F.47 Types of retirement plans

Question 1

Which of the following is a defined contribution plan?

A. Pension plan
B. 401(k) plan
C. Profit-sharing plan
D. All of the above

Answer 1

B. 401(k) plan

A defined contribution plan is a retirement plan in which the employer and/or employee make contributions to an individual account. The 401(k) plan is a common example of a defined contribution plan.

F.47 Types of retirement plans

Question 2

Which of the following retirement plans provides a guaranteed income stream for life?

A. 401(k) plan
B. Defined benefit plan
C. Profit-sharing plan
D. IRA plan

Answer 2

B. Defined benefit plan

A defined benefit plan is a retirement plan that provides a guaranteed income stream for life based on a formula that takes into account factors such as years of service and salary history.

F.47 Types of retirement plans

Question 3

Which of the following retirement plans is not subject to annual contribution limits?

A. 401(k) plan
B. Profit-sharing plan
C. Defined benefit plan
D. Simple IRA plan

Answer 3

C. Defined benefit plan

Defined benefit plans do not have annual contribution limits like defined contribution plans such as 401(k) plans and Simple IRA plans.

F.47 Types of retirement plans

Question 4

Which of the following retirement plans is designed for self-employed individuals?

A. 401(k) plan
B. Defined benefit plan
C. SEP IRA plan
D. Roth IRA plan

Answer 4

C. SEP IRA plan

The SEP IRA plan is a retirement plan designed for self-employed individuals and small business owners.

F.47 Types of retirement plans

Question 5

Which of the following retirement plans allows for catch-up contributions for individuals over age 50?

A. Traditional IRA plan
B. Roth IRA plan
C. 401(k) plan
D. All of the above

Answer 5

D. All of the above

All three retirement plans (Traditional IRA, Roth IRA, and 401(k) plans) allow for catch-up contributions for individuals over age 50.

F.47 Types of retirement plans

Question 6

Which of the following retirement plans is designed for non-profit organizations?

A. Profit-sharing plan
B. 401(k) plan
C. 403(b) plan
D. Keogh plan

Answer 6

C. 403(b) plan

The 403(b) plan is a retirement plan designed for non-profit organizations such as schools, hospitals, and religious organizations.

F.47 Types of retirement plans

Question 7

Which of the following retirement plans is not tax-deductible?

A. Traditional IRA plan
B. Roth IRA plan
C. Keogh plan
D. SEP IRA plan

Answer 7

B. Roth IRA plan

Contributions to a Roth IRA plan are not tax-deductible, but qualified distributions are tax-free.

F.47 Types of retirement plans

Question 8

Which of the following retirement plans allows for employer contributions only?

A. 401(k) plan
B. Simple IRA plan
C. Profit-sharing plan
D. Keogh plan

Answer 8

C. Profit-sharing plan

A profit-sharing plan is a retirement plan in which the employer makes contributions based on company profits, but employees may also make contributions if allowed by the plan.

F.47 Types of retirement plans

Question 9

Which of the following retirement plans has a maximum annual contribution limit of $58,000 in 2021?

A. SEP IRA plan
B. Keogh plan
C. 401(k) plan
D. Roth IRA plan

Answer 9

A. SEP IRA plan

The SEP IRA plan has a maximum annual contribution limit of $58,000 in 2021 or 25% of an employee’s compensation, whichever is less.

F.47 Types of retirement plans

Question 10

Which of the following retirement plans requires employees to contribute a portion of their compensation?

A. Defined benefit plan
B. Profit-sharing plan
C. Keogh plan
D. 401(k) plan

Answer 10

D. 401(k) plan

401(k) plans require employees to contribute a portion of their compensation to the plan, although employers may also make contributions.

F.47 Types of retirement plans

Question 11

John is a self-employed individual with no employees. Which retirement plan would be most suitable for him?

A. 401(k) plan
B. Defined benefit plan
C. Simple IRA plan
D. SEP IRA plan

Answer 11

D. SEP IRA plan

A SEP IRA plan is a retirement plan designed for self-employed individuals and small business owners with no employees.

F.47 Types of retirement plans

Question 12

Sarah is 50 years old and wants to maximize her retirement savings. Which of the following retirement plans would provide the most post-retirement tax savings.

A. Profit-sharing plan
B. Traditional IRA plan
C. Roth IRA plan
D. 403(b) plan

Answer 12

C. Roth IRA plan

Roth IRA plans allow individuals over age 50 to make catch-up contributions.

F.47 Types of retirement plans

Question 13

Tom is an employee of XYZ Company and is eligible to participate in the company’s 401(k) plan. What is the maximum annual contribution limit for Tom in 2021?

A. $19,500
B. $26,000
C. $58,000
D. $64,500

Answer 13

B. $26,000

The maximum annual contribution limit for 401(k) plans in 2021 is $19,500, but individuals over age 50 can make catch-up contributions up to an additional $6,500, for a total of $26,000.

F.47 Types of retirement plans

Question 14

Lisa is a teacher at a public school and wants to participate in a retirement plan. Which of the following retirement plans is designed for public school employees?

A. 401(k) plan
B. SEP IRA plan
C. 403(b) plan
D. Keogh plan

Answer 14

C. 403(b) plan

The 403(b) plan is a retirement plan designed for non-profit organizations such as schools, hospitals, and religious organizations.

F.47 Types of retirement plans

Question 15

Jack works for ABC Company and the company offers a profit-sharing plan. Which of the following statements is true regarding this plan?

A. Only the employer can contribute to the plan.
B. Only the employee can contribute to the plan.
C. Both the employer and employee can contribute to the plan.
D. Contributions to the plan are not tax-deductible.

