Module 11

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Module 11
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Module 11
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  1. The required minimum-distribution rules apply to qualified plans, 403(b) plans, traditional IRAs, SIMPLEs, and SEPs.

    a) True
    b) False
    a) True
  2. Under the required minimum-distribution rules, benefits always must be distributed within 5 years after the death of the participant.

    a) True
    b) False
    b) False

    There are several things wrong with this statement. If the participant dies after attaining the required beginning date, the 5-year rule does not apply at all. Even if the participant dies prior to the RBD, in many cases the 5-year rule still does not apply.
  3. The required minimum distribution rules impose a 10 percent excise tax on the amount by which a distribution in a given year falls short of the amount of the required minimum distribution.

    a) True
    b) False
    b) False

    The tax is 50% of the shortfall.
  4. The required beginning date for distributions from a qualified plan is always the April 1 of the year following the calendar year in which the covered individual attains age 70½.

    a) True
    b) False
    b) False

    Non-5-percent owners in qualified plans who are still working at age 70½ can wait until they retire to begin receiving their required minimum distributions.
  5. Under the account plan rules, while the participant is alive, the required minimum distribution is determined by dividing the participant’s account balance at the end of the previous year by the applicable distribution period.

    a) True
    b) False
    a) True
  6. If the beneficiary in the year following a participant’s death is a person who is not the decedent’s spouse, the remaining distribution period is fixed, based on the beneficiary’s age at the end of that year.

    a) True
    b) False
    a) True
  7. A 50 percent joint and survivor annuity purchased before the required beginning date will generally fail to satisfy the required minimum-distribution rules.

    a) True
    b) False
    b) False

    A 50 percent joint and survivor annuity purchased before the required beginning date will satisfy the required minimum-distribution rules.
  8. Under the required minimum-distribution rules, if a trust is the beneficiary, then the beneficiaries of the trust are considered the beneficiaries of the death benefit as long as the trust conforms with specific requirements.

    a) True
    b) False
    a) True
  9. Under the required minimum-distribution rules, if the plan has multiple beneficiaries, it is still possible to use the life expectancy of each individual beneficiary in the calculation of the beneficiary’s required minimum distribution as long as a separate account has been established for each beneficiary by the end of the year following the year of the participant’s death.

    a) True
    b) False
    a) True
  10. The executor of an estate is allowed to add a new beneficiary to the beneficiary designation form in an IRA after the participant’s death.

    a) True
    b) False
    b) False

    No new beneficiaries can be added to a beneficiary designation form after the participant dies.
  11. If The American College is one of several beneficiaries (the others are persons), paying the College out before the September 30 deadline can result in a longer required minimum distribution period for the other beneficiaries.

    a) True
    b) False
    a) True
  12. If an IRA owner dies with three children as beneficiaries, and separate accounts are established for each child during the year of the participant’s death, then the life expectancy of the oldest child is used to calculate the required minimum distribution from each separate account.

    a) True
    b) False
    b) False

    Since separate accounts were established in a timely manner, the life expectancy of each child can be used when calculating the required distribution from that child’s account.
  13. A qualified plan must clearly specify the normal and optional forms of distribution and when benefits are payable.

    a) True
    b) False
    a) True
  14. If a terminating participant is entitled to a lump-sum benefit of $800 and the plan provides for involuntary cash-outs, the plan can force out the payment in a lump sum and forgo giving the participant the right to elect any optional forms of distribution.

    a) True
    b) False
    a) True
  15. A single life annuity is an appropriate benefit option for the individual who wants the guarantee of lifetime payments but who has no need to provide retirement income to a spouse or other dependent.

    a) True
    b) False
    a) True
  16. In a joint and survivor benefit, a monthly benefit continues to be paid to a surviving beneficiary after the death of the participant.

    a) True
    b) False
    a) True
  17. Installment payments and a period certain annuity are two names for the same option.

    a) True
    b) False
    b) False

    A period certain annuity pays out a specified benefit for a stated period of time. Installment payments are less certain. Essentially, installment payments continue until the account is depleted.
  18. In a defined-benefit plan, an annuity is purchased with the participant’s account balance.

