In general, a qualified plan cannot require, as a condition of participation, an employee to complete a period of service with the employer extending beyond the later of the date on which the employee completes 1 year of service or reaches age (Points : 1) 
18 years 
25 years 
30 years 
21 years 


Question 2.2. Big Bucks Bank, as the plan trustee for the XYZ Corporation profit-sharing plan, has entered into a loan with the plan secured by the individual account balances of the plan participants. What has just occurred? (Points : 1) 
A disqualified loan 
A financial obligation incurred in the ordinary course of business 
A contribution to the plan consistent with the annual additions limit 
A prohibited transaction 



Question 3.3. Which of the following vesting schedules may be used to accrue qualified defined benefit plan benefits attributable to regular (non-top-heavy) employer contributions? (Points : 1) 
100% cliff vesting after 5 years of service 
20% vesting after 3 years of service and 100% vesting after 10 years 
30% vesting after 4 years of service and 100% vesting after 12 years 
100% cliff vesting after 7 years of service 


Question 4.4. Which of the following employees of Blue Water, Inc., is(are) considered a highly compensated employee in 2014? 

Ownership share 
Current year salary 
Prior year salary 
1 
5% 
$130,000 
$100,000 
2 
6% 
$90,000 
$80,000 
3 
4% 
$60,000 
$50,000 
4 
0% 
$120,000 
$116,000 
(Points : 1) 
4 only 
2 and 3 
2 and 4 
1 and 2 


Question 5.5. A defined benefit plan is considered to be top-heavy when the plan provides more than what percentage of its aggregate benefits or accounts balances to key employees? (Points : 1) 
30% 
60% 
50% 
40% 


Question 6.6. Which of the following statements describes the flat percentage formula for calculating retirement benefits under a defined benefit retirement plan? (Points : 1) 
Every employee receives a retirement benefit of $1,200 per month. 
Every employee receives a retirement benefit equal to 30% of his average annual earnings.
Every employee receives a benefit equal to $12,000 per year. 
Every employee who completes 5 years of service receives a benefit equal to 3% of earnings for each year of service. 


Question 7.7. If partially vested participants in a qualified defined benefit plan terminate their employment with the sponsoring employer, how must the plan handle the unvested portion of their benefits? (Points : 1) 
Pay them in cash to the sponsoring employer. 
Reallocate them among the remaining plan participants. 
Pay them in cash to the terminated employees. 
Use them to reduce employer contributions for that plan year. 


Question 8.8. In a cash balance pension plan, which of the following provisions is guaranteed by the employer-sponsor? (Points : 1) 
The interest rate credit 
The medium of stock as a funding vehicle 
The plan benefit 
The plan costs 


Question 9.9. A defined benefit plan that is maintained by a professional service employer, such as a physician or attorney, is not required to be covered by the Pension Benefit Guaranty Corporation (PBGC) if the employer has (Points : 1) 
25 or fewer employees 
50 or fewer employees 
26 or more employees 
51 or more employees 


Question 10.10. Which of the following statements regarding Section 412(e)(3) plans is(are) CORRECT? 
I. A Section 412(e)(3) plan is a type of defined benefit plan. 
II. Section 412(e)(3) plans must meet minimum funding standards unless there is a loan outstanding against the insurance policy funding the plan. 
III. This type of plan is not required to be certified by an enrolled or licensed actuary. 
IV. A fully insured plan is inappropriate for an employer who cannot commit to regular premium payments. (Points : 1) 
I and III 
II and III 
IV only 
I, III and IV 


Question 11.11. A Section 401(k) plan does not have to satisfy the ADP and ACP tests if it meets one of the safe harbor provisions. All of the following statements regarding the safe harbor provisions are correct EXCEPT (Points : 1) 
an employer may satisfy the safe harbor provisions by making certain matching contributions for non-highly compensated employees who participate in the plan 
a plan that satisfies the safe harbor provisions is not subject to the top-heavy rules 
an employer may satisfy the safe harbor provisions by making nonelective contributions for all eligible employees 
mandatory employer contributions under the safe harbor provisions may be subject to 3-year cliff vesting requirement 


