Crpc Booklet Practice Exam

Front 1

According to the course materials, which of the following are correct statements about income replacmenet percentages?

I. Income replacment percentages are typically much higher for those w/ higher preretirement incomes.

II. Income replacement percentages vary between low-income and high-income retirees.

III. Income replacement ratios should not be used as the only basis for planning.

IV. Income replacement ratios are useful for younger clients as a guide to their long-range planning and investing.

Back 1

II, III, IV only.

The inverse of option I is true---those with a lower preretiremnt income typically need a much higher income replacemnt percentage in retirment.

Front 2

One reasonable investment strategy that makes sense for a 35 y.o person who is accumulating assets for retirement would be to:

a. weight the retiremnt port heavilly towards mutual funds

b. weight the retirment port heavilly towards investments that cover the full effects of inflation.

Back 2

A

Front 3

Wotf is a correct statement about the amount of SS retirment benefits available when a fully insured worker's retirment benefit begins at FRA?

a. The worker will receive 80% of his primary insurance amount (PIA)

b. a 63y.o spouse of the retired worker will receive at least 50% of the worker's PIA

c. at FRA, the worker's spouse will receive at least 50% of the worker's PIA

d. If the spouse of the worker has attained FRA and is entitled to benefits on his or her earning record, the benefit is the lesser of 100% of the spouse's own PIA or 50% of the worker's PIA.

Back 3

c. The spouse, at his or her SS FRA, will receive 50% of the worker's PIA unless the spouse's SS benefit is higher based on his or her own earnings.

Front 4

The tax benefits of qualifed retirement plans include wotf?

I. EE contribs to the plan are excluded from TI

II. Earnings on invested funds inside the plans are tax-deferred until withdrawn

III. Dists are taxed as ordinary income only when w/d

IV. Earnings on contributed funds and the distributions of those fundsa re tax free

Back 4

I, II, III only. Earnings on contribs to a qual plan accumulate tax-free; however, distributions are subject to income tax.

Front 5

Wotf qual plans is required to offer survivor annuity benefits to married participants?

a. profit sharing plan

b. target benefit plan

c. ESOP

d. Stock bonus plan

Back 5

B. Qual pension plans such as target benefit plan are required to offer survivor annuity benefits to married participants. Qualified profit sharing plans (including stock bonus plans and ESOPs) generally are not subject to the survivor annuity requirements, but more typically offer lump-sum payouts.

Front 6

55 yo been EE for 30 years, was uneligible. New position, eligible for 401k. Objective retire at 65 @ 2k/ month, not including SS. Assume lives to 95. The co's non-q plan will provide him w/ 1k per month. There are no matching contribs in the 401k, but his income is adequate to maximize salary deferrals to the 401k plan w/in the limits allowed by law. Contribs and pmts are made at beginning.

Assume co's 401k return is 7% and a 10% rate after he turns 65. What amount will howard have to contribute to the 401k plan for 10 years to meet his retirment objective?

Back 6

Step 1: Find PVAD

PV=?

PMT= 1000

i= 10

n= 360

PV= 114,900

Step 2: Given FV, find PMT

FV= 114,900

pv= 0

i= 7

n= 120

pmt = ? 660

Front 7

Wotf best describes a pure DC plan?

a. death benefit plan

b. supplemental plan

c. disability plan

d. "in lieu of" plan

Back 7

D. A pure DC plan is sometimes called an "in lieu of" plan because the EE is receiveing the ER's promise to pay benefits in lieu of current income. Death benefit plans provide no lifetime benefits to the EE-participant. The ER helps to fund the retirment benefit provided by a supplemental plan. Some DC plans provide addtl bens such as bens for disability.

Front 8

Bill and Lisa Hahn need a monthly income of 6k during retirement. They expect to recieve SS retiremnt benefits amounting to 3.5k/ month at the beginning of each month. Over the 12 remaining years of their preretirement period, they expect to generate an average annual after-tax investment return of 8%; during thier 25 year retiremtn period, they want to assume 6%. How much do they need to save at the end of each month to build the necessary retiremnt fund?

Back 8

Step 1: Sove for PVAD

pmt= 2500

n= 300

i= 6

pv=? 389957

Step 2: Find PMT

n= 144

i= 8

PV=0

PMT=? 1621

Front 9

Wof is most common form of business org?

a. sole p

b. partner

c. C

d. S

Back 9

Sole P by far

Front 10

S corp has 200k income this tax year including 100k cash divs from other corps. On what amount will they pay fed income tax?

Back 10

Zero dollars.

The S corp is, for tax purposes, a "conduit"; that is, an entity that pays no income taxes but merely funnels corporate earnings (or losses or credits) to its shareholders. The individual sharheolders pay taxes on these earnings at their personal tax rates.

Front 11

wof allocations would be permitted in a qualified profit sharing/ 401k plan?

I investmetn earnigns allocated in proportion to relative account balances

II Investment earnings allocated in proportion to relative compensation

III ER contribs to the profit sharing plan allocated in poroprtion to relative compensation

IV ER contribs to the profit sharing plan allocated in proportion to relative accoutn balances

Back 11

I and III only.

