Taxes and expenses do not create a significant drag on an investor's returns.
True
False
False
Taxes and expenses do create a significant drag on an investor's returns because both take away from what is left for the investor.
Accumulation of large amounts of capital can be accomplished through many small investments.
True
False
True
Investing small amounts of capital regularly can result in accumulating large amounts of capital given a long time frame.
Volatile investments are sensible when the time frame is long.
True
False
True
Volatile investments generally offer higher returns and are best used when the time frame is long so that the volatility can be used to the investor's advantage in accomplishing growth of capital.
A major reason to use a revocable trust in estate planning is to avoid estate taxes.
True
False
False
A major reason to use a revocable trust in estate planning is to avoid probate.
An attorney-in-fact is a lawyer authorized to act on behalf of someone else.
True
False
False
An attorney-in-fact does not have to be a lawyer; an attorney-in-fact is simply someone authorized to act on another person's behalf.
One strategy for the frail elderly is to establish a trust to handle their affairs.
True
False
TRUE
A life insurance policy cannot be exchanged for an annuity contract on the life of the insured without incurring a tax liability.
True
False
False
A life insurance policy can be exchanged for an annuity contract on the life of the insured without incurring a tax liability.
Which one of the following is not a good strategy to follow if a retiree is using the cash value of a life insurance policy to supplement cash flow?
withdraw the cash value during retirement as needed
utilize a Section 1035 exchange to replace the life in
cash in the life insurance policy and use the proceeds to buy an annuity
Cashing in the life insurance policy will generate a tax liability on the interest earned, so it would be better to use a Section 1035 exchange to convert the policy into an annuity,
Clients who have strong cash flows are ideal candidates for charitable remainder trusts.
True
False
False
Clients who are cash flow poor but asset rich are ideal candidates for charitable remainder trusts.
In general, lump-sum distributions from an annuity may not begin without a penalty before the account owner is age 59�.
True
False
True
Generally, there is a 10% penalty for lump-sum distributions from an annuity if the account owner is under age 59�.
Permanent life insurance policies provide a source of income for retirement.
True
False
True
Permanent life insurance policies have cash values that can provide a source of income for retirement.
Joint meetings between a financial advisor, elderly clients, and the elderly clients' adult children can help both generations of the client family understand the retirement income planning process.
True
False
True
In order for everyone involved to understand the process, both the elderly clients and the elderly clients' adult children should be included in meetings regarding the retirement income planning process. A side benefit to this is that the investment
An inheritance provides the investment professional with the opportunity to provide services to the children of a client.
True
False
True
When children of a client inherit money from the client, those children may well need advice on how to invest that money in a prudent way, which is a service an investment professional is well qualified to provide.
Which one of the following types of return should be maximized in a retired client's portfolio?
pretax return
after-tax return
tax-free return
after-tax return
Clients live on spendable after-tax dollars, so those are the dollars that need to be maximized.
Which one of the following correctly explains an investment planning consideration during retirement that is related to the length of the retirement period?
Because the retirement period can be long, it is important to stress safety of principal over grow
Because the retirement period can be long, clients should consider taking greater risk for greater return in order to keep up with inflation.
A long retirement period requires growth investments in order to counter inflation over time. These growth invest
Once a person retires, a very conservative approach to investing should be implemented.
True
False
False
Once a person retires, he or she may well have 20 or more years of life ahead. Therefore, an investment approach that is too conservative may be unwise since it would not offset the effects of inflation over that time.
A retired client who turns age 70 in May of this year must begin taking distributions from a traditional IRA by April 1 of next year.
True
False
True
Distributions from traditional (non-Roth) IRAs must begin by April 1 of the calendar year following the calendar year in which a person reaches age 70�.
Hal Nichols, an employee at XYZ Corporation, reached the age of 70� in March 2006. He retired in May 2013. Assuming Hal is not a 5% owner of XYZ Corporation, distributions from his qualified retirement plan
must have begun by April 1, 2007.
must begin by
must begin by April 1, 2014.
