Understanding IRA and SIMPLE Plans Exam Study Guide

Transcription

1 Understanding IRA and SIMPLE Plans Exam Study Guide This document contains all the questions that will included in the final exam, in the order that they will be asked. When you have studied the course materials, reviewed the questions in this document, and feel that you are ready to take the exam, return to the login page to take the online final exam. A Center for Continuing Education 707 Whitlock Ave, SW, Suite C-27 Marietta, GA Fax: Understanding IRA and SIMPLE Plans Page 1

2 Understanding IRA and SIMPLE Plans Final Exam 1. IRAs may NOT be purchased through: a. banks b. mutual fund companies c. insurance companies d. cattle ranch 2. All of the following statements regarding spousal IRAs are true, except: a. Spousal IRAs have a maximum contribution of $5500 (years 2013 through 2015). b. Contributions to Spousal IRAs must be split equally between the spouses two IRAs. c. To contribute to a Spousal IRA the amount of compensation, if any, includible in the individual s gross income must be less than the amount of compensation includible in the gross income of the individual s spouse, d. To contribute to a Spousal IRA, the individual must file a joint return for the taxable year. 3. Roth IRA contributions: a. are never tax-deductible. b. are sometimes tax-deductible. c. are always tax-deductible. d. not enough information to provide an answer. 4. All of the following features apply to both Roth and regular IRAs, except: a. Contribution maximum is the smaller of $5500 (2013 through 2015) and 100% of compensation. b. Contributions must be in cash. c. Earnings are not taxed while they remain in the IRA. d. Mandatory distributions must begin April 1 of the year following the year in which the IRA holder reaches age 70½. 5. If the HSA holder makes contributions to his or her own HSA account, contributions are: a. non-deductible. b. deductible. c. deductible up to $1000 annually. a. deductible up to 10% of the amount contributed 6. The required beginning date for a regular IRA is: a. April 1 of the year in which the IRA owner turns 70 ½. b. Age 59 1/2. c. The tax due date, generally April 15, of the year following the year in which the IRA owner turns 70 ½. d. April 1 of the year following the year in which the IRA owner turns 70 ½.. Understanding IRA and SIMPLE Plans Page 2

3 7. All of the following statements are true regarding SEP plans, except: a. SEP employer contributions are 100% tax deductible to the employer. b. Life insurance is not excluded as an allowable investment for SEP plans. c. SEP contributions grow tax-deferred. d. Life insurance is excluded as an allowable investment for SEP plans. 8. Required minimum distributions from a regular IRA meet all of the following conditions EXCEPT: a. they are based on life expectancy. b. they must be made or are subject to an excise tax. c. they may be made over the joint life of the IRA owner and designated beneficiary. d. they begin at age 59 ½ 9. Assuming distributions have not begun and a spouse is the designated beneficiary, at the IRA owner's death, the spouse: a. must have the IRA proceeds distributed immediately with no premature distribution tax due. b. may treat the IRA as his or her own account. c. must distribute the account over his or her own life expectancy. d. may treat the IRA as his or her account, but must include all earnings in taxable income in the tax year of the owner s death. 10. An IRA may be pledged as collateral with no tax consequences as long as: a. the IRA owner is over 59 ½. b. the IRA owner is over 70 ½. c. the IRA owner is making required minimum distributions. d. under no circumstances. 11. The maximum amount which can be contributed to an IRA for a non-earning spouse is: a. $250 (years 2013 through 2015) b. $2250 (years 2013 through 2015) c. $3000 (years 2013 through 2015) d. $5500 (years 2013 through 2015) 12. The term family coverage as defined in MSA regulations, is defined as: a. coverage which covers the spouse and all children of the MSA holder. b. coverage which covers all the children of the MSA holder, but may not include the spouse. c. any coverage other than self-only coverage. d. having the same meaning as dependent coverage. 13. Equities is another term for: a. real estate b. bonds c. variable annuities d. stocks Understanding IRA and SIMPLE Plans Page 3