    a) True
    b) False
    b) False

    This describes what happens when a participant elects an annuity option in a defined-contribution plan. In a defined-benefit plan, there is no account balance just a promised benefit amount. The plan may pay the promised benefit out of plan assets or can purchase an annuity to cover the required payments.
  19. A subsidized early retirement benefit generally means that a benefit otherwise payable at normal retirement age can begin earlier without an actuarial reduction.

    a) True
    b) False
    a) True
  20. If the actual interest rate of a variable annuity is higher than the AIR, the annuity payments will decrease.

    a) True
    b) False
    b) False

    When interest rates are higher than the AIR, the variable annuity payment will increase.
  21. For the client whose primary objective is funding retirement needs, the most important pension distribution issues are when to begin receiving benefits and what form the distributions should take.

    a) True
    b) False
    a) True
  22. For the client concerned about outliving his or her assets, a rollover into an IRA (not invested in an annuity contract) is always the best distribution option.

    a) True
    b) False
    b) False

    Not necessarily. The guarantee of lifetime income through an annuity can be of tremendous value to a person concerned about outliving his or her assets.
  23. A client concerned about maximizing his or her estate may want to consider distributing assets as slowly as allowed under the required minimum-distribution rules.

    a) True
    b) False
    a) True
  24. A client should never consider converting a traditional IRA to a Roth IRA either at or after normal retirement age.

    a) True
    b) False
    b) False

    Because the required minimum-distribution rules do not require Roth IRA distributions during the participant’s lifetime, converting at a later age can still be an appropriate option.
  25. Qualified plans can be described as great places to accumulate money, but bad places from which to inherit it.

    a) True
    b) False
    a) True
  26. If an IRA owner or plan participant names multiple beneficiaries, the average life expectancy must be used to measure the payout period.

    a) True
    b) False
    b) False

    If the IRA owner or plan participant has multiple beneficiaries, without establishing a separate account for each beneficiary, the shortest life expectancy must be used to measure the payout period.
  27. If income tax deferral is an objective of the client, one of the critical planning steps in the drafting of a trust to be named as a beneficiary of retirement assets is to satisfy the “see-through trust” requirements.

    a) True
    b) False
    a) True
  28. To qualify as a see-through trust, documentation must be provided to the plan administrator or IRA custodian by the December 31 of the year following the year the participant’s death occurs.

    a) True
    b) False
    b) False

    The deadline for the see-through trust requirement is October 31 of the year after the year in which the participant’s death occurs.
  29. Joe names his two daughters, Sue (age 54) and Sarah (age 42) as beneficiaries of his IRA. Joe dies in November. On the following July 15th separate accounts are established within the IRA for Sue and Sarah. Under the required minimum distribution rules, Sue’s life expectancy has to be used to calculate the required minimum distributions from both of the separate accounts.

    a) True
    b) False
    b) False

    Establishing the separate accounts allows you to use Sue and Sarah’s life expectancies to calculate the required distribution from each of their accounts.
  30. The separate accounts strategy allows multiple beneficiaries to use different life expectancies, invest in different assets, and avoid responsibility for one another’s minimum distributions.

    a) True
    b) False
    a) True
  31. Sondra names The American College and her daughter Lucy as beneficiaries of one-half of her IRA. If The American College’s benefit is paid out prior to September 30 following the calendar year in which Sondra dies, Lucy’s life expectancy is used to calculate required minimum distributions.

    a) True
    b) False
    a) True
  32. Ralph, who is married, is aged 45 and maintains an IRA (valued at $300,000) that contains no nondeductible contributions. He wants to withdraw $50,000 to purchase a second home. Which of the following statements concerning this transaction are correct?

    A) Twenty percent of the distribution will have to be withheld to pay income taxes.
    B) Only $40,000 will be subject to the 10 percent Sec. 72(t) early withdrawal penalty tax.
    C) The entire distribution is taxed as ordinary income.
    D) Ralph will have to get his wife to waive the qualified joint and survivor form of annuity in order to elect the single sum distribution.
    C) The entire distribution is taxed as ordinary income.

    IRAs are not subject to mandatory withholding. These rules do apply to qualified plans and 403(b) annuities.

