated for tax purposes?

A

If all contributions were deductible, then the entire withdrawal is taxed as ordinary income.

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12
Q

Which plans impose income limitations on the contributors, 529 plans or Coverdell ESAs?

A

The Coverdell ESA

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13
Q

Does ERISA permit the writing of covered calls in retirement plans?

A

Yes

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14
Q

When an individual reaches age ______, they may begin withdrawing from an IRA without penalty.

A

When an individual reaches age 59 1/2, they may begin withdrawing from an IRA without penalty.

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15
Q

When must IRA withdrawals begin in order to avoid the late withdrawal penalty?

A

By April 1st of the year after an individual turns age 70 1/2

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16
Q

A withdrawal of up to $______ may be taken without penalty from an IRA for a first-time purchase of a home.

A

A withdrawal of up to $10,000 may be taken without penalty from an IRA for a first-time purchase of a home.

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17
Q

For employers with SEP Plans, where are the contributions they make for their employees directed?

A

The employee’s individual SEP-IRA.

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18
Q

What happens if the S&P 500 declines by 20% at any time during the day?

A

The market is closed for the remainder of the trading day

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19
Q

How is a Roth IRA contribution different from a Traditional IRA contribution?

A

The Roth IRA contribution is always made on an after-tax basis.

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20
Q

Anyone with __________ income may contribute to an IRA.

A

Anyone with earned income may contribute to an IRA.

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21
Q

The maximum contribution to an IRA is ____% of earned income up to $_______.

A

The maximum contribution to an IRA is 100% of earned income up to $5,500.

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22
Q

How are withdrawals from Roth IRAs treated for tax purposes?

A

Withdrawals are tax-free if the account is open for at least five years and is not considered an early withdrawal.

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23
Q

True or False: Excess contributions made to an IRA will still be deductible and will grow tax-deferred.

A

False. Excess contributions are non-deductible and will not grow on a tax-deferred basis.

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24
Q

Describe the tax treatment of contributions made to a 529 Plan.

A

They are after-tax contributions that may possibly grow tax-free.

25
Q

If Joe is 55 years old, how much could he contribute to his IRA?

A

For anyone 50 or older, an additional $1,000 is allowed, making the maximum contribution $6,500.

26
Q

What are some of the investments that are not suitable for IRA contributions?

A

Collectibles, insurance, and metals (except U.S. gold and silver coins)

27
Q

IRA contributions must be made in what form?

A

Cash

28
Q

Describe the employees who must be eligible to contribute to an ERISA qualified plan.

A

Employees who are 21 years or older with one year of full-time service

29
Q

What retirement plans are available to the self-employed?

A

Keogh Plans and SEPs

30
Q

True or False: To avoid a late withdrawal penalty, IRAs have a required minimum distribution (RMD) provision.

A

True

31
Q

Define vesting.

A

The right an employee gradually acquires by length of service at a company to receive employer-contributed benefits

32
Q

What is the maximum annual contribution to a 403(b)?

A

18,000

33
Q

List some retirement accounts that have required minimum disributions.

A

Required minimum distributions apply to traditional IRAs, 401(k), 457, and 403(b) plans.

34
Q

How much may be contributed to a 529 plan and avoid gift tax?

A

A donor may give up to $14,000 per year and avoid the gift tax.

35
Q

A savings plan which funds both elementary and higher education is referred to as the ____________________________.

A

A savings plan which funds both elementary and higher education is referred to as the Coverdell Education Savings Plan.

36
Q

A contribution of $_______ can be made to a Spousal IRA for a non-working spouse.

A

A contribution of $5,500 can be made to a Spousal IRA for a non-working spouse.

37
Q

True or False: Required minimum distributions apply to Roth IRA accounts.

A

False. Required minimum distributions apply to traditional IRA accounts, not Roth IRAs.

38
Q

How much may be contributed to a Simplified Employee Pension (SEP) plan?

A

Employers may contribute 25% of employee income up to $53,000 per year.

39
Q

If not needed for a child’s education, may the funds in a 529 Plan be transferred to a relative’s 529 Plan?

A

Yes

40
Q

In a 529 Plan, what happens if the funds are withdrawn, but not used for qualified education expenses?

A

The earnings would be subject to ordinary income tax plus a 10% penalty.

41
Q

What is the late withdrawal penalty?

A

50% of the amount that should have been taken (an actuarial amount).

42
Q

IRA rollovers must be completed within ____ days.

A

IRA rollovers must be completed within 60 days.

43
Q

What is ERISA?

A

Employment Retirement Income Security Act

44
Q

ERISA gave the U.S. Government jurisdiction over ___________________ plans.

A

ERISA gave the U.S. Government jurisdiction over private pension plans.

45
Q

Who uses 457 Plans?

A

Employees of state and local governments

46
Q

True or False: 529 plans allow for a five-year front-end contribution of $70,000, which avoids gift tax.

A

True ($14,000 x 5 years)

47
Q

There is a ____% penalty for early withdrawals from an IRA.

A

There is a 10% penalty for early withdrawals from an IRA.

48
Q

May an employee of a corporation who contributes to a corporate pension plan also contribute to a Keogh plan?

A

Yes, provided the Keogh contribution is solely based upon the employee’s self-employment income.

49
Q

_____ Plans are college savings plans with high contribution limits set by the state sponsor.

A

529 Plans are college savings plans with high contribution limits set by the state sponsor.

50
Q

Contributions to a Keogh plan are solely based on _________________ income.

A

Contributions to a Keogh plan are solely based on self-employment income.

51
Q

According to ERISA, are there any standards that must be followed regarding how money is invested?

A

Yes. The plan’s trustee must abide by the Uniform Prudent Investor Act.

52
Q

True or False: Keogh plans follow a vesting schedule.

A

True. A scale would indicate how long an employee must remain with the employer to be fully vested.

53
Q

Identify the acronym: RMD

A

Required Minimum Distribution (only required of Traditional IRAs)

54
Q

What is the penalty for making excess contributions to an IRA?

A

6% of the excess

55
Q

If an employer makes a Keogh contribution on its own behalf, what must be done for its employees?

A

A contribution at the same percentage must be made for the employee.

56
Q

In an IRA, an early withdrawal without penalty is allowed for what reasons?

A

Death, disability, qualified higher education expenses, or first-time home buyer ($10,000 limit)

57
Q

What are some of the acceptable investments for IRA contributions?

A

Stocks, bonds, mutual funds, and CDs

58
Q

Grandparents contributing to a grandchild’s 529 plan may give how much money and still avoid gift tax consequences?

A

Front-loading five years of contributions is allowed; therefore, each could contribute $70,000 for a total of $140,000.

Series 7 by Chapter (24 decks)

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