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SIE > Ch. 14: Customer Accounts > Flashcards

Ch. 14: Customer Accounts Flashcards

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1
Q

Anyone with ________ income may contribute to an IRA.

A

Earned

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2
Q

The ________________ Agreement describes the customer’s pledging of securities as collateral to the BD.

A

Hypothecation Agreement

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3
Q

Hank, age 71, has a Roth IRA. What penalty is assessed for his failure to begin distributions?

A

There is no penalty since Roth IRAs do not have a required minimum distribution.

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4
Q

True or False: Regardless of income level, a contribution is always permitted in any type of IRA.

A

False. High income individuals may lose the ability to contribute to Roth IRAs, but may contribute to Traditional IRAs.

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5
Q

What is waived for a first-time homebuyer in the event of an IRA distribution?

A

The penalty is waived, however, taxes are still levied.

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6
Q

RRs must examine what document to open any corporate account?

A

Corporate Resolution

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7
Q

The maximum contribution to an IRA is the lesser of $_______ or ____% of earned income.

A

The maximum contribution to an IRA is the lesser of $6,000 or 100% of earned income.

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8
Q

Define Regulation T.

A

The percentage a customer must deposit when purchasing securities or selling short

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9
Q

What are the general characteristics of a traditional IRA account?

A

It is an individual retirement account in which the money grows tax-deferred.

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10
Q

True or False: IRA trustee-to-trustee transfers are tax-free.

A

True

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11
Q

May a cash account be opened without the customer’s signature?

A

Yes

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12
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

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13
Q

Only one rollover is allowed per rolling ____ months.

A

12 months

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14
Q

Must the custodian in an UGMA account be a parent?

A

No. Any adult may be custodian.

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15
Q

True or False: In a 401(k) plan, employers must make matching contributions on behalf of employees.

A

False. Employers may, but are not required to, make matching contributions.

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16
Q

Who may enter orders in a joint account?

A

Any owner named on the account

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17
Q

True or False: Only one person must provide information to open a joint account.

A

False. Each owner must provide information to open a joint account.

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18
Q

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

A

$6,000

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19
Q

What is investment discretion?

A

An agreement where someone other than the owner is authorized to determine the securities to be purchased or sold

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20
Q

True or False: Custodial accounts are solely carried in the name of the minor.

A

False. The account is in the custodian’s name for the benefit of the minor.

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21
Q

A 401(k) plan uses _________ contributions and the growth of the account is _______________.

A

Pre-tax contributions and growth is tax-deferred

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22
Q

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

A

$19,000

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23
Q

What is needed to exercise discretion over a client’s account?

A

Written power of attorney

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24
Q

May an 85-year-old continue to contribute to a Roth IRA?

A

Yes, provided she has earned income

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25
Q

An investor had granted power of attorney to his son. If the client dies, is the power of attorney still valid?

A

No. Power of attorney is cancelled at the time of the owner’s death.

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26
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 72

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27
Q

A rollover of qualified plan money from one account to another must be completed within ____ days of withdrawal.

A

60 days

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28
Q

____________ governs the extension of credit by BDs.

A

Regulation T governs the extension of credit by BDs.

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29
Q

True or False: All corporate officers may effect transactions for the corporation.

A

False, only those named in the Corporate Resolution

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30
Q

Qualified plan withdrawals prior to age 59 1/2 are taxable and also subject to a ____% IRS early withdrawal penalty.

A

10%

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31
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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32
Q

Identify the acronym: RMD

A

Required Minimum Distribution (only required of Traditional IRAs)

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33
Q

Is discretionary authorization required to enter a not held order?

A

No, since discretion is limited to time and price on not held orders.

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34
Q

True or False: When a client grants third-party authorization to another person, the account becomes a joint account.

A

False

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35
Q

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

A

True

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36
Q

What document allows a BD to lend customer securities to someone wishing to sell them short?

A

Loan Consent Agreement

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37
Q

For what reasons may an individual may take an early withdrawal from his IRA without penalty?

A

Death, higher education, home buyer ($10k limit), birth of child ($5k limit)

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38
Q

IRA rollovers must be completed within ____ days.

A

60 days

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39
Q

As it relates to IRAs, what is the difference between a rollover and a trustee-to-trustee transfer?

A

In a rollover, the proceeds are directed to the owner, but in a transfer, the proceeds are directed to another institution.

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40
Q

A ___________________ is required to open an account for a partnership.

A

Partnership agreement

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41
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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42
Q

True or False: Principals must approve discretionary orders prior to entry.

A

False. The orders must be approved promptly afterward.

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43
Q

When rolling over a distribution from a qualified plan, when must the participant complete the transfer?

