CRPC EXAM 1 2023-2024 ACTUAL EXAM 80 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALE, Exams of Nursing

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CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED

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When the client's circumstances change, the asset management process goes back to the data gathering step in the process. - ANSWER-A) realistic B) clearly defined C) long-term perspective D) fluid --D An investment policy provides guidelines that are standards to be followed. If they are fluid, they are ever-changing and therefore would be difficult to implement and would provide inconsistency in the management of the portfolio. An investment policy provides guidelines that are standards to be followed. If they are fluid, they are ever-changing and therefore would be difficult to implement and would provide inconsistency in the management of the portfolio. - ANSWER-A) tactical. B) alpha. C) core/satellite. D) strategic. --B Alpha is not an asset allocation strategy, but a way to measure a portfolio manager's return relative to the amount of risk that has been taken.

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Assume the following asset classes have the correlations to long-term government bonds shown below: Treasury bills:.12 Gold:-.25 Large stocks:.22 Small stocks:. Which one of the following correctly states the impact of diversification on long-term government bonds? - ANSWER-A) Gold provides more diversification than large stocks. B) Small stocks provide more diversification than Treasury bills. C) Treasury bills provide more diversification than gold. D) Large stocks provide more diversification than small stocks. --A The asset with the lowest correlation provides the most diversification. Therefore, gold provides more diversification than any of the other assets. What is the price of a bond with a 7% coupon, a $1,000 par value, and a maturity of 20 years if the market interest rate for similar bonds is 6%? - ANSWER-A) $1,074. B) $893. C) $1,000. D) $1,115. --D Set the calculator for 2 P/YR and use the END mode. The inputs then are as follows: 1,000 [FV], 35 [PMT], 20 [SHIFT] [N] = 40, 6 [I/YR], and solve for PV = $1,115.57. Note: The $35 payment is the semiannual payment of the bond. This is computed by taking the 7% coupon rate the par value of $1,000 = $70 and divide that by 2 to get the semiannual interest paid, in

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this case $35. Also, the yield to maturity (YTM) is less than the coupon rate, thus the bond must be selling at a premium. This year, your 63-year-old client had $17,025 of earned income and $30,000 of investment income. He was also drawing Social Security benefits. Which one of the following correctly describes the impact on his Social Security benefits? - ANSWER--- There is no reduction to his benefits. The client's earnings (earned income) are below the allowable limit for the current year ($18,240 for 2020). Remember that according to the work penalty rule, only earned income is counted toward the "allowable limit." Which one of the following is a correct statement about the amount of Social Security retirement benefits available when a fully insured worker's retirement benefit begins at full retirement age (FRA)? - ANSWER-A) If the spouse of the worker has attained FRA and is entitled to benefits on their earning record, the benefit is the lesser of 100% of the spouse's own PIA or 50% of the worker's PIA. B) If the spouse is at or above his or her full retirement age when commencing Social Security benefits, the spouse will receive at least 50% of the worker's PIA. C) A 63-year-old spouse of the retired worker will receive at least 50% of the worker's PIA. D) The worker will receive 80% of his or her primary insurance amount (PIA). --B

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The spouse who starts receiving benefits at his or her Social Security full retirement age will receive 50% of the worker's PIA unless the spouse's Social Security benefit is higher based on his or her own earnings. (Note: The FRA began increasing for those workers who reached age 62 in the year 2000.) At full retirement age the worker will receive 100% of PIA. The 50% of PIA is reduced for each month the spouse is under full retirement age when benefits begin. A spouse who is at FRA and entitled to benefits on their own working record would receive the higher of 100% of their own PIA or 50% of the spouse's PIA. Which one of the following is correct regarding most types of tax exempt interest and the taxation of Social Security benefits? - ANSWER-A) 85% of the tax-exempt interest is included in the computation of the taxation of Social Security benefits. B) All of the tax-exempt interest is included in the computation of the taxation of Social Security benefits. C) None of the tax-exempt interest is included in the computation of the taxation of Social Security benefits. D) 50% of the tax-exempt interest is included in the computation of the taxation of Social Security benefits. --B All tax-exempt interest income is included in computing the portion of Social Security benefits that are subject to taxation. However, tax-free Roth distributions are not counted when determining provisional income. A maximum of 85% of the Social Security benefits are subject to taxation. Provisional income - ANSWER-Provisional income is defined by the Internal Revenue Service (IRS) as the sum of wages, taxable and nontaxable interest, dividends, pensions, self- employment and other taxable income plus half (50 percent) of your annual Social Security benefits.

