Competency 4

Question 1

Distribution elections from qualified retirement plans are a complex transaction with lots of paperwork that is difficult for an individual to understand.

Answer 1

True

Question 2

Knowing the provisions of the particular employers retirement plan may help generate referrals.

Answer 2

True

Question 3

Mistakes in choosing the right distribution option to mean running out of money to soon.

Answer 3

True

Question 4

Qualified plans typically allow discretionary withdrawals that can be taken as needed

Answer 4

False. Qualified plans will have very specific and limited withdrawal options and individual that once discretionary withdrawals will typically choose the lump sum distribution and roll the benefit into an IRA.

Question 5

Even if they qualified plan allows an immediate distribution went to supplant terminates employment participants can generally elect to do for the receipt of the distribution to normal retirement age.

Answer 5

True

Question 6

A lump sum distribution for a married participant from a qualified plan generally requires a qualified joint and survivor annuity waiter. Waiver.

Answer 6

True

Question 7

A variable immediate annuity is typically an available distribution option in a qualified retirement plan

Answer 7

False. These are not commonly available in qualified plans

Question 8

The amount of the lump sum distribution from a qualified defined benefit plan Mayferry overtime if applicable interest rates change.

Answer 8

True

Question 9

With a defined contribution plan annuity payments from the plan will almost always be the same as the annuity payments from a rollover IRA.

Answer 9

False.participants may be eligible for institutional pricing inside the plan, meaning annuity payments may be higher than inside an IRA.

Question 10

Roth accounts in a 401K plan can generally be rolled into a Roth IRA.

Answer 10

True

Question 11

The general rule is that distributions from a 401K plan or fully taxable as ordinary income.

Answer 11

True

Question 12

Amounts that constitute “cost basis” from a tax advantaged retirement plan that may be recovered tax-free include after-tax contributions to a 401(k) plan and nondeductible contributions to an IRA.

Answer 12

True

Question 13

An individual who has two IRAs one of which has nondeductible contributions must aggregate both together when determining the tax treatment of a withdrawal from the nondeductible IRA.

Answer 13

True

Question 14

Net unrealized appreciation which is part of a lump sum distribution from a qualified plan is texting his long-term capital gains at the time of the distribution.

Answer 14

False. Net unrealized appreciation is text is long term capital gains but only when the stock is sold.

Question 15

Electing tax treatment under the net unrealized appreciation rule is the appropriate choice in almost all circumstances.

Answer 15

False. There is no good rule of thumb for electing NUA tax treatment. It depends upon the clients situation.

Question 16

The 10% early withdrawal penalty penalty tax will not apply to a 401(k) withdrawal for a 50-year-old participant to pay for a child’s college education expenses.

Answer 16

False. The education expense exception only applies to withdrawals from IRAs.

Question 17

The clients age at the time of the withdrawal from an IRA is relevant to determine the text treatment of the distribution.

Answer 17

True

Question 18

The clients text status is relevant to determining how much of a qualified plan distribution is subject to income tax.

Answer 18

False. The clients text status is not relevant to determining how much of the distribution is subject to income tax. The clients age, whether there is a cost basis, whether the distribution includes employer securities and where the client is a death beneficiary are all relevant questions to determining tax status.

Question 19

A nonqualifying distribution from a Roth IRA that is treated his earnings is taxed as ordinary income and is subject to the 10% early withdrawal penalty tax unless an exception that applies to IRAs applies to the distribution.

Answer 19

True

Question 20

Different distributions from tax-deferred retirement plans as long as possible generally results in the largest accrual of tax deferred earnings. However an exception to that is if withdrawals can be taken at a lower than normal tax rate

Answer 20

True

Question 21

Once the participant has attained the required beginning date RMDs are required for every year the participant is alive and distributions must continue to beneficiaries as well.

Answer 21

True

Question 22

RMD’s can generally be deferred in a 401(k) plan Beyond age 70 1/2 if the participant continues to work for the employer that sponsors the plan.

Answer 22

True

Question 23

During the life of the participant unless the beneficiary is a spouse more than 10 years younger than the participant the RMD is calculated using the uniform lifetime table.

Answer 23

True

Question 24

A participant who has two IRAs one with an account and the other that pays out as a life annuity can aggregate distributions from both to satisfy the RMD requirements.

Answer 24

False. Annuity payments and account plans are treated separately under the RMD rules.

Question 25

A spousal beneficiary has an option under the RMD roles that no other beneficiary has that is to roll the benefit into his or her own IRA.

