Practice Test II Flashcards
(39 cards)
What is the tax treatment for a shareholder participating in a common stock dividend reinvestment program
A. The shareholder is treated as if he received a cash dividend equal to the amount paid for the shares purchased under the plan or equal to his cost
B. The shareholder is treated as if he received a cash dividend equal to the fair market value of the shares purchase under the plan.
C. The reinvested dividends are treated like a stock dividend and no income is recognized.
D. The shareholder may like to recognize the dividend in a later year when he sells the stock.
B. The shareholder is treated as if he received a cash dividend equal to the fair market value of the shares purchase under the plan.
The dividend paid from the stock is simply used to purchase more shares of stock. The tax treatment is simply that the fair market value of the shares purchase is treated as dividend income if the dividends are qualified dividends, the income is subject to long-term capital gain rates.
Which one of the following must be done in order to exclude the accrued interest on EE bonds used to pay higher education expenses from income
A. The money must always be used to pay the higher education expenses of the bondholder, the bondholder spouse, or the bondholder dependents.
B. The higher education expenses must be paid to a state university and not to a private institution.
C. The bondholder must be at least 30 years old at the time the bonds are purchased.
D. The bonds must be held in a child’s name.
A. The money must always be used to pay the higher education expenses of the bondholder, the bondholder spouse, or the bondholder dependents.
Which category of retired persons is the least susceptible to cost-of-living increases than the general population
A. Retirees who rely solely on Social Security income.
B. Early retirees.
C. Retirees who own their own home.
D. Retirees covered by Medicare.
C. Retirees who own their own home.
Earned income usually ceases when a person retires from what sources will a retired person typically receive income
I. Personal savings and investments.
II. Borrowing against their home equity.
III. Social Security.
IV. Employer-sponsored retirement plans.
A. II, III, and IV
B. I and II
C. I and IV
D I, III and IV
D I, III and IV
Which choice best explains a fundamental investment strategy for accumulating funds to be used during retirement
A. Use only high growth, high risk investment vehicles for accumulated retirement funds.
B. You should begin investing many years before retirement to take advantage of compounding returns.
C. Save up small amount so that you can make large investments on an irregular schedule.
D. Because the income used to fund an IRA is not currently taxed invest discretionary income in IRAs.
B. You should begin investing many years before retirement to take advantage of compounding returns.
A client age 55 takes a $3000 distribution from his rollover IRA to pay for a semester of his 21 year-old son’s college tuition which one of these correctly explains the tax consequences for the father. The entire distribution is
A. Free from penalties and income taxes.
B. Subject to the 10% early withdrawal penalty, but is free from income tax.
C. Subject to income tax, but it’s free from the 10% early withdrawal penalty.
D. Subject to income taxes as well as the 10% early withdrawal penalty.
C. Subject to income tax, but it’s free from the 10% early withdrawal penalty.
Joan Allen recently terminated from the Carson County school district. She plans to roll her 403B plan account into her traditional IRA account number 234572 at mega mutual funds and wants to avoid the 20% withholding which one of the statements correctly instruction on the procedure.
A. Do a fund to fund transfer to a new Roth IRA account.
B. Give the plant administrator assigned and notarized rollover document electing that no funds be withheld.
C. Do a tax-free IRA rollover and deposit her distribution check after no more than 60 days.
D. Instruct the plan administrator to make the distribution check to mega mutual funds account number 235472 for the benefit of Joan Allen.
D. Instruct the plan administrator to make the distribution check to mega mutual funds account number 235472 for the benefit of Joan Allen.
Jorge bills recently retired prior to his retirement. He and his wife agreed that she should sign the required waiver to allow the money purchase plan to paint George’s retirement income as a single life annuity with no period certain which one of the following statements best explains why George and his wife would select a single life annuity distribution option from his retirement plan
A. To ensure that the full value of the annuity, based on the jorge’s own life expectancy will be paid out regardless of when he dies.
B. To ensure that the number of payments made will at least equal his life expectancy based on single life annuity tables.
C. To maximize current income when jorge is in a high tax bracket and his wife is wealthy in her own right
D. To maximize the periodic payment because George and his wife have no need or desire to have any portion of the plan benefits left after his death.
D. To maximize the periodic payment because George and his wife have no need or desire to have any portion of the plan benefits left after his death.
Which of these options explain in investment planning consideration during retirement that is related to the length of the retirement period?
A. Because the retirement period can be long. It is important to stress safety of principle over growth.
B. Because the retirement period can be long client should consider taking greater risk for greater return to keep up with inflation.
C. Because pension and Social Security keep up with inflation. The client should invest so that a constant percentage of other assets can be used to supplement income each year.
D. Because the dollar amount of income tends to decrease ratably over the retirement period, the client should invest in fixed income investments.
B. Because the retirement period can be long client should consider taking greater risk for greater return to keep up with inflation.
Which one of the following provides a means by which a person who has accumulated a large amount of her company stock and convert that stock to a cash flow stream for retirement (without her selling the stock)?
A. Cash value life insurance.
B. A variable annuity.
C. A charitable remainder trust.
D. A charitable lead trust.
C. A charitable remainder trust.
Which of these choices generally represents the tax consequences to an employer and employee under a non-qualified deferred compensation plan? An employer will
A. Receive a deduction with contributions are made to informally find a plan and the employee must recognize and identical amount as income at the same time for the same reason.