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Tax-exempt interest? - ANSWER-Tax-exempt interest is interest income that is not subject to federal income tax. ... The most common sources of tax-exempt interest come from municipal bonds or income-producing assets inside of Roth retirement accounts. Susan has reached full retirement age (FRA). She is trying to decide between starting Social Security benefits of $1,000 per month now, or delaying receipt for three years and using her savings to provide current income. By delaying three years her benefit would increase to $1,240 per month. Ignoring the time value of money and cost-of-living adjustments, use the break-even calculation to determine how much longer Susan will need to live in order for delaying to "pay off." - ANSWER--- She should delay only if she expects to live beyond the next 15½ years or so. By delaying three years, Susan is forfeiting $1,000 36 payments or $36, of benefits. She would then gain $240 per month going forward: $36,000/$240 = 150 months, or 12.5 years, from three years from now. If she thinks she is going to live beyond 15.5 years from now, it would pay to delay benefits by three years. Sam, age 62, begins receiving his Social Security income. His PIA is $1,500 per month. Because he has filed at age 62, his payment will be reduced by 25% to $1,125. His wife Linda, age 67, would like to begin spousal benefits. Her monthly income would be: - ANSWER---$750.00. Because Linda has attained FRA, she would be eligible for 50% of Sam's full PIA, or $750.00. Unsystematic risk - ANSWER-A) is increased through diversification.

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B) is reduced when markets fluctuate less. C) is affected by the nature of how a firm finances its operations. D) increases during periods of volatile interest rates. --C Financial risk is one of the types of unsystematic risk. Diversification decreases unsystematic risk. Market fluctuations affect market risk, a type of systematic risk. Volatile interest rates affect interest rate risk, which is a type of systematic risk. Unsystematic risk - ANSWER-Unsystematic risk is the risk that is unique to a specific company or industry. It's also known as nonsystematic risk, specific risk, diversifiable risk, ... Systematic Risk - ANSWER-Systematic risk refers to the risk inherent to the entire market or market segment. Systematic risk, also known as "undiversifiable risk," "volatility" or "market risk," affects the overall market, not just a particular stock or industry. Investors who want to bear the least amount of risk should acquire stocks with beta coefficients: - ANSWER-A) greater than 1.5. B) less than 0.5. C) greater than 1.0. D) less than 1.0. --B

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When seeking investments that have the least amount of risk, the lowest beta should be selected. If a security has an average return of 14.2% and a standard deviation of 8.4, what can be said about the security? - ANSWER-A) The security's returns can be expected to be between 8.4% and 14.2% approximately 95% of the time. B) The security's annual volatility can be expected to be within a range approximately 8.4% above and 8.4% below the current fair market value. C) The security's returns can be expected to be between 5.8% and 22.6% approximately 68% of the time. D)The security's returns can be expected to never be negative. --C This security can be expected to have a return that does not range beyond one standard deviation on either side of its average return approximately 68% of the time. The standard deviation is subtracted from and added to the average return and there is no guarantee that an investor will never have a negative return. Volatility is measured by beta. Which one of the following individuals would be best served by a $5, Roth conversion? - ANSWER-A)Tom, a 51-year-old mid-level manager making $90, B)George, a 28-year-old father of two whose wife is completing school; their income is $24, C)Mandy, a 30-year-old highly paid executive D)Rachel, a 63-year-old widowed grandmother whose income is $70, and has $55,000 in her IRA