    IRAs are not subject to the qualified joint and survivor annuity rules. These rules do apply to qualified plans.

    Ralph is not eligible for any exception to the 10 percent penalty tax. Since this is the purchase of a second home, the $10,000 first-time homebuyer exception does not apply.
    (this multiple choice question has been scrambled)
  33. Cindy Lou, aged 52, voluntarily terminated employment from High Tech, Inc. Her benefit in the High Tech, Inc., profit-sharing plan is $200,000, $20,000 of which represents after-tax contributions that she had made. She is going to take the entire benefit in a single sum. Which of the following statements concerning the tax treatment of Cindy Lou’s benefit is correct?

    A) She can only roll $180,000 into an IRA.
    B) If she pays income taxes on the benefit, she can elect 10-year forward averaging.
    C) If she rolls $180,000 into an IRA, she will have no current income tax consequences.
    D) If she pays income taxes on the benefit, she will not have to pay the Sec. 72(t) 10 percent penalty tax because she is receiving a lump-sum distribution.
    C) If she rolls $180,000 into an IRA, she will have no current income tax consequences.

    She can roll the entire benefit into an IRA.

    Shewas born after 1935.

    Receiving a lump-sum distribution is not one of the exceptions to the Sec. 72(t) excise tax.
    (this multiple choice question has been scrambled)
  34. John is a participant in the Betsy, Inc., profit-sharing plan. He turns 70 on May 1, 2010, and retires from the company on February 1, 2011. John is not a stockholder in Betsy, Inc. What is his required beginning date under the minimum-distribution rules?

    A) April 1, 2011
    B) December 31, 2010
    C) December 31, 2011
    D) April 1, 2012
    D) April 1, 2012

    Because John is a participant in a qualified plan and is not a 5 percent owner, his required beginning date is the later of the April 1 following the year he attains age 70½ or retires. In this case, he retires in 2011 (a year after he attained age 70½). John’s required beginning date is April 1, 2012.
    (this multiple choice question has been scrambled)
  35. Failure to meet the minimum-distribution requirements for a qualified plan subjects the employee to an excise tax equal to:

    A) 10 percent of the balance of the plan assets
    B) 15 percent of the excess of the required distribution over the grandfathered amount
    C) 20 percent of the excess of the required distribution over $160,000 as indexed
    D) 50 percent of the excess of the required distribution over the amount actually distributed
    D) 50 percent of the excess of the required distribution over the amount actually distributed

    The penalty is based on the shortfall between the minimum distribution and the actual distribution.
    (this multiple choice question has been scrambled)
  36. Which of the following statements concerning the minimum-distribution requirements that apply to death-benefit distributions when the participant dies prior to the required beginning date is correct?

    A) Benefits payable to a spouse can be rolled over into the spouse’s own account.
    B) Benefits can be paid over the lifetime of a nonspousal beneficiary as long as payments begin within 5 years of the participant’s death.
    C) Benefits can be paid over the lifetime of a spousal beneficiary as long as payments begin no later than the year the participant would have reached age 59½.
    D) Benefits can be paid over a 10-year period when the beneficiary is a charity.
    C) Benefits can be paid over the lifetime of a spousal beneficiary as long as payments begin no later than the year the participant would have reached age 59½.

    Distributions must begin by December 31 of the calendar year following the year of the participant’s death.

    Payments must begin no later than December 31 of the calendar year following the year the participant would have reached age 70½.

    Distributions must be distributed in full within 5 years after the year the participant died when the beneficiary is a nonperson.
    (this multiple choice question has been scrambled)
  37. Which of the following statements concerning pension withdrawals for those individuals with limited retirement resources is (are) correct?

    I. This type of retiree will always want to choose a lump-sum rollover over an IRA.

    II. For many retirees, the most important considerations are the timing of retirement and the form of benefit distribution.

    A) II only
    B) Neither I nor II
    C) I only
    D) Both I and II
    A) II only

    I is incorrect because this type of retiree should carefully consider his or her benefit distribution options. Especially for participants in defined-benefit plans, an annuity option might provide a higher-and more secure-benefit.
    (this multiple choice question has been scrambled)
  38. Which of the following statements concerning required minimum distributions (RMDs) for multiple beneficiaries is (are) correct?