Answer 15

A. Only the employer can contribute to the plan.

F.47 Types of retirement plans

Question 16

Emily is a business owner and wants to set up a retirement plan for herself and her employees. Which of the following retirement plans would allow her to make the highest contributions?

A. Simple IRA plan
B. Profit-sharing plan
C. 401(k) plan
D. Defined benefit plan

Answer 16

D. Defined benefit plan

Defined benefit plans typically allow for the highest contribution limits, but they may be more complex and expensive to set up and maintain.

F.47 Types of retirement plans

Question 17

Steve is 75 years old and wants to convert his traditional IRA to a Roth IRA. Which of the following statements is true regarding this conversion?

A. The conversion is tax-free.
B. The conversion is subject to income tax.
C. The conversion is subject to a 10% penalty.
D. The conversion is not allowed after age 70 ½.

Answer 17

B. The conversion is subject to income tax.

Converting a traditional IRA to a Roth IRA is a taxable event, and the converted amount is subject to income tax.

F.47 Types of retirement plans

Question 18

Maria is an employee of XYZ Company and wants to withdraw money from her 401(k) plan. Which of the following statements is true regarding this withdrawal?

A. The withdrawal is tax-free.
B. The withdrawal is subject to income tax.
C. The withdrawal is subject to a 10% penalty.
D. The withdrawal is not allowed until age 70 ½.

Answer 18

B. The withdrawal is subject to income tax.

Withdrawals from 401(k) plans are generally subject to income tax, unless they are made as a qualified distribution.

F.47 Types of retirement plans

Question 19

John is a self-employed individual and wants to contribute the maximum amount to his retirement plan. Which of the following retirement plans would allow him to make the highest contribution?

A. Roth IRA plan
B. Simple IRA plan
C. SEP IRA plan
D. Defined benefit plan

Answer 19

D. Defined benefit plan

Defined benefit plans typically allow for the highest contribution limits, but they may be more complex and expensive to set up and maintain.

F.47 Types of retirement plans

Question 20

Mary is a business owner and wants to set up a retirement plan for herself and her employees. Which of the following retirement plans would allow her to make contributions on a discretionary basis?

A. Profit-sharing plan
B. Simple IRA plan
C. Defined benefit plan
D. Keogh plan

Answer 20

A. Profit-sharing plan

Profit-sharing plans allow employers to make contributions on a discretionary basis, based on the company’s profits or earnings.

F.47 Types of retirement plans

Question 21

Lucas, age 36, runs a thriving small C corporation. He is looking to adopt a qualified plan that caters to his primary objectives: optimizing contributions for himself and crucial staff members, yet retaining the ability to decrease contributions in case of financial setbacks. Which of the following plans would MOST SUITABLY address all his objectives?

A. SIMPLE plan
B. Target benefit plan
C. Profit sharing plan
D. 457 deferred compensation plan

Answer 21

C. Profit sharing plan

A profit-sharing plan provides flexibility in determining annual contributions, so a business doesn’t have to commit to a fixed annual contribution. This would give Lucas the flexibility he seeks, especially during fiscal downturns. Additionally, it allows for maximizing contributions for select individuals, making it suitable for Lucas and his key employees.

F.47 Types of retirement plans

Question 22

John, a 52-year-old, participates in his employer’s SIMPLE IRA plan and defers $6,500 tax year 2023. His wife, Jane, who is 49, does not have any earned income for the year. If the couple files a joint income tax return with a modified adjusted gross income (MAGI) of $231,000, what is the maximum combined Roth IRA contribution they are allowed to make for the year?

A. $0
B. $6,500
C. $13,000
D. $14,000

Answer 22

A. $0

Roth IRA contribution limits are determined by one’s MAGI and filing status. Based on the scenario, the couple has a joint MAGI of $231,000. For those who are married filing jointly, the phase-out range for making a Roth IRA contribution begins at a MAGI of $218,000and ends at $228,000. Since the couple’s MAGI is above the phase-out range, they are ineligible to make Roth IRA contributions for that year. Thus, the maximum combined Roth IRA contribution they can make is $0.

F.47 Types of retirement plans

Question 23

Sarah has recently approached you as a potential client seeking advice on how to invest a $25,000 rollover from her 401(k) plan. This amount represents less than 10% of her total net worth. Before providing Sarah with investment recommendations, which of the following client characteristics should you prioritize to best assess her risk tolerance?

A. The number of dependents she has.
B. Her age and proximity to retirement.
C. The industry in which she works.
D. The recent performance of her 401(k).

Answer 23

B. Her age and proximity to retirement.

When assessing risk tolerance for investment advice, understanding the client’s age and how close they are to retirement is crucial. This helps determine the appropriate investment horizon and the potential need for liquidity. While other factors like the number of dependents, the industry of employment, and past performance can play roles in understanding a client’s overall financial picture, the age and proximity to retirement directly impact one’s capacity for risk and, often, their risk appetite.

F.47 Types of retirement plans

Question 24

You are a Certified Financial Planner (CFP). Mrs. Johnson, a potential client, approaches you with a $25,000 amount she wants to rollover from her 401(k) plan. This amount represents less than 10% of Mrs. Johnson’s total net worth. In order to offer the most appropriate investment advice for Mrs. Johnson, which of the following characteristics should you consider MOST relevant in assessing her risk tolerance?

A. Investment experience
B. Outstanding debt
C. Tax attitudes
D. Spending profile

Answer 24

A. Investment experience

When assessing a client’s risk tolerance, understanding their investment experience is crucial. A client with substantial investment experience might be more comfortable with volatility and the inherent risks associated with certain investments compared to a novice. While factors like outstanding debt, tax attitudes, and spending profile can influence a client’s overall financial situation and objectives, the direct assessment of risk tolerance often aligns closely with a client’s familiarity and comfort with investments, which is gauged by their investment experience.

F.47 Types of retirement plans