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Series 6 > Unit 2 > Flashcards

Unit 2 Flashcards

1
Q

What retirement plans have to conform to ERISA (employee retirement income security act) requirements?

A
  • Private sector qualified plans

- ex. Corporate defined benefit plan

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2
Q

403(b) plans

A
  • distributions follow the same distraction rules as those for other qualified plans
  • if all contributions are qualified, the employee’s cost basis in the account is zero
  • employee contributions have both a dollar limit and a percentage of salary limit
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3
Q

Distributions from pension plans into IRAs must be completed within how many days to maintain its tax-deferred status?

A

60 days

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4
Q

Examples of defined contribution plan

A
  • qualified profit-sharing plan
  • money-purchase plans
  • 401(k) plans
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5
Q

What type of plans must be offered to all eligible employees (cannot discriminate)?

A

Qualified plans

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6
Q

403(b) plans

A
  • also known as a TSA (tax-sheltered annuity)
  • for public schools-403(b) organizations-and private schools, research foundations, religious organizations, and other nonprofits
  • participants make pretax contributions directly from their salaries which will be invested according to a trust agreement
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7
Q

Who does a deferred compensation plan need prior approval of?

A

Only the employer

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8
Q

What are the vesting periods for a 401(k) plan?

A
  • no vesting period for the employee’s contributions (because they contribute with their own money)
  • may be a vesting period for the employer’s contributions (contributions made by the employer are optional and may carry a vesting requirement)
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9
Q

All qualified retirement plans must be established under a ________.

A

Trust agreement

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10
Q

What are some potential penalties to individuals guilty of insider trading?

A
  • civil penalties of a minimum amount equal to the profit made or loss avoided
  • criminal penalties of up to 20 years in prison
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11
Q

SEP IRAs

A
  • used primarily by small businesses because they’re easier and less expensive to set up than other plans
  • used by self-employed persons
  • employer sets it up and administers it through an account held by a bank or another financial institution
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12
Q

Who qualify for tax-sheltered annuities (TSAs)?

A

-employees of 501(c)(3) and 403(b) organizations which include charities, religious groups, and school systems

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13
Q

Examples of defined contribution plans

A
  • money-purchase plans
  • 401(k) plans
  • qualified profit-sharing plans
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14
Q

How will the contribution in a defined benefit plan vary?

A

-with the actual requirements to fund a certain benefit

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15
Q

After receiving the transfer initiation form (TIF) from a BD, how long does the carrying firm have to validate the information on the form?

A

1 business day

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16
Q

After receiving the transfer initiation form (TIF) from a BD, how long after validating the securities on the form does the carrying firm have to complete the transfer?

A

3 business days

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17
Q

What is the primary purpose of ERISA?

A

To protect employees from the mishandling of retirement funds by corporations and unions

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18
Q

Regarding a 401(k) plan, there is no vesting period for the __________ contributions.

A

Employee’s

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19
Q

Regarding a 401(k) plan, there may be a vesting period for the ____________ contributions.

A

Employer’s

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20
Q

Qualified profit-sharing retirement plans

A
  • operate under a trust agreement
  • must be in writing
  • may not discriminate
  • contributions are only required when the company makes a profit
  • contributions are either a percentage of the employee’s salary or a percentage of the corporation’s profits
  • contributions are tax-deductible to the corporate (pre-tax)-100% taxable at payout
  • grows tax-deferred
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21
Q

Regulations regarding how contributions are made to tax-qualified plans relate to which ERISA requirements?

A

Funding

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22
Q

Defined contribution plans

A
  • annual construction is predetermined
  • retirement benefits are uncertain
  • you get employees benefit most
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23
Q

Who benefits most from a defined contribution plan?

A

Younger employees

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24
Q

Defined benefit plan

A
  • annual contribution is determined by yearly actuarial calculations
  • retirement benefits are targeted for a certain amount
  • older employees benefit most
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25
Q

Who benefits the most from a defined benefit plan?

A

Older employees

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26
Q

What are the 2 general types of qualified corporate sponsored retirement plans?

A
  • defined contribution plans

- defined benefit plans

27
Q

What type of plan is a 401(k)?

A

Defined contribution plan

28
Q

Self-employed 401(k) plan

A
  • company with no full-time employees (excluding owner/spouse)
  • higher contribution limits and more flexibility
29
Q

Do Roth 401(k) plans still have to take an RMD?

A

Yes

30
Q

Roth 401(k) plans still have to take an _________.

A

RMD

31
Q

Qualified plans

A
  • pre-tax contributions
  • contributions are tax deductible
  • plan approved by the IRS
  • plan CANNOT discriminate
  • grows tax-deferred
  • all withdrawals taxed
  • plan is a trust
32
Q

Nonqualified plans

A
  • after-tax contributions
  • contributions are NOT tax deductible
  • plan does NOT need IRS approval
  • plan CAN discriminate
  • grows tax-deferred
  • excess over cost base taxed
  • plan is NOT a trust
33
Q

What happens to a TIC account if one account owner dies?

