Ch 6 Practice Test Flashcards
Based on the 2008 Aon Consulting Worldwide study, a client with a preretirement income of $90k will need approximately how much income during retirement?
a. $76,500
b. $69,300
c. $70,200
d. $45,000
c. $70,200
According to the study, a client with an income of $90k would require 78% of preretirement income.
What is the maximum percentage of SS benefits that may be included in a taxpayer’s gross income?
a. 50%
b. 85%
c. 100%
d. 0%
b. 85%
In order to qualify for a reverse mortgage, the borrower must meet all of these following requirements except
a. own the property outright or paid down a considerable amount
b. occupy the property as their principal residence
c. be 55 years of age or older
d. have financial resources to continue to make timely payment of ongoing property charge.
c. be 55 years of age or older
Sam was born in 1954, so his FRA is 66. If he begins receiving SS benefits early, the amount of his monthly SS checks will be reduced
a. until he reaches the gage of 66
b. until he reaches the age of 70
c. for the rest of his life
d. by the amount of the benefits that is above a taxable base amount.
c. for the rest of his life
Which of these choices best explains a fundamental investment strategy for accumulating funds to be used during retirement?
a. because the income used to fund an IRA is not currently taxed, discretionary income should be invested in IRAs.
b. You should begin investing many years before retirement so that compounded returns increase your retirement fund
c. only high growth, high risk investment vehicles should be used for accumulating retirement funds
d. you should save up small amounts so that you can make large investments on an irregular schedule to take advantage of market fluctuations
b. You should begin investing many years before retirement so that compounded returns increase your retirement fund
A client, age 55, takes a $3,000 distribution from his rollover IRA to pay for a semester of college tuition for his 21 yr old son. For the father, the entire distribution is
a. subject to the 10% early withdrawal penalty, but is free form income tax
b. subject to income tax as well as the 10% early withdrawal penalty
c. subject to income tax, but it is free form the 10% early withdrawal penalty
d. free from penalties and income taxes
c. subject to income tax, but it is free form the 10% early withdrawal penalty
A client has decided to move the funds from her former employer’s 403b plan into an IRA. The best way to avoid a 20% withholding tax or any taxable income, would be if she
a. provide the pension plan administrator with a rollover document
b. transfer the funds into a roth IRA
c. instruct the employer’s retirement plan to roll over the funds directly to her new IRA
d. do a tax free rollover, taking control of the money for no more than 60 days.
c. instruct the employer’s retirement plan to roll over the funds directly to her new IRA
Which of these best explains why a client would select a single life annuity distribution option forma retirement plan?
a. to ensure that at least the full value of the annuity based on the client’s own life expectancy will be paid out regardless of when the client dies
b. to ensure the number of payments made will at least equal his or her life expectancy based on single life annuity tables
c. to maximize current income when the client is in a high tax bracket and has a spouse who is wealthy in his or her own right
d. to maximize the periodic payment if the client had no need or desire to have any portion of the plan benefits left after death.
d. to maximize the periodic payment if the client had no need or desire to have any portion of the plan benefits left after death.
Which of these statements explains an investment planning consideration during retirement relating to the length of the retirement period?
a. because the dollar amount of income needed tends to decrease ratably over the retirement period, the client should invest in fixed income investments
b. the retirement period can be long, therefore, client should stress safety of principal over growth
c. the retirement period can be long, so clients should consider taking greater risk for greater return to keep up with inflation
d. because pensions and SS keep up with inflation, the client should invest so that a constant percentage of other assets can be used to supplement income each year.
c. the retirement period can be long, so clients should consider taking greater risk for greater return to keep up with inflation
Which of these is an advantage of using a charitable remainder trust funded with appreciated stock?
a. the donor’s basis in the stock is the maximum amount that can be excluded form his or her gross estate
b. the donor can take an income tax deduction for the current fair market value of the stock, decreased by the present value of the income stream
c. the donor can take an income tax deduction only for his or her basis in the stock
d. the charity will pay the capital gains tax on the appreciation in the stocks value
b. the donor can take an income tax deduction for the current fair market value of the stock, decreased by the present value of the income stream
the nonworking spouse of a SS recipient is entitled to what percentage of the recipients retirement benefit while the recipient is alive?
a. 50%
b. 0%
c. 75%
d. 100%
a. 50%
For full SS retirement benefits, full retirement age
a. depends on your year of birth
b. is 65 until 2022
c. is 70 until 2025
d. is 67 until 2023
a. depends on your year of birth
The 10% penalty for withdrawals before age 591/2 from qualified retirement is NOT assessed on distributions made for all of the following except
a. separation from service after age 55
b. disability
c. mortgage payments
d. pursuant to a qualified domestic relations order
c. mortgage payments
Money from a 403b plan may be rolled over to any of the following, except
a. a gov sponsored 457 plan
b. cash value life insurance policy
c. 401k
d. another 403b
b. cash value life insurance policy
What is the first step financial advisors should take when assessing a client’s retirement needs?
a. reviewing sources of income
b. determining the clients current level of income and expenses
c. reviewing the clients estate planning documents
d. projecting retirement income needs
b. determining the clients current level of income and expenses
Which one of the following is NOT one of the sources of the traditional ‘three legged stool’ of retirement income?
a. SS
b. an individuals accumulated invesmtents
c. pension income
d. inheritances
d. inheritances
Which one of the following is NOT considered to be a major benefit of tax deferred plans (excluding roth iras)
a. a retiree’s income tax bracket may be higher at the time of distribution
b. invested funds accumulate more quickly without annual taxation
c. a retiree’s income tax bracket may be lower at the time of distribution
d. generally, income tax is deferred until distributions are made.
a. a retiree’s income tax bracket may be higher at the time of distribution
Which one of the following types of distributions from a qualified retirement plan may be subject to a mandatory 20% withholding?
a. indirect rollover
b. direct rollover
c. lump sum distribution
d. periodic distributions or annuity payments
a. indirect rollover
Which of these is the default payout option for married participants in an employer provided qualified retirement plan?
a. life annuity
b. life annuity with refund
c. life annuity with 10 yr certain
d. qualified joint and survivor annuity
d. qualified joint and survivor annuity
If a minimum distribution from an IRA is not taken in a calendar year after reaching age 73, what is the excise tax on the amount that should have been withdrawn?
a. 25%
b. 10%
c. 20%
d. 50%
a. 25%
Which of these periodic pension benefit payments will result in the highest monthly payment?
a. qualified optional survivor annuity
b. straight life annuity
c. annuity with refund or period certain features
d. joint and survivor annuity
b. straight life annuity
In general, withdrawals for a retiree’s cash flow should be first taken from
a. taxable accounts
b. tax free accounts
c. tax deferred accounts
d. tax deferred and taxable accounts equally
a. taxable accounts
Each after tax annuity payment is
a. fully taxable as a capital gain
b. taxed partly as ordinary income and partly as a capital gain
c. fully taxable as ordinary income
d. partly a tax free return of capital and partly taxable income.
d. partly a tax free return of capital and partly taxable income.