    I. The separate-account strategy can be used to stretch out RMDs if a trust is the beneficiary.

    II. If an IRA owner names multiple beneficiaries, the life expectancy of the oldest beneficiary generally has to be used to calculate RMDs.

    A) Both I and II
    B) I only
    C) II only
    D) Neither I nor II
    C) II only

    I is incorrect because the separate-account strategy does not work when a trust is the beneficiary.
    (this multiple choice question has been scrambled)
  39. All the following statements concerning distribution options from qualified plans are correct EXCEPT

    a) Plans will always provide for a specified set of distribution alternatives. b) Plans will always provide for in-service withdrawals when a participant has suffered a financial hardship.
    c) Plans are allowed to make involuntary cash-outs benefits to participants with benefits of less than $5,000.
    d) Plans are allowed to defer payment until terminated participants attain normal retirement age. All the following statements concerning distribution options from qualified plans are correct EXCEPT:

    a) Plans will always provide for a specified set of distribution alternatives. b) Plans will always provide for in-service withdrawals when a participant has suffered a financial hardship.
    c) Plans are allowed to make involuntary cash-outs benefits to participants with benefits of less than $5,000.
    d) Plans are allowed to defer payment until terminated participants attain normal retirement age.
    b) Plans will always provide for in-service withdrawals when a participant has suffered a financial hardship.

    A plan is never required to allow for in-service withdrawals, and certain qualified plans are not allowed to permit in-service withdrawals.
  40. All the following statements concerning the calculation of the required minimum distribution for the first distribution year to a participant in an individual account plan are correct EXCEPT

    A) The calculation is the same regardless of whether the participant is aged 70 or aged 71.
    B) The calculation is the same regardless of whether the beneficiary is a nonspouse who is aged 30 or a spouse aged 70.
    C) The calculation is based on the participant’s account balance at the end of the previous year.
    D) The calculation is the same regardless of whether the beneficiary is a charity or the estate.
    A) The calculation is the same regardless of whether the participant is aged 70 or aged 71.

    The calculation depends primarily on the participant’s age. It does not depend on who is the chosen beneficiary unless the beneficiary is a spouse who is more than 10 years younger than the participant.
    (this multiple choice question has been scrambled)
  41. Which of the following statements is/are correct regarding the minimum distribution rules?

    I. If a participant fails to take the minimum required distribution, a 15% excise tax will apply to any shortfall.

    II. The rules are designed to ensure that a significant portion of the plan benefit is paid out during retirement.

    A) Only II.
    B) Only I.
    C) Neither I nor II.
    D). Both I and II.
    A) Only II.

    I is incorrect. The excise tax is 50% of the shortfall.
    (this multiple choice question has been scrambled)
  42. The minimum distribution rules governing lifetime distributions apply to all of the following plans EXCEPT:

    A) Section 457 plans.
    B) 403(b) annuity plans.
    C) Roth IRAs.
    D) Simplified employee pensions (SEPs).
    C) Roth IRAs.

    The lifetime minimum distribution rules do not apply to Roth IRAs. However, the minimum distributionrules do apply to Roth IRAs after the death of the participant.
    (this multiple choice question has been scrambled)
  43. Which of the following statements is/are correct regarding the required beginning date for minimum distributions?

    I. The required beginning date for an IRA is March 1 of the calendar year in which the participant attains age 70½.

    II. A participant of a government plan who is still employed after age 70½ can defer the required beginning date until after retirement.

    A) Neither I nor II.
    B) Only II.
    C) Only I.
    D) Both I and II.
    B) Only II.

    I is incorrect. The required beginning date for an IRA is April 1 of the calendar year following the year inwhich the participant attains age 70½.
    (this multiple choice question has been scrambled)
  44. Each of the following individuals listed below is an employee of a company sponsoring a retirement plan. Assuming each individual will continue employment beyond age 70½, which one can defer the minimum distribution required beginning date until after retirement?