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--B

George is young, so converting now would give him the longest time for the Roth account to grow and thus produce tax-free income in retirement. Second, George's gross income is below the standard deduction for a couple married filing jointly. Also, they will receive two child tax credits and an earned income credit. Thus, the conversion will not be income taxed. The others are older and subject to income tax now. Rachel does not need to convert because she does not seem to be on a path that will make her pay income taxes in retirement when she takes a monthly benefit. Your client has established a balanced portfolio with various amounts allocated to different asset classes, and periodically she rebalances the portfolio to keep the same approximate percentages in the different asset classes. Her approach is: - ANSWER-A) dynamic. B) tactical. C) strategic. D)core/satellite. --C This is a correct example of a strategic approach. Tactical is choosing various sectors that you believe will do best, and changing as you believe is necessary. The dynamic approach is to change asset allocation amounts as the market changes, typically used by institutional investors. Core/satellite is a combination of strategic and tactical. Harry, who is 34 years old, contributed $2,000 to a Roth IRA six years ago. By this year, the investments in his account had grown to $3,785. Finding himself in a financial bind, Harry is now compelled to withdraw $2,000 from this Roth IRA. What is the tax and penalty status of this withdrawal? -

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ANSWER--- Harry does not have to pay any tax or penalty on the $2, distribution, even though he is only 34. All Roth IRA contributions are made with after-tax funds, and contributions are considered to be withdrawn first, tax-free, then earnings. Also, the IRS rules allow the aggregation of all Roth IRAs for this calculation. Penalties would apply only to the gains the account experienced or withdrawals of converted amounts within five years of the conversion. Norman and Brenda Walker are married taxpayers filing jointly. They are both 44 years old. Norman earned $132 this year, and Brenda earned $100,000. Brenda is an active participant in the qualified plan offered by her employer, and she contributed $1,500 to her IRA for this tax year. How much can be contributed to a spousal IRA and deducted for Norman for 2020? - ANSWER---$6, The maximum deductible contribution to a spousal IRA for Norman is $6,000. The deductible amount phases out at AGI of $196,000-$206, (for 2020) for Norman, who is the nonactive participant spouse. TSA - ANSWER-A 403(b) plan (tax-sheltered annuity plan or TSA) is a retirement plan offered by public schools and certain charities. It's similar to a 401(k) plan maintained by a for-profit entity. ... The deferred salary is generally not subject to federal or state income tax until it's distributed. Adjusted Gross Income (AGI) - ANSWER-Is defined as gross income minus adjustments to income. Gross income includes your wages, dividends, capital gains, business income, retirement distributions as well as other income. Adjustments to Income include such items as Educator expenses, Student loan interest, Alimony payments or contributions to a retirement account. Your AGI will never be more than your Gross Total Income on you

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return and in some cases may be lower. Refer to the 1040 instructions (Schedule 1) for more information. If you are filing using the Married Filing Jointly filing status, the $72,000 AGI limitation applies to the AGI for both of you combined. To e-file your federal tax return, you must verify your identity with your AGI or your self-select PIN from your 2019 tax return. Charlie contributed $2,000 to Roth IRA 1 last year, when he was age 24, and $2,000 to Roth IRA 2 this year. Two years from now, Roth IRA 1 will have a balance of $2,650, and Roth IRA 2 will have a balance of $2,590, and Charlie will close Roth IRA 1, receiving the balance of $2,650. Which one of the following statements best describes his tax and penalty status for that year? - ANSWER--- He will not pay taxes or a penalty. The distribution is not qualified because Charlie is under age 59½, not disabled, not dead, or not making a first-time home purchase and he is withdrawing the money before the waiting period of five tax years. Withdrawals within five years are not prohibited, but taxation may occur and penalties may apply in some cases. None of this withdrawal, however, is included in Charlie's taxable income because the $2,650 sum is less than the aggregate total of his contributions ($4,000). Also, no penalty applies because the withdrawal is accounted for as coming from his contributions. The "required beginning date" (RBD) for IRA distributions is which one of the following? - ANSWER---April 1 of the year following the year in which age 72 was attained. By definition, under the SECURE Act the required beginning date for IRA distributions is April 1 of the year following the year in which the participant or IRA owner turns age 72.