As a DC plan, a profit sharing plan is an individual accoutn plan; indiviual acct plans allocate investment earnings in proportion to each particiapnt's acct bal. ER contribs, on the other hand, generally are allocated based on relative compensation (ie participant's compensation expressed as a percentage of all particiapnt's comp times the total employer contrib).

Front 12

wof stmts accurately describe limits that apply to qualifed DC plans?

I. The ER contrib to a profit sharing plan is ltd to 25% of covered payroll

II. The ER's contribs to all DC plans is a combined limit of 25% of covered payroll

III. "annual additions" are ltd to the lesser of 25% of the participant's compensation or 52k

IV. "annual addtns" are aggregated and ltd to the lesser of 100% of the particiapnt's compensation or 52k for all DC plans fo the employer or related ERs.

Back 12

I, II, IV only. The annual addtns limit (lesser of 100% of pay or 52k) applies to additions to a participant's acct in all types of DC plans. the employer deduction limit is a separate limit; it is 25% for profit sharing plans, money purchase plans, target plans, and multiple DC plans. The annual additions limit for a participant in multiple DC plans of the ER or related ERs must also be aggregated.

Front 13

Co has been in op for 8 years and has been profitibel for last 3. Due to competitive pressures, the co will undergo an expansion of its workforse over the next 5 years---from 17 to 36. The owner is interested in installing a qual retriemtn plan to attract EEs and reduce the co's tax burden. His salray is 100k. He's 36, and his advisor rec'd that he save 12% of salary each year for a retirmetn fund.

Wof stmts describe a key factor that affects the selection of a qual retirment plan---in this cas, making a DC contrib plan more appropreate than a DB plan?

I. Tim's interet in attracting EEs to the co

II. the uncertainty of future cash availible for plan contribs, given the planned growth of the company

III. Tims age

IV. Tims retirmetn savings need

Back 13

II, III, and IV. Either DC or DB could be attractive to ees. However, the other factors- the uncertain cash flow outlook, tims young age, and his returmetn saving sneed of only 12%---all point in direction of DC.

Front 14

Bill, senior geoligist w/ large co

-Bill, 50, makes 75k

-top, 55, controling sharholder newly appointed company president to reduce high turnover rate and increase profitablity

-Target ben plan has just been installed. Designed profvide max contrib for Tom

Wotf is a disadvantage to Bill regarding the target ben plan?

a. bill doesn't know the amount of annual retirment benefi to expect

b. bill's salary reduction contributions to the plan are not availible for plan loans

c. ER contribs are limited to 15% of covered payroll.

d. Contribution flexibility allows the ER to lower its contribution if profits go down

Back 14

A. A target ben plan would be advantageous to bill because it would skew contribs in his (and other older ees) favor. The uncertainty of th eamount of retirment benefit, however, is a disadvantage to bill (and ot other partiicpants). Target ben plans do not allwo 401k elective deferrals, and er contribs are limted to 25%---not 15%---of covered payroll.

Front 15

wotf types of plan fomulas should be considered by a relatively new business w/ a fluctuation cash flow and key ees who are significantly older than the rank and file EEs?

a. cash balance

b. service based

c. target benefit

d. age weighted

Back 15

D. Age weghted formula can be used by a profit sharing plan. This arrangement will work best for a business w/ a fluctuation cash flow and key ees who are older than the other ees. Pension plan (ie cash balance plans and target plans) are subject to minimum funding requirements and may createa problem fo businesses w/ a fluctuationg cahs flow, even though they will maximize contribs for older ees. A service-based forumula will favor ees who have many years of service w/ the business.

Front 16

wof legal requirements apply to profit sharing plans?

I. forfeitures must be used to reduce er contributions or be reallocated to the remaining participants' accounts.

II. ER contribs must be allocated according to a comp ratio formula

III. ER deductions for plan contribs are limited to 25% of the participant's total compensation

IV. Allocations to a participant's acct cannot exceed the lesser of 100% comp or 52k annually

Back 16

I, III, IV. The allocation of er contribs to a plan may be handled in one of several ways, including a unit allocation system or an age-weighted allocation system.

Front 17

wof legal requirements apply to ESOPs?

I. stand-alone ESOPs must permit participants who have reached age 55 and have at least 10 years of service the opportuinty to diversify their accts

II. ERISA section 204j's diversification rules apply to a KSOP that is maintained by a publically traded co.

III> An ERs deduction for ESOP contribs and amounts made to repay interest on an ESOP debt cannot exceed 25% of the particiapnts payroll

Back 17

I and II only.

No limit on amounts used to pay interst on ESOP debt.

Front 18

wof legal requrimetns apply to money pruchase pension plans?

I. Normal retirmetn benfit must be specified int eh plan

II. the plan must provide a definite and nondiscretionary er contrib formula

III. Forfeitures can be reallocated to the remaining participant' accounts in a nondiscriminatory maner or be used to reduce ER contribs

IV. A separate ER contrib acct must be maintained for each participant

Back 18

II, III, IV. The first options tates a requriment that applies to db pension plans but not to money purchase plans.

Front 19

Under wof circumstances is a target benfit plan the most appropreate choise for small business owners?