4 14. IRA contributions: a. must be made at least annually once the IRA is opened. b. need not be made annually once the IRA is opened. c. must be made each year there is compensation earned by the IRA owner. d. lose tax deferral after age 70½ of the regular IRA holder. 15. Life insurance: a. may not be purchased in a regular IRA. b. may be purchased in a regular IRA. c. may be purchased in a SEP d. may make up to 25% of an IRA s accumulated value 16. All of the following statements are accurate regarding Roth IRAs, except: a. Contributions are not tax-deductible. b. Eligibility to contribute to a Roth IRA phases out for persons with modified adjusted gross income over a certain level. c. Contributions may never be made past the Roth IRA holder s age 70 ½. d. Contributions may be made past the Roth IRA holder s age 70 ½. 17. Non-deductible contributions: a. may not be made for a tax year if a $5500 (years 2013 through 2015) deductible annual contribution was made to the IRA for that same tax year. b. may be withdrawn before deductible contributions. c. may not be made to a spousal IRA. d. may not be commingled with deductible contributions. 18. All of the following statements regarding SIMPLE plans are true, except: a. A SIMPLE plan is a type of IRA. b. The maximum annual amount an employee may defer through salary reduction to a SIMPLE plan is $12,500 (year 2015). c. Premature withdrawals made in the first two years in which an employee participates in a SIMPLE plan and which do not qualify as an exception are subject to a tax of 25% in addition to income taxation. d. Employee salary reduction contributions may not be made to SIMPLE plans. 19. Inflation a. has never been higher than 3%. b. is an unknown. Therefore it should not be used in retirement savings planning. c. reduces purchasing power over time. d. a and c. 20. Non-qualified annuities are transferred without current taxation through: a exchange rules b. reinvestment of annuity payments in a new annuity. c. rollovers to IRAs d. transfers to qualified plans Understanding IRA and SIMPLE Plans Page 4

5 21. When taxable distributions are made from an employee s qualified plan account: a. the distribution must be made directly to the employee. b. if the distribution is made to the employee, 20% of the distribution must be withheld by the qualified plan administrator for income tax purposes. c. 20% of the distribution must be withheld if the distribution is made directly to an IRA. d. the distribution may not be commingled with IRA contributions. 22. Generally, SEPs do not provide either of the following in which of these pairs of items? a. Vesting and loan provisions. b. Vesting and employer contributions. c. Vesting and tax-deferral. d. Loans and employer contributions. 23. The maximum annual contribution which may be made to a Coverdell ESA is: a. $5000 b. $1000 c. $2000 d. $ Which of the following plans may allow deductible contributions? a. regular IRAs and Roth IRAs b. regular IRAs and HSAs c. Roth IRAs and MSAs d. Roth IRAs and HSAs 25. A bank CD: a. is guaranteed by the FDIC up to certain limits. b. is considered an investment of very low risk. c. offers a lot of potential for high return. d. a and b only. 26. Mutual funds: a. can provide high growth potential. b. are guaranteed by the FDIC c. can be invested in through an IRA, SEP SIMPLE Plan,401k or Keogh. d. both a and c. 27 Social Security benefits: a. are currently subject to taxation at some income levels b. are not taxable c. are sufficient to meet most people s retirement needs d. are only taxable to those over 70 ½ Understanding IRA and SIMPLE Plans Page 5

6 28. If an individual makes a $4000 contribution to a regular IRA in tax years 2013 through 2015, the maximum amount which may be contributed to a Roth IRA, assuming the individual is eligible to contribute to a Roth IRA and is under 50, in each of the same tax years is: a. $2000 b. $1500 c. $500 d. $0 29. All of the following distributions are considered qualified distributions from a Roth IRA as long as they are made after the five-taxable year period from the year the Roth IRA was established, except: a. a distribution due to the death of the Roth IRA holder. b. a distribution after age 59 ½ of the Roth IRA holder. c. a distribution due to disability of the Roth IRA holder. d. a distribution to pay higher education expenses for the Roth IRA holder. 30. The Coverdell ESA must terminate when the designated beneficiary reaches age, unless the beneficiary has special needs: a. 18 b. 30 c. 70 ½ d Cost basis: a. is a synonym for the lowest rate paid on an annuity. b. normally is equivalent to investment in the property. c. is a required minimum distribution method. d. is investment plus earnings to the date of the cost basis calculation. 32. Variable annuities a. always provide a high return. b. are low in fees. c. can provide an IRA owner with several sub-account options. d. can only be distributed as an IRA through the annuity method. 33. An IRA is the retirement vehicle which: a. is available to the most people. b. is available to the fewest people. c. has the highest risk. d. has the lowest risk. 34. Advantages of SEPs do not include: a. tax deferral. b. ease of establishment. c. relative low cost. d. Employer deductions of up to $60,000 per employee. Understanding IRA and SIMPLE Plans Page 6