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Over a period of 10 years, Mark contributed a total of $20,000 to a nondeductible IRA. The current value of Mark's IRA is $40,000, and Mark, who is now age 45, has decided to use all of 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 and penalties? - ANSWER--- $9, Mark's effective tax rate is 45%; i.e., 35% plus the 10% early withdrawal penalty. 45% $20,000 tax-deferred earnings = $9,000. The $20,000 basis in the IRA is not subject to income tax or the early withdrawal penalty. Richard, age 45, and his wife Betty, age 44, plan to contribute a total of $12,000 to their IRAs for 2020. 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 403(b) plan. Betty's employer does not provide a retirement plan. They expect that their adjusted gross income for the year will be $130,000. What amount, if any, can they deduct for their IRA contributions? - ANSWER---$6, 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 $196,000 (phasing out to $206,000 in 2020). Based on their AGI, Betty will be able to deduct a contribution of up to $6,000 to an IRA. Richard cannot deduct any of his IRA contribution because their AGI is beyond the 2020 phaseout range for active participants of $104,000-$124,000 for 2020. Because their combined AGI is too high for Richard to make a deductible IRA contribution, he should consider contributing to a Roth IRA. Their AGI is well below the start of the

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phaseout range for married people filing jointly who contribute to a Roth IRA. For purposes of determining if an individual may contribute to an IRA, - ANSWER-A) workers' compensation or unemployment compensation are considered to be earned compensation. B) taxable alimony received from a divorce finalized prior to January 1, 2019, is considered to be earned compensation. C) inheritance money counts as earned income for IRA contribution purposes. D) passive income, such as interest or dividends, is considered to be earned compensation. --B For IRA purposes, taxable alimony is earned income, but passive income, workers' compensation, or unemployment compensation are not. Alimony is taxable income if the divorce was finalized prior to January 1, 2019, and not substantially amended since then. Harry, a single professor who is age 36, started his Roth IRA three years ago, contributing $5,000 for his first year. He has since made a contribution of $5,500 in Year 2 and also in Year 3. He converted a traditional IRA of $17,000 to the Roth IRA last year. His total contributions are $16,000 plus the $17,000 conversion, and the account is now worth $36,497. Harry would like to make a complete withdrawal so that he can buy a new car. He wants to know what his options are and what the tax consequences would be. Which one of the following statements would be the correct information for Harry? - ANSWER-A) If Harry's Roth IRA meets the five-year holding period, the distribution will be a qualified distribution.

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B) Since Harry's Roth IRA has not met the five-year holding period, any withdrawal would be subject to taxation and the 10% penalty. C) If a withdrawal of converted IRA funds is made from the Roth account before five years has elapsed, such a withdrawal may be subject to the 10% penalty. D) Contribution amounts always come out of a Roth IRA account first, and then conversion amounts, if any. Since taxes have already been paid on these amounts, there are no taxes-either income taxes or penalty taxes- even if the distribution is not qualified. Thus, the entire distribution will be tax- and penalty-free. --C Contribution amounts always come out of a Roth IRA account first, and then conversion amounts, if any. Because taxes have already been paid on these amounts, there are no income taxes. In this case, Harry can withdraw up to $33,000 income-tax-free. If he withdrew all $36,497 he would only owe income taxes on $3,497. However, if a withdrawal of converted IRA funds is made from the Roth account before five years has elapsed, such a withdrawal would be subject to the 10% penalty unless it meets one of the exceptions. Thus, he would be subject to the 10% early withdrawal penalty on the $17,000 from last year's conversion. If the Roth IRA earnings are withdrawn and the distribution is not "qualified," the earnings will be subject to income taxation and the 10% penalty unless it satisfies an exception. If he withdrew the entire amount, he would owe income tax on $3,497 and the 10% early withdrawal penalty on $20,497. The vested accrued benefit in George's tax-sheltered annuity is $87,500. He has never taken a loan from the plan but is interested in building an addition to his home. Which of the following statements correctly describes George's option? - ANSWER---The amount of the loan would be limited to $43,750 and the term would be limited to five years.