I. to simplify and reduce the cost of eliminating a db plan (w/out termination) by amending it into a target plan

II. Where the ER wants to provide larger retirment bens for key ees who are significantly older than the other ees

III. to meet the ERs goal of maimizing deductible contrbs to provide bens for older, highly compensated EEs.

IV. Where the ER is opposed to assuming the investment risk and prefers the simplicity of separate account plan

II and IV.

Back 19

2 and 4 for follwoing reasons: Target ben plans have ben formulas similar to those of db plans, which favor older ees who are closer to retirment age. Because target ben plans use sepeate accts, the participants bear the risk of the plan's investment performance. Option I is incorrect because ammedning a db plan into a target plan will resulut in termination of ht edb plan. Option II is wrong because a db plan is best suited for maximizing deductibel contribs to provide benfits for older, highly comp'd ees.

Front 20

WOF stmts describe basic provisions of a money pruchase plan?

I. As a dc plan, a money purchase plan is not sbjt to the minimum funding standard

II. the er may deduct for a plan contrib up to a max of 25% of covered payroll

III. The er contrib genearlly is allocatd based on relative compensation

IV. Forfeitures from nonvested participants accts must be applied to reduce the ER contrib

Back 20

The ER deduction limit for a money purchase plan is 25% of covered payroll, and ER contribs generally allocted based on relative comp. A money pruchas plan is a 'pension' plan and thus is sbjt to the min funding requmts. As in an dc plan the plan may provide for forfeitoures either to be reallcoated to remaning participants accts or applied to reduce the er contrib.

Front 21

WOF stmts accurately describe basic provisions of a target ben plan?

I. participants bear investment risk

II. the amount of the retirment benfit is specified in teh plan, and the er is committed to provide the sated ben.

III. the er deduction for plan contribs is limited to 25% of covred payroll.

IV. Like other DC plans, target benefit plans generally are more favorable for younger participants.

Back 21

I and III only. As DC plans, targed ben plans place the investment risk onthe participants hsoulders and do not specifiy or guarantee any retirmetn ben amount. The ERs deductibel contrib is limtied to 25 % of covered payroll. Unlike other DC plans that generally favor younger participants, tharged ben plans favor older paticipants becaus the contrib allocations are skewed to provide the faster fundign necessary fo older partiicpans w/ fewer eyars remaining until retirment.

Front 22

Co has annual pay of 800k. President wihses to max contrib to the integrated profit sharing plan this year. What is the amount?

Back 22

25% of covered payroll or 200k.

Front 23

wof legal requirements apply to a profit sharing 401k plan?

I. nonelective ER contribs must be made out of profits

II. ER matching contribs must satasfy the ACP test

III. Salary reduction elections must be made before compensation is earned

IV. Special safe harbor provisions can be used to comply with the ADP tests.

Back 23

II, III, IV. Option 1 is wrong because contributions can be made to a profit sharing plan even if the ER does not have current or accumulated profits.

Front 24

Following info relates to Liz Chen and her business:

-Liz, 48, started 15 years ago and doesn't plan to retire til 70

-The other ees range from 45-63 and have from one year to eight years of service

-Liz would like to install a qualified plan that would both favor her and reward long-term EEs before they retire.

Wotf is an advantage to Liz of installing a DB plan w/ a unit-benefit formula:

c. It could reward older EEs hired in their 50s or 60s and nearer to retirement

d. It will prvide the largest contribution to Liz' acct since she has the most years of service

e. It could both maximize Liz' benefits and reward long-term ees because benefits are based in part on length of service

Back 24

e. A unit-benefit formula in a db pension plan will favor ees who have accrued many years of service with the company---in this case, primarily Liz and the long-term ees she would like to rwward. D is wrong because there are ees who are older than Liz and who may, depending upon other factos, require higher funding amounts to support their retiremnt benefits than are required to support Liz' benefit.

Front 25

Which one of the following factors has a major impact on a participant's retirement benefit in most DB plans?

b. participant's years of participation in the plan

d. participants projected years of service at retiremnt

Back 25

b.

Front 26

wof requriements is a possible disadvantage of a simplifed employee pension (SEP) for an ER?

a. ER has fiduciary responsibility for investing SEP assets

b. a SEP must have a fixed contribution formula that is nondiscriminatory

c. The vesting requirements for a SEP prohibit forfeitures

d. ER contributions ot a SEP are subject to payroll taxes

Back 26

C. SEP contribs must be 100% vested (ie- nonforfeitable at all times)

Front 27

wof are characteristics that simplified employee pensions (SEPs) share with qualified profit sharing plans?

I. limitation on ER contribs

II. nondiscrimination requirements

III. statutory eligibility requirements (age 21, one year of service)

Back 27

All. SEPs and profit sharing plans are both subject to the 25% limit on deductible er contribs and nondiscrimination requirements. Eligibility requirements are different for a SEP.

Front 28

Gary is employed by his city, and his sister, Julie, teaches public school. They each participate in DC retirement plans through thier ERS---gary in a 457 and Julie in a TSA.

Wof stmts correctly indicate how their respective plans compare to eachother?