7 35. All of the following statements are accurate concerning deemed IRAs, except: a. In order to include a deemed IRA in a qualified plan, the plan must include a separate account or annuity that meets the requirements for a regular IRA or Roth IRA. b. The separate account or annuity within a qualified plan must generally meet the requirements under Section 408 for IRAs c. Deemed IRAs may only by Roth-type IRAs. d. Contributions to deemed IRAs are considered contributions to IRAs, not as contributions to qualified plans. 36. Individuals who have reached age before the end of the tax year will be able to contribute an additional $1000 annually to their regular IRAs in the year 2006 and thereafter. a. 50 b. 35 c. 49 d Which of the following products may not be used to hold SEP and SIMPLE plan contributions? a. mutual funds b. most collectibles c. bank accounts d. annuities 38. Which of the following is not an acceptable vehicle for IRA contributions under IRS regulation? a. aggressive growth mutual fund b. variable annuity corporate bond sub-account c. fixed annuity d. rare artwork 39. The maximum amount of a Roth or regular IRA contribution in years 2013 through 2015 is: a. the larger of 100% of compensation or $5500. b. the smaller of 100% of compensation or $5500. c. the larger of 100% of compensation or $6000. d. the smaller of 100% of compensation or $ If an employer makes contributions to an MSA on behalf of an employee MSA holder, contributions are: a. includible in the employee s income. b. excluded from the employee s income. c. deductible from the employee s income, up to $1000 annually. d. taxable when withdrawn Understanding IRA and SIMPLE Plans Page 7

8 41. Currently, Roth IRA distributions which are not qualified distributions are taxed as though: a. contributions are distributed before earnings. b. earnings are distributed before contributions. c. the distribution is part earnings and part contributions. d. the entire amount is taxable. 42. Qualified medical expenses relating to HSA rules exclude the payment of insurance premiums except for: a. long-term care insurance. b. disability insurance. c. dental insurance. d. homeowners insurance. 43. All of the following statements are accurate concerning deemed IRAs, except: a. In order to include a deemed IRA in a qualified plan, the plan must include a separate account or annuity that meets the requirements for a regular IRA or Roth IRA. b. The separate account or annuity within a qualified plan must generally meet the requirements under Section 408 for IRAs c. Deemed IRAs may only by Roth-type IRAs. d. Contributions to deemed IRAs are considered contributions to IRAs, not as contributions to qualified plans. 44. All of the following IRA rollovers are non-taxable transactions, except: a. regular IRA to regular IRA b. Roth IRA to Roth IRA c. Coverdell ESA to Coverdell ESA d. regular IRA to Roth IRA 45. Which IRA types may allow tax-free withdrawals? a. Regular IRAs only b. Roth IRAs only c. Roth IRAs and SIMPLE IRAs d. SIMPLE IRAs only 46. Contributions may not be made to Coverdell ESAs after the designated beneficiary reaches age, unless the beneficiary has special needs: a. 18 b. 30 c. 70 ½ d Changing the beneficiary on a Coverdell ESA is not taxable if the new beneficiary is any of the following, except: a. a brother of the original beneficiary b. a friend of the original beneficiary c. a spouse of the original beneficiary d. a sister of the original beneficiary Understanding IRA and SIMPLE Plans Page 8