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George wants to remodel, not purchase, his home. The amount of the loan cannot exceed 50% of the vested amount in George's account, and the term of the loan would be limited to five years. An income-tax-penalty-free distribution cannot be made from a tax- sheltered annuity (TSA) until the employee does which of the following? - ANSWER-I. separates from service after attaining age 55 II. attains age 55 III. becomes disabled or dies IV. takes a distribution under most hardship withdrawal rules -- I, II, III, IV. Penalty-free distributions can be made from a TSA or 401(k) when an employee separates from service after attaining age 55, attains age 59½, becomes disabled or dies, or takes a hardship distribution for deductible medical expenses only. All other hardship withdrawals are subject to early withdrawal penalty rules. Attaining age 55 means the worker is 55 on December 31 of the year of separation-not that the worker was 55 on the day of separation. Charles will have $100,000 in his IRA on December 31, 2023. He would like to determine the amount that must be withdrawn under the RMD rules set out by the SECURE Act. He will turn 72 in 2024. What will his RMD be for 2024? (The Uniform Table factor is 25.6 at age 72.) - ANSWER--- $3,

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$100,000 / 25.6 = $3,906.25, which rounds down to $3,906. A springing durable power of attorney: - ANSWER-A) is usually created in a person's revocable trust. B) gives the attorney-in-fact authority only when the principal becomes incompetent. C) remains effective after the principal's death. D) remains effective after the principal becomes incapacitated. --B The very purpose of any durable power of attorney is to give the attorney- in-fact authority to act after the principal becomes incapacitated. However, such authority does not survive the principal's death. Such authority is created in an independent document (not part of a living will or a living trust), and is effective immediately in this type of power of attorney. A springing durable power of attorney becomes effective when the principal becomes incompetent or incapacitated. A Medicare Part A patient must pay - ANSWER-The patient must pay all costs related to a hospital stay beyond 150 days. The annual deductible describes a gap in Medicare Part B coverage, not Part A. Medicare pays for the cost of the first 60 days in a hospital, but the patient must pay the Part A deductible. Medicare will pay the approved charges for the first 20 days in a skilled nursing facility. The gap results from the cost of care that exceeds 20 days (the patient pays the per day copayment) or the need for custodial care. Which one of the following U.S. citizens is currently eligible for Medicare Part A coverage at no cost? - ANSWER-A) an unmarried heiress who has

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always lived on trust fund money, has never had earned income, and just turned 65 B) a federal government employee, hired in 1989 and age 64 C) a self-employed truck driver, age 66 D) a professional independent corporate director, age 57 -- C Which of the following statements accurately describe basic provisions of Medicare Part B? Coverage includes benefits for physicians' services. Individuals who are eligible for Part A are automatically eligible for Part B. Coverage includes benefits for inpatient hospital services. Participants pay a monthly premium. - ANSWER--- I, II, and IV Medicare Part B includes coverage for physicians' services; Part A covers hospital charges. Part A is provided to eligible individuals at no charge, but participants must pay a premium for Part B. Individuals who are eligible for Part A are automatically eligible for Part B, and receive it if they pay the related premium. On December 31 of last year (year 1), Samuel had $360,000 in his IRA (a five-year CD earning 6.5%). He has named Tully, his wife, as beneficiary. In year 2, Samuel turned 72 on October 17, and Tully turned 56 on January