Answer 25

True

Question 26

One of the largest errors that beneficiaries make is to fail to take advantage of the ability to stretch out the payments as allowed under the RMD requirements.

Answer 26

True

Question 27

When a grandchild is chosen as the beneficiary and the participant guy said 80, in the year following death all future required distributions are based on the fixed life expectancy of the grandchild in the year following death.

Answer 27

True.

Question 28

Withdrawals should be taken from tax-deferred retirement plans with tax rates will be higher than the normal tax rate.

Answer 28

False. Look to take withdrawals when the tax rate is lower than the normal tax rate.

Question 29

In the early years of retirement, most will want to take a combination of withdrawals from taxable accounts and tax-deferred accounts.

Answer 29

True.

Question 30

An opportunity to convert from a traditional IRA to a Roth Ira Ray at a lower tax rate might occur in the early years of retirement when a significant portion of the withdrawals or from taxable investments.

Answer 30

True.

Question 31

What’s taxable accounts have been depleted, all distributions should come from Roth IRA’s before taking withdrawals from text deferred accounts.

Answer 31

False. At this stage, still consider opportunities to take withdrawals from tax-deferred accounts to the extent that they can be withdrawn at a low tax rate.

Question 32

Annuities held any qualified plan or IRA are subject to the same tax rules that apply to other investments held in the tax-deferred environment.

Answer 32

True

Question 33

While some exceptions apply, generally a nonqualified annuity must be owned by a natural person to qualify for deferral of taxation.

Answer 33

True.

Question 34

Only withdrawals from a qualified annuity may be subject to the 10% early withdrawal penalty tax.

Answer 34

False. Non-qualified annuities are also subject to this penalty tax.

Question 35

Once taxable accounts of been depleted, all distributions should come from Roth IRAs before taking withdrawals from Texter for accounts.

Answer 35

Faults. At this stage, still consider opportunities to take withdrawals from Texter for accounts to the extent that they can be withdrawn at a low tax rate.

Question 36

Once a nonqualified annuity has been annuitized, the tax treatment changes. Now a portion of each distribution is considered a return of premium’s until all premiums have been recovered.

Answer 36

True.

Question 37

The exclusion ratio is based on the type of life annuity and whether the annuity has a refund feature.

Answer 37

True.

Question 38

Provisional income includes tax free withdrawals from a Roth IRA.

Answer 38

False. Provisional income includes tax free interest income but not tax-free withdrawals from Roth IRA.

Question 39

A single person with $25,000 or less in provisional income will pay no taxes on his or her Social Security income.

Answer 39

True

Question 40

If a married couple who filed jointly have a provisional income of $50,000 at least 15% of Social Security benefits will not be treated as taxable income.

Answer 40

True.

Question 41

A charitable gift annuity funded with long-term capital gain property is taxed identically as would be a charitable gift annuity funded with cash

Answer 41

False. During the lifetime of the annuitant, a charitable gift annuity funded with cash would have two elements: namely, a tax-free return of income and a portion taxed as ordinary income. A charitable gift annuity funded with long-term capital gain property would have a third element representing long-term capital gain. (LO 4-2-2)

Question 42

Most clients will have a preconceived notion of who their heirs should be, but they often need help from professionals to answer how and when their property should be distributed to their heirs.

Answer 42

T

Question 43

Pooled income funds generally are not attractive during periods of low inflation.

Answer 43

T

Question 44

It is important to determine the capability of any of the client’s beneficiaries with
respect to receiving significant outright inheritances

Answer 44

T

Question 45

The documentation of a charitable remainder trust is more complicated than that of a charitable gift annuity

Answer 45

T

Question 46

Fact-finding allows the advisor to point out the potential flaws in the current plan including current transfer mechanisms (documents) creating unintended, unequal transfers

Answer 46

T

Question 47

The obligation to make payments from a charitable remainder trust for the benefit of the noncharitable beneficiaries is that of the charitable beneficiaries of the trust

Answer 47

False. The obligation to make the payments is that of the trustee. Contrast this arrangement with that of a charitable gift annuity under which the charitable remainderman is under the legal obligation to make payment to the noncharitable beneficiary. (LO 4-2-2)

Question 48

Unfortunately, a common flaw with estate plans is the failure to execute documents

Answer 48

T

Question 49

There is no question that the best estate tax reduction technique is to make bequests at death

Answer 49

False. The best estate tax reduction technique is to make lifetime gifts

Question 50

Much or all of the average client’s wealth will be transferred through lifetime gifts