9 48. A distribution from a Coverdell ESA that is not for a qualified education expense is taxed as though: a. the entire distribution is includible in income. b. the contribution portion of the distribution is includible in income. c. the earnings portion of the contribution is includible in income. d. the distribution is made to the household member in the lowest tax bracket. 49. An HSA is basically a personal savings account used to pay for: a. unreimbursed medical expenses. b. health insurance. c. retirement. d. higher education expenses. 50. Which of the following does NOT qualify as tax-free withdrawals? a. a qualified distribution from a Roth IRA b. a distribution used to pay qualified education expenses from an Coverdell ESA c. a distribution to pay for qualified medical expenses from an HSA d. a distribution to pay for a low deductible health plan from an HSA 51. Social Security provides retirement income than the recommended seventy percent of current income benchmark. a. Far more b. Slightly more c. Slightly less d. Far less 52. Which of the following qualifies as compensation for the purpose of calculating IRA contribution eligibility? a. Disability income b. Pension income c. Taxable alimony d. Social security 53. Which of the following statements relating to excess contributions to regular IRAs is false? a. An excess contribution is a contribution to a regular IRA greater than the maximum contribution amount b. Excess contributions are subject to a 6% tax if not withdrawn before the date the IRA owner s tax return is due. c. The excess contribution tax is assessed each year the excess contribution and attributable earnings remain in the IRA. d. If the excess contribution, along with any earnings attributable to the excess contribution, are withdrawn within the mandated time frame, the excess contribution tax is reduced to 1.5% Understanding IRA and SIMPLE Plans Page 9

10 54. Payments which are part of a series of substantially equal payments which are made over an IRA holder s lifetime are not subject to the premature distribution tax. The payments may not be modified until the IRA holder reaches age 59 ½, or at least years from the first payment, whichever is greater. a. 2 b. 5 c. 7 d Only one rollover may be made from an IRA to another IRA (or IRAs) within: a. Twelve months from the date the distribution was received b. The calendar year the distribution was received in c. The lunar year the distribution was received in d. An IRA holder s lifetime 56. The Roth IRA is named after: a. A town in Pennsylvania b. A Congressman c. A type of investment procedure d. A court case 57. Eligibility to contribute to a Roth IRA phases out for persons: a. With adjusted gross income over a certain level b. Who live in certain states c. Who own other IRAs d. With debt over a certain threshold 58. If a Roth IRA is pledged as collateral, the amount pledged is treated as a: a. Distribution b. Contribution c. Gift d. Loan 59. College expenses are increasing the inflation rate. a. Faster than b. In sync with c. Slightly slower than d. Much slower than 60. Distributions from Coverdell ESAs are most similar to distributions from: a. A traditional IRA b. A Roth IRA c. Both a traditional and a Roth IRA d. A SEP IRA Understanding IRA and SIMPLE Plans Page 10

11 61. For Coverdell ESA purposes, a qualified higher education expense could be room and board for students under guaranteed plans who are at least: a. One-quarter time b. Half-time c. Three-quarters time d. Full-time 62. The amount required to open a bank certificate of deposit: a. Is always at least $500 b. Is always at least $1,000 c. Is usually around $2,500 d. Varies from as little as $50 to as much as $10, What kinds of investment options are available with mutual funds? a. Relatively stable, low risk funds only b. Aggressive, high growth funds, only c. Moderate risk, moderate growth funds, only d. Virtually every investment option is available 64. Some annuities include a guarantee of principal provision which ensures the return of principal if the customer liquidates the annuity contract: a. In full b. In part c. In full or in part d. In full or in part, if the contract is more than 4 years old 65. Equities have commonly the inflation rate. a. Lagged slightly behind b. Lagged significantly behind c. Outpaced d. Matched 66. The fees for SEP plans are typically: a. Very low b. Relatively low c. Moderate d. High 67. An employer must make contributions to SEP plans that for all eligible employees. a. Do no vary by more than 2% b. Do not vary by more than 5% c. Do not vary by more than 10% d. Are the same percentage Understanding IRA and SIMPLE Plans Page 11

12 68. In year one an employer contributes 10% of compensation to a SEP-IRA for each eligible employee. In year two, the employer must contribute (per employee): a. At least 5% of compensation b. Exactly 10% of compensation c. More than 10% of compensation d. Whatever amount the employer chooses 69. Compared to other salary reduction plans, administration costs of SIMPLE plans are: a. Lower b. About the same c. Slightly higher d. Much higher 70. An employee is vested in a SIMPLE plan. a. 35% b. 50% c. 80% d. 100% Understanding IRA and SIMPLE Plans Page 12