    A) Sara, a 10% owner of DEF Company, a company that sponsors a profit sharing plan.
    B) Dave, a 2% owner of ABC Company, a company that sponsors a SIMPLE IRA.
    C) Jake, a 3% owner of PDQ Company, a company that sponsors a money purchase plan.
    D) Marie, a 0% owner of XYZ Company, a company that sponsors a simplified employee pension plan.
    C) Jake, a 3% owner of PDQ Company, a company that sponsors a money purchase plan.

    A less-than-5% owner who is still working can defer the required beginning date until April 1 following theyear of retirement. This deferral of the required beginning date is only permitted for qualified plans and403(b) plans.

    The deferral is not allowed for IRAs.
    Sara owns 10% of the company. The deferral is only allowed for less-than-5% owners.
    A SEP is a type of IRA, and therefore, the deferral is not allowed.
    (this multiple choice question has been scrambled)
  45. Which of the following statements is/are correct regarding the timing of required minimum distributions?

    I. Delaying the first year’s minimum distribution until April 1 of the second year will actually require two distributions in the second year.

    II. If an individual takes a distribution in one year that is larger than the required minimum distribution, he or she will receive a credit against the following year’s minimum required distribution.

    A) Only I.
    B). Both I and II.
    C) Only II.
    D) Neither I nor II.
    A) Only I.

    An individual waiting until April 1 of the following year to take the first year’s distribution will also berequired to take a second distribution by December 31.

    II is incorrect. Excess distributions taken in one year will not result in a credit for future years.
    (this multiple choice question has been scrambled)
  46. All of the following statements are correct regarding the calculation of the required minimum distribution during the participant’s lifetime EXCEPT:

    A) The calculation is the same regardless of whether the beneficiary is a charity or the estate.
    B) The distribution is determined using the participant’s plan balance at the end of the previous calendar year.
    C) The distribution period is always determined based on the uniform lifetime table.
    D) The distribution period is determined based on the participant’s age at the end of the distribution year.
    C) The distribution period is always determined based on the uniform lifetime table.

    The distribution period is NOT always determined based on the uniform lifetime table. If the beneficiary isthe participant’s spouse, and the spouse is more than 10 years younger than the participant, actual jointlife expectancy tables are used.
    (this multiple choice question has been scrambled)
  47. Jessica had her 70th birthday on September 2, 2010. When would she be required to receive her first minimum distribution from her traditional IRA?

    A) December 31, 2012.
    B) April 1, 2012.
    C) December 31, 2011.
    D) April 1, 2011.
    B) April 1, 2012.

    Since her 70th birthday was on September 2, 2010, she will turn 70½ on March 2, 2011. Therefore, her required beginning date is April 1, 2012
    (this multiple choice question has been scrambled)
  48. Horatio became age 70½ on October 2 of the current year and must receive a minimum distribution from his IRA account, which had a value at the end of the prior year of $50,000. According to IRS tables, the distribution period is 25. If he takes a $1,000 distribution by next April 1, what will be
    the tax penalty?

    A) $1,000
    B). $150
    C) $500
    D). $0
    C) $500

    The required distribution is $2,000 ($50,000 / 25). Since he only took out $1,000, the shortfall is $1,000,resulting in a 50% penalty of $500.
    (this multiple choice question has been scrambled)
  49. Tony, age 65, wants to defer his retirement from ABC Company until age 75. He contributes 6% of his pay to the 401(k) plan, and his employer matches 100%. Which of the following statements is correct, assuming Tony does not own any ABC Company stock?

    A) Tony must start distributions by April 1 following the year of his retirement.
    B) The 10% early withdrawal penalty will apply to any distributions taken now.
    C) Tony will not be permitted to contribute to the 401(k) plan after attaining age 70½.
    D) Tony can take an income-tax free hardship withdrawal from the 401(k) plan now.
    A) Tony must start distributions by April 1 following the year of his retirement.

    Since he is a less-than-5% owner, he can defer the required beginning date until April 1 following the yearof retirement.

    As long as he is an employee for ABC, he can contribute to the 401(k) plan.
    Hardship withdrawals are fully taxable.
    He is over age 59½, so the early withdrawal penalty will not apply.
    (this multiple choice question has been scrambled)
  50. Which of the following statements is correct regarding minimum required distributions that must occur if a participant dies after the required beginning date?