I. Both plans are based on contracts with the ER

II. both plans are subject to a 17.5k limit on salary deferrals

III. Both plan sare availible to EEs of public school systems and section 501c3 tax-exempt organizations only.

IV. Both are subject to rollover rules that are similar to the requirements that apply to qualified plans

Back 28

I, II, IV only. 457 plans are availible to EEs of state and local governments (not just ees of public school systems) and section 501c3 tax-exempt organizations.

Front 29

Over a period of 10 years, Mark Edmunds contributed a total of 20k to a nondeductible IRA. The current value of Mark's IRA is 40k, and Mark, hwo is now 45, has decided to use his IRA assets for the down payment on a second home. Assuming Mark's marginal tax bracket is 35%, how much does he owe in taxes?

Back 29

9k. Effective rate is 45%; ie, 35% plus the 10% early withdrawl penalty.

Front 30

Ed and Jean Braxton are both 42, married, and they file a joint income tax return. Ed earned $153 this year, and Jean earned $111k. Jean is active in her er-sponsored qualified plan. Jean contributed 1.5k to her IRA for this year.

How much, if any, can be contributed to a spousal IRA for Ed?

a. 0

b. 153

c. 1,380

d. 4k

e. 5.5k

Back 30

e. The max contrib for spousal IRAs is 5.5k in 2014. The combined contribution for the husband and wife, however, cannot exceed the total compensation of both spouses.

Front 31

Rich, 45, and his wife Betty, 44, plan to contribute a total of 11k to their IRAs for this tax year. They both work outside the home, and they file a joint income tax return. Richard is a teacher at the local high school and participates in a 403b plan. Betty's er does not provide a retirement plan. They expect that their AGI will be 121k.

What amount can they deduct for their IRA contributions?

a. 0

b. 4.9k

c. 5.5k

d. 5.9k

e. 11k

Back 31

C. An individual is not denied a deduction for his or her IRA contribution simply because of the other spouse's active participation, unless the couple's combined AGI exceeds 181k (phasing otu to 191k). Based ontheir AGI, Betty will be able to deduct a contribution of up to 5.5k to an IRA. Since their combined AGI is too high for Richard to make a deductible IRA contrib, he should consider contributing to a Roth IRA.

Front 32

Last year, after separating from service with XYZ corp at age 51, Jenny rolled over her qual plan lump-sum dist into a new IRA. She had been a plan participant for 12 years. This year, she began to work for a new ER who provides a profit sharing plan for EEs. Jenny will be eligible to participate in her new ERs profit sharing plan in June of next year.

Which one of the following statements describes an option that will be to Jenny's benefit

b. leave the rollover funds in the IRA for 3 years, when 55 she can distribute the acct and benefit form lump-sum forward avging

c. above, but 65

d. Plan to roll a portion of the IRA into her new er's qual PS plan in accordance w/ tax requiremnts and plan provision. This will preserve her eligibility for forward-averaging tax treatment on this portion of her qual plan acct at a future lump-sum distribution, and she can also take lump-sum fwd-avg treatemetn on the amount remaining in her IRA.

e. Plan to roll the entire IRA over into her new er's qual PS plan in accordance w/ tax requiremnts an dplan provisions if the plan allows he rto do so.

Back 32

E. If the qual plan permits loans ot be made to participants, rolling the IRA into the qual plan would give her a resourse to meet a financial need w/out incurring income tax or a tax penalty. Having the money in a qual plan could also provide her more flexibility than an IRA when hse begins to receive distributions. Forward-averaging treatment is not availible on any distribution from an IRA. Jenny would not qualify for forward averaging since she was not 50 before 1/1/86. Taking a current distributionf romthe IRA would result in a current tax liability.

Front 33

Which statement below does not correctly describe a concept related to nonqualifed DC?

a. the avilability of dc plan funds to the ee, w/out substantial restriction, generally result in constructive receipt.

b. substantial risk of forfeiture exists when the ees receipt of DC benefits is contingent upon performance of substantial services in the future

c. an example of substantial risk of forfeiture provisions would be the ees loss of rights to the plan benefits at death or disability

d. the ees receipt of any that can be assigned a cash value results in economic benefit and taation.

e. It genrally is not necessary to prvodie a substantial risk of forfeiture in an unfunded plan

Back 33

C. Substantial risk of forfeiture requries that the ees right to receive benefits is contingen upon performance of substantial services. Death and disabilty do not create substaintil risk of forfeitirue, since they do not involve performance of services .

Front 34

Which on eof the following is a characteristic of an unfunded excess benefit plan?

a. the plan must comply w/ the discolosure requriemtns but not teh reporting requirements.

b. opposite ^

c. Both

d. Neither

Back 34

D

Front 35

Tax deferral in an unfunded plan:

a. depends on whether an executive's right to compensation is subject to conditions

b. may be achieved if the requirements of the constructive receipt doctrine are met for income that has already been earned.

c. may be achieved if the promis to pay the deferred aount is evidenced by only negotiable notes

d. may be achieved if the election to defer is made no later than the last day of the preceding calnder year

Back 35

D. An unfunded NQDC plan must provide for comp of services to be peroformed in the next (or subsequent) taxable year to be deferred at the participant's election only if the election to defer is made no later than the last day of the preceding tax year (ie by 12/31). A salary reduction or deferral agreement is applicable only to the ees income that has not yet been earned. The EE cannot defer incom that has already been received, even if such receipt is only constructive receipt.