8. Assume that it is now year 4 and that Samuel dies on April 15. Tully wants you to determine her distribution alternatives. Which one of the statements below correctly describes one of the choices available to Tully? - ANSWER-Tully is not required to take a lump sum

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distribution, receive all distributions by the end of the fifth year following Samuel's death, or even continue distributions-although these are all options available to her. As a spouse, she would have the option to roll over the remaining balance to an IRA in her name and defer RMD until she reaches age 72. Your client has asked you what sources exist for long-term care insurance. Which of the following are generally considered potential sources for the funds to cover at least some of the cost of long-term custodial care? - ANSWER-I. Medicaid II. health insurance III. Medicare IV. group long-term care insurance offered through employers -- I. III. IV These three are possible sources of LTC except health insurance. Medicaid and long-term care insurance provide recipients with benefits such as nursing home care. Medicare provides only 20 days of skilled nursing care at full cost and 80 days thereafter with a substantial copay, in only a limited number of situations. It is designed only to provide temporary care while patients improve enough to go home, but it does provide some level of LTC coverage. Jennifer recently separated from service with Acme Inc. at age 52, and rolled her qualified plan lump sum into a new IRA. She had been a plan participant for 12 years. This year, she began working for a new employer that provides a profit sharing plan for employees. Jennifer will be eligible to participate in her new employer's profit sharing plan in June of next year. Which one of the following statements describes an option that will be to Jennifer's benefit?

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A) Jennifer should leave the rollover funds in the IRA for three more years. At age 55, she can distribute the account and benefit from capital gains treatment. B) Jennifer should use the direct rollover to roll the entire IRA over into her new employer's qualified profit sharing plan in accordance with tax requirements and plan provisions if the plan allows her to do so and allows for loans. C) Jennifer should leave the rollover funds in the rollover IRA unti - ANSWER---B If the qualified plan allows for loans, rolling the IRA into the qualified plan would give her a resource to meet a financial need without incurring income tax or a tax penalty. Forward-averaging treatment is not available on any distribution from an IRA, but that point is moot because Jennifer was not born before January 1, 1936. Jennifer would not qualify for capital gains treatment since all distributions from IRAs and qualified plans are taxed as ordinary income. Taking a current distribution from the IRA would result in a current tax liability. Which one of the following is a potential problem with a golden parachute?

• ANSWER--- Any excess payment would be nondeductible by the payor and subject to an excise tax by the employee. If compensation falls into the golden parachute category, the employer will lose the deduction on any excess parachute payments and the employee will be charged a nondeductible 20% excise tax on any excess parachute payments. Which one of the following types of distributions are eligible for rollover treatment?

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A) Distributions that are made to comply with the minimum distribution requirements are eligible for rollover treatment. B) A lump sum payment from a profit sharing plan payable upon separation from service is eligible for rollover treatment. C) The nontaxable portion of any IRA distribution is eligible for rollover treatment. D) Distributions that are part of a series of substantially equal periodic payments are eligible for rollover treatment. - ANSWER---B A lump sum payment from a profit sharing plan payable upon separation from service is eligible for rollover treatment. The following distributions are not eligible for rollover treatment:

1. Distributions that are part of a series of substantially equal periodic payments are not eligible for rollover treatment.
2. Distributions that are made to comply with the minimum distribution requirements are not eligible for rollover treatment.
3. The nontaxable portion of any IRA distribution is not eligible for rollover treatment. With an IRA, there is no one but the owner to validate that the contributions were after-tax. With an employer retirement plan, the administrator of the plan validates that the contributions were actually after tax. Which of the following are correct statements about survivor benefits from a qualified retirement plan? - ANSWER-Answer: II, III. IV. V. I. Profit sharing plans that accept direct transfers from pension plans are not required to provide a qualified joint and survivor annuity (QJSA). II. The QJSA may be waived if the spouse gives written consent to the effect of the election and the naming of another beneficiary.