    A) If the plan is a Roth IRA, no minimum distributions are required by the beneficiary after the participant’s death.
    B) In the year of the participant’s death, a minimum distribution from the plan is not required.
    C) If there is no designated beneficiary, the plan must be distributed within five years of the participant’s death.
    D) If the plan has a non-spouse beneficiary, the plan must be distributed over the beneficiary’s life expectancy.
    D) If the plan has a non-spouse beneficiary, the plan must be distributed over the beneficiary’s life expectancy.

    The required distribution period is the employee’s life expectancy calculated in the year ofdeath, reduced by one in each future year.

    Minimum distributions are not required from a Roth IRA while the participant is alive.However, at the participant’s death, minimum distributions are required.

    In the year of death, the heirs must take the decedent’s required minimum distribution.
    (this multiple choice question has been scrambled)
  51. Jackie, age 60, a participant in a Roth IRA for 10 years, died this year. Which of the following statements is correct regarding the Roth IRA?

    A) There are no minimum distribution requirements for the Roth IRA.
    B) Her husband could roll the plan into his Roth IRA if he is the beneficiary.
    C) If her son is beneficiary, distributions must be completed within five years.
    D) Minimum distributions received would be fully taxable to the beneficiary as income in respect of a decedent.
    B) Her husband could roll the plan into his Roth IRA if he is the beneficiary.

    With a non-spouse beneficiary, the distributions must be taken over the beneficiary’s lifeexpectancy.

    When the participant dies, minimum distribution rules do apply to a Roth IRA.

    Typically, the distribution from the Roth IRA would be income tax free if the participantdied.
    (this multiple choice question has been scrambled)
  52. Which of the following statements is correct regarding the minimum-distribution requirements that
    apply to death-benefit distributions when the participant dies prior to the required beginning date?

    A) A trust will not be considered a beneficiary unless the trust is irrevocable and the trust beneficiaries are identifiable.
    B) The entire account balance must be distributed within a 15-year period when the beneficiary is the decedent’s estate.
    C) Benefits payable to a child can be rolled over into the child’s own account.
    D) Benefits can be paid over the lifetime of a non-spousal beneficiary as long as payments begin within 5 years of the death of the participant.
    A) A trust will not be considered a beneficiary unless the trust is irrevocable and the trust beneficiaries are identifiable.

    The account must be distributed within 5 years of death if the decedent’s estate is namedas the beneficiary.

    Payments must begin as of the later of (a) December 31 of the year following the participant’s death or (b) December 31 of the year after the participant would have attained age 70½.

    Only a spouse beneficiary can rollover a decedent’s plan.
    (this multiple choice question has been scrambled)
  53. Which of the following types of annuities will provide a monthly benefit for the longer of the participant’s life or some specified period of time?

    A) Annuity certain.
    B) Joint and survivor annuity.
    C) Installment payments.
    D) Life annuity with guaranteed payments.
    A) Annuity certain.

    A life annuity with guaranteed payments will provide a monthly benefit for the longer of the participant’slife or some specified period of time.

    An annuity certain ends at the end of the term, regardless of whether the annuitant is alive.
    (this multiple choice question has been scrambled)
  54. Which of the following statements is/are correct regarding plan distributions and retirement planning?

    I. A wealthy, older client should never consider converting a traditional IRA to a Roth IRA.

    II. For a client concerned with funding retirement needs, the most important defined benefit plan distribution issues are when to begin distributions and the type of distributions.

    A) Only I.
    B) Neither I nor II.
    C) Both I and II.
    D) Only II.
    D) Only II.

    I is incorrect. Even though income taxes will occur at the time of conversion, the conversion may be agood idea because the Roth IRA is not subject to minimum distributions during the participant’s lifetime.
    (this multiple choice question has been scrambled)
  55. Which of the following statements is/are correct regarding the operation of a variable annuity?

    I. If the investment performance exceeds the assumed investment rate (AIR), the benefit payment will increase.
    II. The number of units a client holds does not change during the benefit payout period.

    A) Neither I nor II.
    B) Both I and II.
    C) Only I.
    D) Only II.
    B) Both I and II.
    (this multiple choice question has been scrambled)

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