Front 36

A funded DC plan

a. will provide tax deferral for an ER

b. must be made availible to all ees

c. will provide an immediate deduction to an ER

d. will be taxable to an EE if nonforfeitable

Back 36

D. unless the plan benefits are subject to substantial risk of forfeiture provisions, contribs to a funded nonq deferred comp plan will be construtively received by the participants and subeject to tax

Front 37

wof is often used to informally fund a DC plan?

a. corp-owned term life

b. corp owned cash value life

c. buy-sell agreement

Back 37

B.

Front 38

Larry is an ee of Binder Co. Began in '79. As part of contract, co contributes to a separate acct for Larry's benefit an amount equaling 10% of his salary yearly. The term so fthis nonq plan state that the contribution of these amounts will cease and Larry will have no rights to the income if he dies or becomes permanently disabled. Otherwise, Larry is given the right to recive the deferred cash amounts upon termination of employment w/ binder. This nonq dc plan segregates property for th ebenefti of larry.

wof is an income tax implication of thi splan for Larry and why?

a. ER contribs are taxable to Larry curretnly becaus they are nto subject ot a substantial risk of forfieture

b. the er contribs to the plan ar tax exempt for Larry because they are less than 25% of salary

c. The ER cobntribs to the plan ar taxable to Larry currently because a seperate account was established for his benefit.

d. The er contribs to the plan are tax-exempt for alrry becaus ehis receipt of pmts form the plan is contingent upon his continued eomplymnt w co.

Back 38

a. No substiantil risk of forfitur---larry will receive the deferredamounts when he terminates w the co. (death and isabilty do not establish substanital risk of forfeiture)

Front 39

wof are characteristics of unfunded supplemental executive retirment plans?

I. the ee has no secured rights in the benefits to be paid.

II. these plans are often referred to as top hat plans because they are provided to top executives of the co

III. the plan must establsih substantial risk of forfeiture provisions ot assure tax deferral

IV. the paln is subject to most of the ERISA nontax requirements

Back 39

I and II only. SERPs provide no security to the EE. an unfunded SERP is also often referred to as a top hat plan. The ee ha snothing mor ethan the ers promis. These plans generally are sbjt only to the reporting and disclosure requirements of ERISA. Top hat plans mus tbe unfunded; serps can be funded, although they are normally unfunded. Substantial risk of forfeiture provisions generally are not necessary in unfunded plans.

Front 40

wof is correct about a Rabbi trust?

a. the er recognizes a deduction when it makes contribs to the plan

b. the er can be discriminatory but must offer the plan to all key ees

c. the ee can elect to use income averaging on lump-sum dists

d. the er is taxed on the earnings in the plan as they accumulate

Back 40

D. The er-sponsor of a nonq deferred comp plan holding plan assets in a rabbi trust will receive earnings and divs paid onplan assets as taxible income. The assets an dthe earnings onthose assets reman property of the sponsor and subject to the sponsor's creditors. Deductions are usually taken in the year the ee receives the benefit. A top hat paln informally funded w/ a rabbi trust may be offered to a select group of management only. Income averaging is not availible for nonq deferred comp plan distributions.

Front 41

wof stmts accurately describe characteristics of using life insurance for the informal funding of a nonq dc plan?

I. it represents an asset that my be purchased to fund the ers unsecured promise to pay deferred amounts to the ee.

II. it offeres the advantage of being abel to fund a death benefit immediately.

III. it offeres the advantage of various settlemetnt options.

IV. It offers the advantage of simplified admin since death proceeds are paid directly to an ees surviving spouse or othere bene

Back 41

I, II, III only. LI is used to informally fund a nonq DC plan because it can immediately fund a death benefit and offers several settlement options. However, the proceeds fromthe policy are paid to the ER.

Front 42

A non-springing durable power of attourney

a. remains effective after incapacitation

b. remains effective after death

c. gives attorney-in-fact authority only when prenciple becomes incomepent

Back 42

a. A springing dpoa becomes effective when principal becomes incomepetant or incapacaitated

Front 43

wof US citizens is currently eligibel for Medicare covg?

a. self-employeed driver, 66

b. pro indipendant corporate director, 57

c. fed govt ee, 64

d. heiress w/ no earned income, 65

Back 43

a. driver is in covered occupation (covd by SS) and is over 65. no b because not 65, even though covered. No c, not 65. No d, not in ocovered occupation.

Front 44

wof statements accurately describe basic provisions of medicare part B?

I. covg includes benefits for physicians servicies

II. Individuals who are eligible for Part A are automatically eligible for part B

III. Covg includes benefis for ipatient hospital services.

IV. participants pay a monthy premium

Back 44

I, II, IV. Part A covers hospital charges. A is free, participants must pay premium for B. If eligibel for A, eligible for B and get it if they pay premium.