A

Within 60 days from the receipt of the funds from the old plan

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44
Q

Who is eligible to make tax-deductible contributions to an IRA?

A

A person not covered by an employer plan, or, if covered, a person who meets the income restriction

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45
Q

Why is an IRA trustee-to-trustee transfer not considered a rollover?

A

Because the proceeds are not directed to the owner

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46
Q

What is required for a BD to place securities in a discretionary account when the they have a conflict in the offering?

A

Written consent of the client is required.

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47
Q

When must an Options Disclosure Document (ODD) be delivered to a client?

A

At or prior to the time the account is approved for options trading

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48
Q

IRA contributions must be made in what form?

A

Cash

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49
Q

True or False: Client signature is required when opening either a cash or margin account.

A

False. Client signature is required when opening a margin account, but not a cash account.

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50
Q

May a custodian make speculative investments in a minor’s account?

A

Yes, provided they are suitable based on the objectives.

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51
Q

If an employer made all of the contributions into a pension plan, what is the employee’s cost basis?

A

Zero

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52
Q

Which type of retirement plan makes distributions based on a predetermined formula?

A

Defined benefit plans make distributions based on factors such as the retiree’s tenure, age, and earnings.

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53
Q

What are the general characteristics of an individual account?

A

It has only one owner of record and that one owner has sole trading rights

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54
Q

What are the general characteristics of an individual account?

A

It has only one owner of record and that one owner has sole trading rights

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55
Q

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

A

$6,000

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56
Q

May a wife enter trades in a husband’s account?

A

Yes, with written third-party authorization.

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57
Q

When withdrawing from a qualified plan, how is the distribution taxed?

A

The entire withdrawal is taxed, since these plans are normally funded pre-tax and have a zero cost basis.

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58
Q

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

A

10%

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59
Q

True or False: Earnings generated in a qualified retirement plan are tax-free.

A

False- Tax-deferred

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60
Q

An individual turns age 72 in December. When must she begin the RMDs from her IRA?

A

By April 1 of the following year

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61
Q

Since the _______ is responsible for any tax liability, custodial accounts use the tax ID of the _______.

A

Minor; minor

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62
Q

Is an Uniform Gifts to Minors Act (UGMA) account considered a joint account?

A

No. The assets are the property of the child.

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63
Q

Is discretionary authorization required to enter a not held order?

A

No, since discretion is limited to time and/or price for not held orders.

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64
Q

True or False: Contributions made to qualified retirement plans are tax-deductible.

A

True

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65
Q

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

A

59 1/2

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66
Q

Identify the acronym: UGMA/UTMA

A

Uniform Gifts to Minors Act / Uniform Transfers to Minors Act

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67
Q

In a 401(k) plan, there is immediate vesting of _________ contributions.

A

Employee contributions

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68
Q

Both the ____________ and the ____________ are required for a corporation to open an options or margin account.

A

Corporate Resolution and Corporate Charter

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69
Q

In general, a 401(k) plan is available to individuals who work for a ____________ corporation.

A

For-proft

70
Q

The shifting of funds from one IRA trustee/custodian directly to another trustee/custodian is called a _________.

A

Transfer

71
Q

When must IRA rollovers be completed?

A

Within 60 days

72
Q

The ___________ bears the investment risk in a defined benefit plan.

A

Employer

73
Q

The current Reg T margin requirement is ____%

A

50%

74
Q

True or False: An IRA trustee-to-trustee transfer must be completed within 60 days.

A

False. The 60-day rule applies to IRA rollovers.

75
Q

How often may an individual roll over an IRA?

A

Once per rolling 12 months

76
Q

What is ERISA?

A

Employee Retirement Income Security Act

77
Q

What is the tax treatment of the distributions made by qualified retirement plans?

A

They are entirely taxed at ordinary income rates, since these plans have a zero cost basis.

78
Q

True or False: A power of attorney given to an agent (RR) must be renewed.

A

False. Powers of attorney do not have to be renewed.

79
Q

What are the general characteristics of a Roth IRA account?

A

It is an individual retirement account in which the money grows tax-free if certain conditions are met.

80
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.

81
Q

Only ______ custodian is allowed per minor’s account.

A

One custodian per minor’s account

82
Q

For how long may a not held order be maintained?

A

not held order will be considered a day order.

83
Q

Who must review and approve all discretionary trades effected in a client’s account?

A

The principal/supervisor of the BD

84
Q

____________ authorization is required for a client’s wife to effect trades in his account.

A

Third party authorization

85
Q

What is the difference between a revocable and irrevocable trust?