A

All pending transactions and outstanding orders must be canceled immediately

34
Q

When a person dies and leaves securities to heirs, the cost basis to the recipient is ___________. If the security has increased in value, this higher tax valuation is referred to as ___________.

A

The fair market value (FMV) on the date of the owner’s death; a “stepped up” cost basis

35
Q

When are fees paid in a brokerage account?

A

When a transaction occurs

36
Q

When are fees paid in an advisory account?

A

For advice regarding the securities in the account

37
Q

Reasonable-basis suitability

A
  • requires a broker to perform due diligence and have a reasonable basis to believe that the investment has the potential to earn a profit
  • the recommendation must be suitable for at least some investors
38
Q

Customer-specific suitability

A
  • requires a broker to have a reasonable basis to believe that a particular recommendation is suitable for a given customer based on profile and objective
  • the rep must ensure that a product is a good fit for a specific client in that it matched that client’s goals
39
Q

Quantitative suitability

A

•requires a broker to examine the client’s portfolio and make sure that the recommendation is suitable in BOTH amount AND fit in light of the client’s existing assets
Ex. A risky stock recommendation might be suitable when viewed in isolation, but would be unsuitable if the amount of the purchase as a percentage of the client’s portfolio was excessive or if the client already had enough risky assets in his investment mix

40
Q

What does Regulation S-P stand for?

A

Security & privacy

41
Q

Regulation S-P

A

•each financial institution has a responsibility to protect the privacy of its customers’ nonpublic personal information (NPI)

42
Q

A durable POA,

A

Will survive a declaration of mental incompetence

43
Q

TSAs are often,

A

placed inside of 403(b) plans and may be referred to as “qualified contracts” on the exam

44
Q

TSAs may be referred to as ___________ on the exam.

A

“Qualified contracts”

45
Q

TSAs are funded with __________ and distributions are ____________.

A

Pretax contributions, fully taxable upon withdrawal

46
Q

Who benefits most from deferred compensation plans?

A

Highly compensated employees who are just a few years from retirement

47
Q

For a nonqualified deferred compensation plan, when is the employer entitled to the tax deduction?

A

At the time the benefit is paid out

48
Q

What is full POA sometimes referred to as?

A

Durable POA

49
Q

How long is LPOA for?

A

A set period time

50
Q

If a corporation begins a nonqualified retirement plan, when do EMPLOYEE contributions grow tax-deferred?

A
  • if the plan is funded by an investment vehicle that offers tax deferral
  • If they’re invested in an annuity, for example.
51
Q

____________ do NOT need to comply with all ERISA requirements.

A

Nonqualified plans

52
Q

Who are deferred compensation plans available to?

A

Employees selected by the employer

53
Q

In a deferred compensation plan, when does the employer receive a tax deduction for the deferred payment?

A

When the payment is actually made

54
Q

What is the penalty for excess contributions to an IRA?

A

6%

55
Q

When pension plan proceeds (employer contributions only) are rolled into a Roth IRA, what portion is taxable?

A

Employer contributions

56
Q

What happens when a client’s cash account is frozen?

A

The client must deposit the full purchase price before a purchase order may be executed

57
Q

Section 457 plans

A
  • Nonqualified retirement plans set up by state and local government and tax-exempt employers for their employees and independent contractors that work for those entities
  • function as deferred compensation plans
  • earnings growth tax-deferred and all withdrawals are taxed at the time of distribution
  • employees may defer up to 100% of their compensation up to an indexed contribution limit
58
Q

Rollover

A
  • Occurs when an IRA account owner takes temporary ownership of IRA account funds when moving the account to another custodian
  • 100% of the funds withdrawn must be rolled into the new account within 60 days or they’ll be subject to tax and 10% early withdrawal penalty if applicable
  • individuals can make only 1 rollover from an IRA to another in any 365-day period
59
Q

Transfer

A
  • occurs when the account assets are sent directly from one custodian to another and the account owner never takes possession of the funds
  • there is NO LIMIT on the number of transfers that may be made during a 12-month period
60
Q

Trustee-to-trustee transfers between IRAs are __________.

A

NOT limited

61
Q

Conversions from traditional to Roth IRAs are ___________.

A

NOT limited

62
Q

Vesting (ERISA requirements)

A
  • defines when an employer contribution to a plan becomes the employee’s money, such as an employer-matching contribution to a 401(k) plan
  • ERISA limits how long the vesting schedule can last before the employee is fully vested
  • an employee is ALWAYS FULLY VESTED in their own contributions to a plan
63
Q

Funding (ERISA requirements)

A
  • funds contributed to the plan must be segregated from other corporate assets
  • plan trustees must administer and invest the assets prudently and in the best interest of all participants
  • IRS contribution limits must be observed
64
Q

ERISA does NOT apply to __________.

A

Public sector plans, such as plans for federal or state government workers

Series 6 (8 decks)

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