B. Receive a deduction with the employee recognizes income.
C. Not receive a deduction for plan distribution when paid, but the employee will recognize income with the amount credited to her account is nonforfeitable.
D. Receive a deduction for plain contributions when paid and the employee will not be taxed on the contribution until withdrawn.
B. Receive a deduction with the employee recognizes income.
As a general rule, an employer sponsor of a nonqualified deferred compensation plan will receive a deduction for benefits, paid by the plan when such benefits are taxable income to the participant
Which one of these is a correct statement of a tax consequence of an offshore rabbi trust
A. Under section 409a the employer is taxed immediately on all referrals to the plan and interest from each deferral.
B. Under section 409a the employee is taxed immediately on all deferrals to the plan and interest from each deferral. It is assessed a 20% penalty on the resulting taxable income.
C. The employer can be discriminatory, but must offer the plan to all key employees
D. The employer recognizes a deduction when it makes contributions to the offshore trust.
B. Under section 409a the employee is taxed immediately on all deferrals to the plan and interest from each deferral. It is assessed a 20% penalty on the resulting taxable income.
A major responsibility of FINRA is
A. Developing rules and regulations for its members.
B. Ensuring customer account in the event of the liquidation of brokerage firms.
C. Establishing rules for issuing, new securities in primary markets.
D. Registering agents of a broker dealers to do business with the public.
A. Developing rules and regulations for its members.
High tech solutions Inc. is a small publicly traded corporation. The company wants to provide an incentive to its vice president Tom Salazar to continue with the company. However, the company needs to avoid any withdrawal from its much needed cash account based on these characteristics high tech solutions should establish.
A. A restricted stock plan.
B. A split dollar plan.
C. An executive bonus plan.
D. A funded nonqualified deferred compensation plan.
A. A restricted stock plan.
Which one of the following is the most appropriate use of life insurance by a business?
A. Provide money to help continue the business at the death of a partner or other owner.
B. Provide a source of income during the startup phase of the business.
C. To indemnify any future business expansion impacted by the death of a key employee.
D. Reduce corporate income tax exposure by purchasing a cash value policy.
A. Provide money to help continue the business at the death of a partner or other owner.
As described in this course, many individuals and households overlooked a potential needs for
A. Future education expenses, and transfer taxes.
B. Life and health insurance.
C. Retirement income, and auto expenses.
D. Disability income and long-term care insurance.
D. Disability income and long-term care insurance.
Mrs. Jenny’s purchased a life insurance policy that will pay $100,000 to her beneficiary. Should she die anytime during the next year? She is guaranteed the right to renew this policy every year for the next five years the policy is not expected to have any cash value, Mrs. Jennings has purchased a.
A. Whole life policy.
B. Five year annuity.
C. Universal life policy.
D. Term life insurance policy.
D. Term life insurance policy.
Which of the following types of brokerage clients has been identified as a good prospect for cash value life insurance
A. Clients with small lump sums to invest.
B. Clients in low income tax brackets.
C. Client who prefer the discipline of regular periodic investments.
D. Clients who prefer a market timing approach.
C. Client who prefer the discipline of regular periodic investments.
With respect to cash value life policies, what part of the policy value if any is subject to income taxation with the policy is surrendered
A. The amount of the surrender value that exceeds basis.
B. The entire face amount less any dividends received.
C. None of the policy value.
D. The entire face amount.
A. The amount of the surrender value that exceeds basis.
If a cash value policy is surrendered the amount of surrender value that exceeds the total net premiums paid (basis) is subject to taxation as ordinary income.
Brent is the owner of a whole life insurance policy on her husband Wolf their daughter Vera is name as the contingent beneficiary in issuing the policy. The insurance company has asked that a settlement option should be selected which one of the following individuals is currently empowered to make the selection.
A. Brenda the policy owner.
B. Vera the contingent beneficiary.
C. The insurance company.
D. Ralph the person whose life is insured.
A. Brenda the policy owner.
Your client Ben Parsons age 45 received a $500,000 legal settlement. Ben does not currently need additional income. He would like to invest this money in a safe place where it will grow and value until he reaches age 65 based on of these facts, which one of the following would be the most logical choice for Ben
A. A ten year term life policy.
B. An immediate annuity.
C. Cash value life policy.
D. A single premium deferred annuity.
D. A single premium deferred annuity
June O’Leary purchased a deferred annuity 15 years ago now at age 65. She wants to begin to receiving an annuity payments for the rest of her life, but she is concerned about taxation of her payments. You explain that she will.
A. Have to pay a 10% withdrawal penalty to the IRS.
B. Not have to pay any taxes because she is 65 years old.
C. Be tax on any amount representing investment gains.
D. Be taxed on the entire amount of each annuity payment.
C. Be tax on any amount representing investment gains.
Traditional community property is a form of property ownership that
A. Has a right of survivorship feature.
B. Will require probate upon the death of an owner.
C. Allows owners to have unequal interest.
D. Can be used by any number of joint owners.
B. Will require probate upon the death of an owner.
The role of the investment professional, who is not also a licensed attorney of the estate planning process, includes all of these except
A. Gathering personalized financial information from the client.
B. Drafting various estate planning documents.
C. Helping make investment decisions.
D. Being part of a financial planning team.
B. Drafting various estate planning documents.