A

Revocable trusts can be changed after they’re established, while irrevocable trusts cannot be changed.

86
Q

What are the general characteristics of a Joint Tenants in Common (JTIC) account?

A

It has multiple owners and each has trading rights. If one owner dies, his account value passes to his estate.

87
Q

Jim instructs his RR to use the BD’s research and buy $10,000 worth of a stock of the firm’s choosing. What is required?

A

The BD must have first obtained a written power of attorney from Jim.

88
Q

The _________ is responsible for taxes on income in a custodial account.

A

Minor

89
Q

What are the general characteristics of a Joint Tenants With Right of Survivorship (JTWROS) account?

A

It has multiple owners and each has trading rights. If one owner dies, her account value passes to the other owner(s).

90
Q

Custodians have a ____________ duty to do what is best for the minor.

A

Fiduciary duty

91
Q

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

A

Withdrawals will be tax-free if the account is open for at least 5 years and is not considered an early withdrawal.

92
Q

May a client use a numbered account instead of her name?

A

Yes, provided the client’s identity is known to the firm.

93
Q

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

A

Roth IRA contributions are always made after-tax, while traditional IRA contributions are deductible.

94
Q

Whose Social Security number is listed on a custodial account?

A

Minor’s

95
Q

In what form must IRA contributions be made?

A

In cash

96
Q

What percentage of income from a qualified plan is typically taxable?

A

100%, since qualified plans are normally funded with pre-tax funds and have a zero cost basis

97
Q

What happens to the deceased’s portion in a joint account with tenants-in-common?

A

The deceased’s portion goes to his estate for tax purposes.

98
Q

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

A

100%; $6,000

99
Q

What is the typical cost basis for a participant in a qualified retirement plan?

A

$0, since these plans are typically funded pre-tax.

100
Q

True or False: Money may be withdrawn from a joint account in one owner’s name.

A

False. Any checks should be in both parties’ names.

101
Q

An individual turns age 72 in December. When must she begin the RMDs from her IRA?

A

April 1 of the following year

102
Q

For how long may a not held order be maintained?

A

A not held order is considered a day order.

103
Q

What are the general characteristics of a corporate account?

A

An account opened and owned by a business entity that has a valid corporate resolution

104
Q

The ___________________ must sign the account form.

A

The supervising principal must sign the account form (clients are not required to sign).

105
Q

What must be examined to determine who has the authority to execute trades in a corporate account?

A

The corporate resolution

106
Q

How must a client’s authorization be obtained to enter discretionary orders, orally or in writing?

A

Written form

107
Q

Distributions from a qualified plan are taxed at __________________ rates.

A

Ordinary income

108
Q

The ___________ bears the investment risk in a defined contribution plan.

A

Employee

109
Q

True or False: Not held orders may only be executed in a discretionary account.

A

False. Discretionary power of attorney is not required.

110
Q

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

A

$10,000

111
Q

At death, assets held in a minor’s account become a part of her _______.

A

Estate

112
Q

May a custodian remove funds from a custodial account?

A

Yes, but only for the benefit of the minor

113
Q

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

A

Private pension plans

114
Q

In a custodial account, when does the minor own the assets?

A

On the trade date

115
Q

After what age may traditional IRA plan contributions no longer be made?

A

As long as an individual has earned income, she’s able to contribute to a Traditional IRA regardless of her age.

116
Q

True or False: Gifts made to minors are irrevocable.

A

True

117
Q

True or False: Discretionary orders must be confirmed with the client before being entered.

A

False

118
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.

119
Q

When a child reaches legal age, what action is taken in the custodial account?

A

The custodian must transfer the assets to the owner.

120
Q

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

A

59 1/2

121
Q

True or False: For discretionary trades, principal approval is required prior to entry.

A

False. Principal approval is typically provided by the end of the day, but not in advance.

122
Q

401(k) plans are used by _____-profit employers.

A

For-profit

123
Q

What are some of the possibilities for avoiding premature distribution penalties in IRAs?

A

Death or disability of the owner, education expenses, first-time home buyer, or annuitization of distributions

124
Q

When may an individual withdraw money from an IRA without penalty?

A

59 1/2

125
Q

What happens to the deceased’s portion in a joint account with right of survivorship?

A

Her portion passes to the survivor.

126
Q

How much may a married couple earning $325,000 contribute to a Roth IRA?

A

$0, since the couple’s income exceeds the income threshold

127
Q

Only one IRA rollover is allowed per rolling ____ months.

A

12 months

128
Q

Employer contributions into an employee qualified plan are _______________ to the employer.

A

Tax-deductible to the employer

129
Q

True or False: All contributions made to IRAs are tax-deductible.