In Hal's situation, retirement distributions had to start by April 1, 2014, since that is the required beginning date when retiring in 2013.
Hal had to start taking distributions by April 1, 2014 (the year following the later
Taking a series of substantially equal periodic payments until age 59� allows an IRA owner who is age 56 to avoid the 10% early withdrawal penalty.
True
False
True
Substantially equal periodic payments must last for the longer of five years or until age 59�.
A person wanting the higher dollar payment from an annuity option would select the life annuity option.
True
False
True
Because the life annuity option stops payments when the beneficiary dies, it provides the highest dollar payment from the annuity.
When a client receives a lump sum from a retirement plan, one consideration should be his or her liquidity needs.
True
False
True
There are many things to consider when a client receives a lump-sum distribution from a retirement plan, one of which is the liquidity needed by the client at the time of the distribution so that any deficiencies can be addressed with that lump sum.
For 2014, an individual may contribute $5,500 to a nondeductible IRA and another $5,500 to a Roth IRA, assuming he or she meets the income level restrictions.
True
False
False
An individual may contribute a maximum of $5,500 per year to all of his or her IRAs for 2014, assuming he or she meets income restrictions where applicable.
If a couple has an adjusted gross income of $100,000, how much of a deduction can be taken for a traditional IRA by a "nonactive spouse" (married filing jointly) if the other spouse is an "active spouse" in 2014?
full
partial
none
full
A full deduction can be taken because the phaseout range for a nonactive spouse who is married filing jointly is $181,000 to $191,000 in 2014.
Earnings on 401(k) funds grow on a tax-free basis.
True
False
False
Earnings on 401(k) funds grow on a tax-deferred basis; the earnings will be taxed as ordinary income when withdrawn.
Contributions to a Roth IRA are limited to $17,500 in 2014.
True
False
False
For 2014, annual contributions to a Roth IRA are limited to $5,500, or 100% of earned income, whichever is less. This assumes no contributions are made to traditional IRAs in the same year. After 2014, the contribution limit will be indexed for the
tax-sheltered annuity plan may invest only in annuities.
True
False
False
A tax-sheltered annuity, also known as a 403(b) plan, may invest in annuity contracts or mutual funds.
Certain distributions from a 403(b) plan can be rolled over to an IRA or to another 403(b) plan, but not to a 401(k) plan or any qualified plan.
True
False
False
The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) provides that rollovers may be made between IRAs, 403(b) plans, 457 plans, and qualified plans, including 401(k) plans.
A client plans to consume all of his retirement funds just before he dies. What approach is this client taking?
capital utilization
capital preservation
capital appreciation
capital utilization
Capital utilization assumes that the retirement capital fund will be depleted at the end of the retirement period.
Social Security old-age benefits are always tax-free.
True
False
False
If a person receiving Social Security old-age benefits has an income exceeding a base amount, then some of those benefits must be included in gross income, resulting in that portion being taxed.
People on Social Security are on fixed incomes.
True
False
False
Social Security benefits are indexed to the cost of living.
When applying the capital utilization method, the assumption is that capital is used to generate income.
True
False
False
The capital utilization method assumes that the retirement capital fund will be depleted at the end of the retirement period. The capital preservation method assumes that capital is only used to generate income.
When assessing a client's retirement income needs, an advisor should ask if the client plans to remain in the same residence during retirement.
True
False
True
When assessing a client's retirement income needs, an advisor should ask if the client plans to remain in the same residence during retirement, as well as whether the mortgage will be paid off (because that could impact his or her housing costs).
As a percentage of living expenditures, which one of the following does not change significantly for people age 65 and over compared to people ages 35 through 64?
health care
food
personal insurance/pension
food
As a percentage of living expenditures, food expenditures change from 13% for people under the age of 65 to 14% for people age 65 and over. Hence, as a percentage of living expenditures, food expenditures do not change significantly for people age 65
General income replacement percentages are satisfactory estimates for most client actual income needs at retirement.
True
False
False
General percentages are good starting points to estimate retirement income needs, but only a detailed analysis can provide a reliable estimate of the actual income needed.