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III. Defined benefit, money purchase, cash balance, and target benefit plans must provide a QJSA. IV. A pension plan is not required to provide a survivor annuity 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 actuarially equivalent to a single life annuity over the life of the participant. Survivor benefits from a qualified retirement plan - ANSWER-The spouse may waive the QJSA (qualified joint and survivor annuity) option via written consent, which includes acknowledging the effect of the waiver and the naming of another beneficiary. If the participant and spouse have been married for less than one year, the plan does not have to provide a survivor annuity. The QJSA must be actuarially equivalent to a single life annuity over the life of the participant and at least 50%, but not more than 100%, of the annuity payable during the joint lives of the participant and spouse. Profit sharing plans that accept direct transfers from pension plans are subject to the QJSA requirements. Which one of the following is not a characteristic of a rollover? A) A rollover generally must be completed within 60 days of the distribution. B) If a qualified plan distribution is made due to the participant's death, the surviving spouse may roll the distribution into another qualified plan, TSA, SEP, IRA, or governmental 457 plan that accounts for such rollovers separately. C) Amounts rolled over from a qualified plan to an IRA and subsequently distributed to the participant will be taxed according to the rules that apply to the original qualified plan. D) An eligible qualified plan distribution may be rolled over to another qualified plan, TSA, SEP, IRA, or governmental 457 plan that accounts for such rollovers separately. - ANSWER---C

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Amounts distributed from an IRA are taxed according to the rules that apply to IRAs, regardless of the type of plan from which the funds may have been rolled over. Which of the following are exempt from the 10% penalty on qualified plan distributions made before age 59½? I. distributions made to an employee because of "immediate and heavy" financial need II. in-service distributions made to an employee age 55 or older III. distributions made to a beneficiary after the participant's death IV. substantially equal periodic payments made to a participant following separation from service, based on the participant's remaining life expectancy - ANSWER--- III & V The 10% premature distribution penalty does not apply to distributions on account of death or annuitized payments based on an individual's remaining life expectancy. Options I and II are 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-service distributions; i.e., the employee must have separated from the service of the employer. Dan, age 41, has been contributing $2,000 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 sharing plan account at work; the plan permits loans. This year, Dan needs approximately $5,000 to replace the 15-year-old shingles on the roof of his home and is considering either withdrawing this amount from his IRA or borrowing it from his profit sharing plan account. Which one of the following best describes the potential tax liability from these two options? - ANSWER-A) Neither option results in any tax liability, as long as the withdrawal or the loan complies with qualified plan requirements.

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B) Borrowing the funds from his profit sharing plan will result in a tax liability. Dan will be subject to ordinary income tax and an early withdrawal penalty on the entire loan amount. C) Both options will result only in ordinary income taxation on the $5,000. D) Withdrawing the funds from his IRA will result in a tax liability. Dan will be subject to ordinary income tax and an early withdrawal penalty on the $5,000 withdrawal amount. --D The $5,000 IRA withdrawal will be subject to ordinary income tax and to the 10% early withdrawal penalty. Plan loans that meet all legal requirements are not subject to income tax at the time of the loan. If the loan is paid off on schedule there is no income tax or early withdrawal penalty. Many retirees have difficulty dealing with Bengen's original safe initial withdrawal rate because - ANSWER---It does not represent a lot of income. The biggest problem most people have with a 4% initial withdrawal rate is that it doesn't normally represent a lot of income. For example, it takes $300,000 of capital to produce $1,000/month. When using the "bucket approach" to withdrawals from retirement savings, the "first" bucket should be comprised of - ANSWER---short-term, liquid investments. In the "three bucket approach," a portfolio is segmented based on when the money will be needed. The first bucket is comprised of short-term, low- yielding, liquid investments that can be used to cover near term income needs (1-2 years' worth of living expenses).