Front 45

Kevin purchased a disiablity income policy so as to be indemnified for income lost when he is unbale to work. Which one of the foolowing terms found in a disability incom epolicy is correctly described?

a. the elimination period is the priod of time between the issue of the policy and when specified disabilityes are covered

b. a social insurance rider is often added to individual policies to reduce the problem of lost purch power over the cost of lt disability

c. the integration (corrdination) of benefits clause generally reduces the policy's benefits by any amount recieved fro SS or workers comp, but not by the amount o fbenefits received form other personally owned insurance policies.

d. a residual disability benefit ensures that the insured will receive full policy benefits as long as theer is any residual disability following any period of total disability.

Back 45

C. The coord of bens caluse may also reduce bens to the extent state disability pmts are made and, if the policy is a group policy, by any pension bens recieved by the disabled ee from a plan provided by the same er. The elim period is the bperiod of time after the disability occurs and before pmts begin. The elim peiod shouldn't be confused w/ the probation period, which is the peirod of time between the issue of the policy and when speciified disabilties are coverd. A social insurance rider is often added to individual policies to reduce the premium; it is similar to a coordination of benefits provision.

A social insurance rider (type of contract) is sometimes added to disability insurance policy to make sure that individuals who are insured recieve the full amount of their benefits in the event that the SS administration or worker's compensation board denies their disability claim. However, any amount received in teh form of government disability benefits offsets the amount of social insurance rider disability benefits that an individual is entiteld to recieve.

A residual disabilty benefti pays when the isnured is not totally disabled, but nonetheless suffers a decrease in income as a result of disability.

Front 46

Guy askes what sourses exist for LTC insurance. wof generally are considerd potential sources for the funds to cover the cost of LT custodial care?

I. Medicaid

II. HMOs

III. Medicare

IV. Group LTC insurace ofered thru ERs

Back 46

All. Medicaid and LTC provide w/ benefits such as nurisng home care. Medicare provides only 20 days of skileld nurisng care at full cost and 80 days thereafter w/ substnatial copay, in only a ltd number of situations. It is designed only to provide temp care while patiens improve neought to go home, but it does provide some level of LTC covg. Some HMOs may provide limited LTC benfits; however, its true that few HMOs provide extensive LTC bens.

Front 47

Accordign to the SS admin, appx what percentage of all recipients have to pay income taxes on their SS bens?

a. 11

b. 21

c. 33

d. 41

Back 47

C.

Front 48

This year, your 63y.o client had 14,075 of earned and 30k of investment income. He was also drawing SS bens. Wotf correctly describes the impact on his SS bens?

a. no reducution

b. loses $1 of bens for every $1 above the "allowable limit"

c. loses 1 for every 2

d. loses 1 for every 3

Back 48

A. The earnings are below the allowable limit for th ecurrent year (15,480). Also, accordign to the work penalty rule, only earnedincome is counted toward the allowable limit.

Front 49

WOf is a potential problem w/ a golden parachute?

a. It must meet th enondiscrimination requirements of ERISA w/ regard to highly compensated ees

b. An ER may have to pay a nondeductibel excise tax on a portion of the pmt

c. A portion of the payment may be nondeductibel by the payor and subject to an excise tax by the ee

d. these payments are subject to the restrictions imposed under rule 144.

Back 49

c. If comp falls into the golden parachute category, the ER will lose the deductionon any excess parachute paymetns an the ee will be charged a nondeductible 20% excise tax on any excess parachut epayments.

Front 50

PHD Inc. firm on OTC mkt. Stock rising steadilly over six months. President Will is leery of being bout out by competitor, since he's heard rumors. Because of Will's vlue to the firm, the bod wants to provide addtnl incentive to keep will on board. wotf best serves will?

a. stock apprecian right

b. golden parrachute

c. incentive stock option

Back 50

B. He may not be employed long enough to take full adv of a stock ppreciation right or incentive stock option.

Front 51

wof are correct stmts about survivor benefits from a qualified retirement plan?

I. prof sharing plans that accpet direct transfers from pension plans are not required to provide a QJSA

II. The QJSA may be waived if the spouse gives written consent to the effect of the election and naming of another bene

III. DB, money purch,and target ben plans mus tprovide a AJSA

IV. A pension plan is not requried to provide a survivor annutiy if the plan participant and spouse have been married for less than one year

V. The QJSA payable to the spouse must be at least 50%, but not more than 100%, of the annuity amount payable during the joint lives and actuarilly equivlant to a single life annutiy over life of participant

Back 51

II, III, IV, and V only. The spouse may waive the QJSA option via written consent, which includes acknowledin the effect of the waiver and the naming of anothe rbene. If the participant and spouse have been amrried for less than one year, the palan does not have to provide a survivor annutiy. The QJSA must be actuarilly equiv to a single lfie annuity of the ther life of the participant and at least 50%, but not more than 100%, of the annuity payable during th ejoint lives of the participant an spouse. Profit sharing plans that accpet direct transfers from pension plans are sbjt to the QJSA requirmetns.

Front 52

wof isn't a characteristic of a rollover?

a. an eligible qualfiied plan distribution may be rolled over to another qual plan, TSA, SEP, IRA, or governmental 457 plan that accounts for such rollovers seperately.

b. if a qual plan dist is made due to the participant's death, the surviving spouse may roll the distribution into another qual plan, TSA, SEP, IRA, or govt 457 plan that accounts for such rollovers separately

c. Amounts rolled over from a qual plan to an IRA and subsequently distributed to the partiicpant will be taxed accordign to the rules that apply to the og qual plan.

d. a rollover generally mus tbe completed w/in 60 days of a distribution.