A

False. Only contributions to Traditional IRAs are tax-deductible; Roth IRA contributions are NEVER deductible.

130
Q

When must a margin disclosure document be provided to a client?

A

At the time the account is opened

131
Q

Hypothecation is synonymous with what term?

A

Pledge

132
Q

Joan invests $15,000 in a qualified annuity. At age 64, she withdraws all $22,000. What’s Joan’s basis and what’s taxed?

A

Her basis is zero, since the annuity is qualified (funded pre­tax) and the entire $22,000 is taxed as ordinary income

133
Q

In an IRA rollover, to whom are the funds directed?

A

The owner

134
Q

What is the maximum annual IRA contribution for a 58-year-old who only has investment income?

A

$0, since he has no earned income

135
Q

What is an IRA rollover?

A

A tax-free distribution to an IRA owner that is then contributed to a different IRA or retirement plan

136
Q

In a Roth IRA, when must withdrawals begin in order to avoid a late withdrawal penalty?

A

There is no withdrawal requirement for Roth IRAs.

137
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 $7,000.

138
Q

True or False: Qualified plans receive favorable tax treatment by the IRS.

A

True

139
Q

If an IRA owner takes receipt of the assets for up to 60 days before reinvesting in a new plan, this is a _________.

A

Rollover

140
Q

If a customer purchases exchange-traded stock, what is the margin requirement?

A

50% of purchase price

141
Q

What is an RR permitted to do if they have limited discretionary authority over a client’s account?

A

She may buy or sell securities in the account without consulting the client.

142
Q

For a joint account, how many account numbers and SSNs are used for tax reporting?

A

One

143
Q

In a one-year period, how many times may a qualified plan be transferred via a trustee transfer?

A

There is no limit to the number of trustee transfers

144
Q

What is the maximum annual IRA contribution for a 58-year-old whose only income is investment income?

A

$0, since individual has no earned income

145
Q

When may a person begin taking penalty-free withdrawals from her 401(k)?

A

59 1/2

146
Q

Annuity withdrawals prior to age 59 1/2 will be subject to a ___% IRS penalty plus __________________ of earnings.

A

10% IRS penalty federal taxation

147
Q

A qualified annuity contract or retirement plan is typically funded with _____- tax funds.

A

Pre-tax funds

148
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.

149
Q

Anyone with __________ income may contribute to an IRA.

A

Earned

150
Q

What federal law requires employers to provide a high degree of fiduciary responsibility to group plan participants?

A

The Employee Retirement Income Security Act (ERISA)

151
Q

What may an RR do with full discretion, but not with limited discretion?

A

Withdraw money from the account

152
Q

What is the late withdrawal penalty?

A

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

153
Q

When must clients be given an Option Disclosure Document?

A

At or prior to account approval

154
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.

155
Q

When do gifts become the property of the minor in a custodial account?

A

When gifted

156
Q

For what reasons may an individual may take an early withdrawal from his IRA without penalty?

A

Death, disability, qualified higher education, home buyer ($10,000 limit), birth or adoption of a child ($5,000 limit)

157
Q

True or False: Firms may establish their own in-house rules relating to payment dates and minimum requirements.

A

True. However, the requirements must be at least as stringent as those established by the regulators.

158
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.

159
Q

Define vesting.

A

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

160
Q

Rollovers must be completed within ____ days.

A

60 days

161
Q

Hank is a 71-year-old who has a Roth IRA. What penalty is assessed if Hank has failed to begin taking distributions?

A

There is no penalty, since Roth IRAs do not have RMDs.

162
Q

True or False: Sophisticated clients with extensive experience need not be provided with an Option Disclosure Document.

A

False. All clients receive the disclosure document.

163
Q

What is the Reg T margin requirement for short sales?

A

50%

164
Q

Is margin permitted in a minor’s account?

A

No, securities must be fully paid

165
Q

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

A

100% up to $6,000

166
Q

True or False: An RR may sell stock from a client’s non-discretionary account if a negative report is released.

A

False. Without written authorization, an RR may not choose the security to buy for or sell from a client’s account.

167
Q

For every rolling 12 months, how many times may a qualified plan be transferred via a rollover?

A

Once per rolling 12 months

168
Q

If an agent (RR) received a power of attorney seven years ago, could she still trade that customer’s account?

A

Yes, powers of attorney do not need to be renewed.

169
Q

When may a member firm lend the stock that belongs to a client?

A

When the client signs the loan consent agreement

170
Q

True or False: Customers are required to sign the Loan Consent Agreement.

A

False. Signing the agreement is optional.

SIE (20 decks)

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