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Qualified longevity annuity contracts (QLACs) may be suitable if your client

• ANSWER-QLACs are not for everyone, and each individual will need to consider his or her level of wealth and ability to "self-insure" for longevity, and what he or she is trying to accomplish with their retirement dollars. Those in poor health or with ample assets do not need the guarantees of an annuity. On the flip side, a QLAC may not be suited for those with extremely limited retirement income resources. However, for those who are healthy and have a family history of longevity, and those entering retirement with Social Security as their only source of guaranteed income, purchasing a longevity annuity could markedly improve their financial security late in life. The Simpsons need to save an additional $300,000 (in retirement year 1 dollars) to build a sufficient retirement fund to support their targeted retirement lifestyle. They expect to earn a 7% after-tax return on their retirement savings and want to assume a 5% long-term inflation rate. Their preference is to allocate a level annual savings amount to build this fund. What level annual end-of-year savings amount will the Simpsons need to deposit at the end of each year during their 20-year preretirement period? - ANSWER-$7,318 In the level payment calculation, inflation is irrelevant. Calculator inputs are: $300,000 [FV], 20 [N], 7 [I/YR]; solve for [PMT] (with calculator set for end- of-year payments) = $7,318. Notice that there was not a need to use the inflation rate because the payment was level and not a serial payment. Also, the goal was not stated in terms of "today's dollars" or "inflation-adjusted dollars."

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Which one of the following statements correctly describes a basic provision of an IRA contribution in 2020? - ANSWER-A) A person participating in a Section 457 plan will be considered an active participant. B) IRA contributions made above the limit are subject to a nondeductible excise tax of 10%. C) A nonworking, 45-year-old divorced person who receives taxable alimony may contribute to an IRA the lesser of $6,000 or 100% of any taxable alimony received. D) Someone past age 72 is not allowed to contribute to a traditional IRA under any circumstances. --C For purposes of IRA eligibility, an individual must have "compensation" (earned income or taxable alimony). Thus, a 45-year-old divorced person who receives taxable alimony (alimony from a divorce settled before 2019) and does not work may contribute the lesser of $6,000 or 100% of the alimony received. Any person receiving an addition to a qualified retirement plan (employee contribution, employer contribution, or forfeitures) other than interest and earnings will be deemed an active participant. Section 457 plans follow many of the same rules as qualified plans, but participation in one will not result in the employee being considered an active participant. The SECURE Act deleted the former age restriction on traditional IRAs. Of course, the older person must still have earned income. OASDI-HI? - ANSWER-Old-Age, Survivors, and Disability Insurance (OASDI) Program Maxine is 36 years old. She first entered the workforce two years ago and has been continuously employed since then.

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Which of the following benefits would Maxine be entitled to under OASDI- HI? - ANSWER-I. survivor's benefit for Maxine's dependent child II. lump-sum death benefit for Maxine's spouse or child III. survivor's benefit for Maxine's dependent parent who is age 62 or older IV. survivor's benefit for Maxine's spouse or former spouse who is age 60 or older -- I&II With eight quarters of continuous coverage, Maxine would be currently insured, but she would not be fully insured. The test for being currently insured is earning six of the last 13 credits (a.k.a. quarters). She has eight of the last 13. To be fully insured, she would need one credit per year since age 21. She is 36, so she needs 15 credits to be fully insured (36 - 22 = 14, and 14 is more than the minimum of six credits), but she has only eight credits. To calculate the number of credits needed to be fully insured, you always subtract 22 from the age and then ensure this is at least the minimum requirement of six credits. The maximum is 40. After 40 credits you are fully insured for life; however, to be eligible for disability benefits you also need to have a recent attachment to the labor force. For those 31 and over, that usually means at least 20 of the most recent 40 credits. Options I and II are available to a currently insured worker. Options III and IV are only available to a fully insured worker. Capital gains - ANSWER-Net long-term capital gains are subject to a 0% tax rate if the single taxpayer has taxable income under $40,000 (for 2020). Net short-term gains are subject to a taxpayer's ordinary income tax rate. A maximum rate of 28% applies to long-term gain on collectibles.