Back 52

c. amoutns distributed form an IRA are taxed according ot the rules that apply to IRAs, regardles sof the type of plan from which the funds may ahve been rolled over.

Front 53

Mike Hendry has been contributing to his deductibel IRA for 17 years because his former er did no toffer a retiremt plan. His new ER, school district, offers a TSA program but doesn't offer any other kid of retirment plan. Mike may roll his IRA over to which of the followign?

I. another IRA

II. His TSA

III. a 401k

IV. a govt 457

Back 53

I and II only. An IRA may be rolled to another IRA, TSA, SEP, qual plan, or govtl 457 plan that accounts for such rollovers separately. John participates in a TSA so the other options are not avialible.

Front 54

Wof describe rollovers that are permitted under current law?

I. from a qual retirmetn plan to an IRA

II. from a qual plan to another qual plan (assuming plan provisions allow)

III. from 403b to qual plan

IV. from 403b to 457 to an IRA

Back 54

ALL

Front 55

wof are exempt form the 10% penalty on qual plan distributions made before age 59.5?

i. dist made to an ee beause of "immediate adn heavy financial need"

ii. inservice distributions made to an ee 55+

III. dists made to a bene after the particiapnts death

IV. Substiantially equal periodic pmts made to a participant following separation from service, based onteh participant's remaining life expectancy

Back 55

III and IV only. The 10% premature dist penalty doesnt apply to dists on account of death or annutiized pmts based on an individual's remaining life expecancy. Options I and II and incorrect. The law does not recognize heavy and immediate financial need as an exception to the penalty. the age 55 exception does not apply to in servce distributions; ie, the ee must have separated fro the service of the er

Front 56

Dan, 41, has been contributing 2k annually to his IRA for seven years; his contributions have been fully deductible. The most recent year-end account value was 18,100. He also has accumulated 16,800 in his profit hsaring plan account at work; the paln permits loans. This year, Dan needs appx 5k to replace the 15 y.o shingles onteh roof of his home and is considering either withdrawing thi samount from his IRA or borrowing it from his profit sharing lan account.

Which one of the followign best describes the potential tax liablilty from these two options:

a. neither option results in any tax liability

b. Neither option results in any tax liability, as long as the withdrawl or the loan complies w/ qualifed plan requirements

c. Withdrawing the funds from his IRA will result in a tax liability; Dan will be sbjt to ord income tax and an early wd penalty on the 5k wd amount.

d. borrowing the funds form his pfrofit sharing plan will result in a tax liability; dan will be sbjt to ordinary iincom tax an dan early w/d penalty on etire laon amount

e. both options iwll result only in ord income taxation on the 5k

Back 56

C. the 5k IRA w/d will be sbjt to ord income tax and the 10% early w/d penalty. Paln loans that meet all legal requiremnts are not sbjt to income tax.

Front 57

wof parties may be an alternate payee pursuant to a qual domestic relations order (QDRO)?

I. any perosn named in the QDRO, other thanthe spouse or former spouse

II. spouse or former spouse

III. a child

IV. another dependant of plan participant

Back 57

II, III, IV only. An alternate payee in a QDRO may be a spouse, former spouse, a child or another dependent who is recognized by the court order to have right sto a participant's qual plan benefits.

Front 58

return of 12% over 3 years and beta of 1.2. market up 11%. rf rate 3%. Jensen index?

= Rp - [Rf+ (Rm-Rf)B]

Back 58

.12 - (.03 + (.11-.03)*1.2)

.12 - (.03 + (.08)*1.2)

.12 - (.03 + .96)

.12 - .126

= -.006

Front 59

6% cpn, 1000 par, n=10, similar bonds 7%

Back 59

928.94

Front 60

d/(k-g)

div 1/sh. ror=.12. g=.04.

Back 60

1.04/(.12-.04)

13

Front 61

The amount remainign after deducting adjustments to income is the definition of which otf?

a. adj to incom

b. adj gross income

c. taxable income

d. net income

Back 61

b. the AGI is the amount remainign after subtracting the adjustments to inocme

Front 62

A self employed client funds a SEP-IRA on teh advice of her investment professional. The most immediate effect on her tax situaiton for this year is

a. tax avoidance

b. tax deferral

c. tax reduction

d. tax transfer

Back 62

c. the sep-ira is currently deductible. Thus, tax reduction is the mot immediate effect on the tax situation. The funds placed intothe account also grow tax deferred, but the most immediate effect is the tax reduction.

Front 63

wotf is a tax preference item or adjustment for purposes of the AMT?

a. all medical expenses

b. tax-exempt interest on all muni bonds

c. bargain element on exercise of an incentive stock option

d. home mortgage interest

Back 63

c. the bargian element on the exercise of an incentive stock option is an amt preference item. (the bargain elemnt is the diff between the fmv of the stock an dthe exercise price on teh date that the option is exercised. In essense, the bargain elemetn or "spread" represents the amount of compensation that is included as preference item for AMT purposes). Most medical expenses that are deducted for regular tax purposes are allowed for AMT purposes. In fact, taxpayers 65 or older, onthe floor on medical expenses is the same for regular tax and AMT purposes---10% of AGI. Only interest from private-activity muni bonds is a preference item. Note that itnerst from private-activity muni bonds issued in 2009 and 2010 is not a preference item for AMT purposes. Home moregage interest is allwoed for both regular tax and AMT.