Answer 50

False. Most average clients transfer wealth at death

Question 51

Paying medical expenses and tuition fees for a family member or others is not subject to gift tax making this technique an effective way to remove property from the gross estate

Answer 51

T

Question 52

When making lifetime gifts to a family member it is important to consider whether the gift will be beneficial to the recipient

Answer 52

T

Question 53

The transfer of an IRA account during the life of the client to a family member is a tax-efficient asset to gift

Answer 53

False. Gifting of an IRA asset first requires a distribution from the plan triggering income tax. (LO 4-

Question 54

There are many reasons to have a valid will including the ability to choose an executor of the estate

Answer 54

T

Question 55

Living revocable trusts are used to hold the grantor’s assets to avoid probate at death.

Answer 55

T

Question 56

It is critical to inventory all beneficiary designations for retirement plans, IRAs, and life insurance policies to ensure that they are consistent with the client’s intentions

Answer 56

T

Question 57

The estate tax marital deduction generally applies when a spouse is chosen as the beneficiary of an IRA

Answer 57

T

Question 58

A trust should be used as beneficiary of an IRA or qualified plan asset only when there is some asset preservation objective.

Answer 58

T

Question 59

Guardianship may make it difficult to make financial decisions as quickly as they are needed.

Answer 59

T

Question 60

One of the best options for transferring health care decisions is to have a court appoint a guardian

Answer 60

False. This is a slow and difficult process and may not achieve the desired result

Question 61

One central issue for the client planning for incapacity is the client’s concern over retaining personal control for as long as possible or willingness to delegate some responsibilities earlier to gain a level of comfort

Answer 61

T

Question 62

The financial impact of unnecessary health care expenditures can have a negative impact on the needs of a spouse or other dependent

Answer 62

T

Question 63

When brought in to evaluate a client’s incapacity planning the first step is choosing
the type of documents that will be effective

Answer 63

False. The first step is to identify whether there are any current documents in
place and whether they meet the client’s objectives. (

Question 64

There are two parts to incapacity planning for health care decisions: the client’s health care declaration and whether or not to appoint an agent to make medical decisions.

Answer 64

T

Question 65

With a power of attorney the principal delegates responsibilities to an agent

Answer 65

T

Question 66

A client may want to authorize the release of health care information to agents under a health care power of attorney and to the trustee of a living trust

Answer 66

T

Question 67

A special power of attorney terminates once the task and the specified time-frame have passed

Answer 67

T

Question 68

A living will stating the client’s intention for medical treatment may address issues such as food and hydration, pain management, and resuscitation

Answer 68

T

Question 69

A durable power of attorney terminates at the principal’s incapacity

Answer 69

False. A durable power of attorney will remain in effect until the power is revoked, terminated, or at the principal’s death

Question 70

A durable power of attorney should be very specific about the powers granted, since courts generally construe the terms narrowly.

Answer 70

T

Question 71

A durable power of attorney for health care decisions can create tension as the patient may have different wishes than the agent

Answer 71

False. This conflict would not arise, as the durable power of attorney is always springing—meaning that the agent is not consulted if a patient can speak for him or herself. (

Question 72

It may be better to have a committee serve as agent for a health care power of attorney to get more views involved in the decision-making

Answer 72

False. It is generally not a good idea to name a committee as this can create gridlock if all decision makers are not available to make decisions

Question 73

Having third parties (such as financial institutions or pension plans) comply with a power of attorney is generally not a concern.

Answer 73

False. The issue of third parties failing to honor these agreements is a real issue

Question 74

Besides sharing copies of a health care power of attorney with doctors and family members, the client will want to retain the original, and make sure that it is accessible to the agent. (LO 4-3-1)

Answer 74

T

Question 75

A revocable living trust can give the trustee full asset management and disposition power while the grantor is alive

Answer 75

T

Question 76

A powerful combination of tools for incapacity planning is a power of attorney combined with a revocable living trust

Answer 76

T

Question 77

A special needs trust is another planning tool for managing incapacity for an older client

Answer 77

False. Special needs trusts cannot be created for an individual who has attained age 65. The tool can be useful, however, as part of Medicaid planning if the older client wants to gift assets to a disabled heir. (LO 4-3-2

Question 78

Some qualified plan trustees will not be willing to make benefit payments to a
participant’s power of attorney

Answer 78

T

Question 79

Incapacity may be an appropriate time to convert a term life insurance policy to a permanent product

Answer 79

T