Front 64

What is the tax treatment for a shareholder participating in a common stock's dividend reinvestment program?

a. the reinvested divs are treated like a stock div, and no income is recd

b. the sharholder is treated as if he or she received a cash dividend equal to the fmv of the shares purchased under the plan

c. the shareholder may elect to recognize the dividen in a later year hwen he or she sells the stock.

d. The shareholder is treated as if he or she received a chas dividend equal to the amount paid for the shares purchased under th eplan or equal to his or her cost.

Back 64

B. The divident paid from the stock is simply used to purchase more shares of stock. The FMV of th eshares purchased is generally taxed at a 15 or 20% rate.

Front 65

Gross estate is best defined as all property

a. owned by the decedent

b. that is subject ot the fed estate tax

c. in teh probabte estate

d. in the taxable estate

Back 65

B. Gross estate includes all the property that is subject to the fed estate tax, whether or not owned by the decedent, and wheter or not included in the probate or taxable estate.

Front 66

The valuation date for gifts is

a. the date the donor og purchased the gifts

b. date on which th edonee takes posession of the gifts

c. the date on which the transfer is completed

d. six months after the date of the transfer

Back 66

C.

Front 67

A type of trust from which th egrantor can receive all income earned by the trust is a

a. grnator retianed interst trust (GRT)

b. qual terminable interest propety trust (QTIP)

c. charitable lead trust (CLT)

d. power of apptmt trst (POA)

Back 67

a. the grantor of a GRT can retain the right to all trust income. The income of a QTIP and POA trust goes to the grantor's spouse, and the income of a CLT goes to a charity

Front 68

An investement pro who isn't an attorney is engaged in unauthorized practive of law when he or she counsels a client regarding the

a. rules of the fed estate tax

b. meaning of estate planning terms

c. advisability of having a will

d. validity of a will

Back 68

D. the validity of a will involves interprtation of state law, and thus is the practive of law

Front 69

aof assets would be included in a decedent's gross estate except

a. LI proceeds from a policy on the decedent inwhich th edecedent had assigned all incidents of ownerhsip two years before her death

b. the proceeds froma LI policy on the decedent that was alawsy owned by the decedent's spouce, w/ the spouse as the named bene

c. An irrevocable trust established by the decedent five years before his death that paid all income to him until death,then the corpus to his children

d. a residene that was owned by teh decedent and his spouse as jtw/ right of survivorship

Back 69

b. because the decedent never woend this policy, and his estate is no tthe bene, these proceeds are not included in teh decedent's gross etate. The decent's retained right to income in c. causes inclusin. The decendt owend an interest in the residence at death, and therefor his interest mus tbe included. In a, because the decedent assigned inceidents of woneriship in this policy w/in three years of death, the proceeds must be included.

Front 70

aof assets in a decedent's sestate requrie probate except

a. the decedent's interest in a property held in tenancy in common

b. the decedent's interest in a family LP

c. the decent's itnerest in property hild in jtw/ro survivorhsip that the decent left ot his son in his will

d. the decedent's interest in property that he owned in fee simple when the decedent had no will

Back 70

C. right of survivorship property bypasses probate, while proerty held as a tenant in common or in which the decedent soley owned hi sinterst does not

Front 71

wof stmts reguarding buisness buy-sell agreements are correct

I. the b-s agreement establishes a trust to hodl the affected bus interes

II. In a cross purchase b-s agreement, hte insurance policies are owend by the business owners

III. In a redemption or entity purchase agreement, the insurance policies are owned by the business owenrs

IV. the b-s agreement establishes a method for determining hte purchase price in teh event of a sale

Back 71

II, IV. In a cp b-s agreemnt th ebus ownrs are requried to purchase an offered interst and therefore are the owners and beneficiaries of the insurance policies. In a redemption or entity b-s agreemetn, the bus entitiy ownes the policies. Any type of b-s agreement must establish a method for arriving at the purchase price. a b-s agreement does no tplace the affected business interests in a trust.

Front 72

Bridget is 45 and wants to know how much money she will need to fund her retirment income budget. Plans to retire at 60 w/ 25 yeras left. Wants to plan for inflation adj annual budget of 75k (stated in todays dolalrs; this income amount iwll be greater each yer in the future). Assume 7% annual ror, 3.5% inflation. Appx how much money will brigit need to have in 15 years at age 60 to fund her future retirmetn budget?

Back 72

2,168,725.

Step 1, what's 75k worth in 15 years?

15N, 3.5 i, 75k pv, fv=125651

Step 2, PVAD of 25 years of pmts, starting at 125k.

25N, 3.38 i, 125651PMT, = 2,168,725

Front 73

Guyton's best balance between risk, return, and max IWR?

55,65,75,85

Back 73

65% equities