Question 12.12. Gordon has met the 2 tests required for a hardship withdrawal from his profit-sharing plan with his employer. Which of the following is a reason for which money may be withdrawn using the hardship withdrawal rules? (Points : 1) 
Gordon needs the money to pay for unreimbursed medical expenses for his wife. 
Larry, Gordon's cousin, has asked him for a loan to pay his college costs this semester. Larry is not a dependent of Gordon. 
None of these are reasons that qualify for a hardship withdrawal. 
Gordon, who has had financial reversals, is using the withdrawal to prevent a foreclosure on his vacation home. 


Question 13.13. Which of the following is an advantage of the defined contribution category of qualified plans? (Points : 1) 
Younger employees generally benefit through the accumulation of earnings in individual accounts. 
The investment risk is borne by the employer. 
A retirement benefit is promised by the employer and is subject to required funding standards. 
The employee's individual account balance may not sufficiently meet his retirement needs. 


Question 14.14. Annual contributions to an individual participant in a traditional Section 401(k) plan are limited in 2014 to (Points : 1) 
$12,000 
$17,500 
$260,000 
the lesser of 100% of compensation, or $52,000 


Question 15.15. When is an employer stock ownership plan (ESOP) an appropriate choice for an employer to implement? 
I. The employer is either a C or an S corporation. 
II. Creating a market for the employer stock helps diversify the employer-owner's stock portfolio. 
III. The employer wishes to increase the company's liquidity by pledging the stock for a loan in the name of the ESOP. 
IV. The employer wishes to transfer ownership of the business to the employees. (Points : 1)
I, II, III and IV 
I and IV 
I and III 
II and III 


Question 16.16. In comparing a governmental or church-sponsored Section 403(b) plan to a Section 401(k), which of the following provisions are shared? (Points : 1) 
Both must satisfy special ADP tests. 
Both share special catch-up contributions in excess of $5,500 annually. 
Both are subject to ERISA's reporting requirements. 
Both may invest in mutual funds. 


Question 17.17. Brooks Company has 45 employees. Of these, 40 earned at least $5,000 in the prior year and expect to earn at least that much in the current year. Brooks Company does not currently maintain a retirement plan. If Brooks implements a SIMPLE IRA, which of the following statement are CORRECT? 
I. Employees may make an elective deferral into the IRA as a percentage of compensation of up to $12,000 in 2014. 
II. All of the employees of Brooks Company are eligible to participate in the plan. 
III. The covered compensation limit for SIMPLE IRAs is $400,000 for 2014 when the employer elects the 3% match. 
IV. The covered compensation limit is $260,000 if Brooks Company decides on the 2% nonelective employer contribution. (Points : 1) 
II and IV 
I, III, and IV 
I, II, III, and IV 
III and IV 


Question 18.18. All of the following statements regarding simplified employee pension (SEP) plans are correct EXCEPT (Points : 1) 
all part-time employees can be excluded 
the major advantage is the simplicity of the plan 
SEP plans can be established by any form of business entity 
employer contributions are discretionary 


Question 19.19. Allen is 53 years old. He participates in an employer-sponsored SIMPLE IRA. What is the maximum amount he can contribute to the plan in 2014 in the form of elective deferrals? (Points : 1) 
$23,000 
$17,500 
$14,500 
$2,500 


Question 20.20. What is the maximum contribution an employer may make to a SEP plan account in 2014 for an employee whose compensation is $260,000? (Points : 1) 
$17,500 
$12,000 
$52,000 
$65,000 


Question 21.21. Terry and Nancy are both age 39 and each plan to contribute $5,500 to their traditional IRAs for the 2014 tax year. They are both employed and file a joint income tax return. However, only Terry is eligible for and participates in his employer's qualified retirement plan. Terry and Nancy's modified AGI and earned income for the year 2014 is $99,000. What amount, if any, can Nancy deduct for her IRA contribution? (Points : 1) 
$200 
$2,500 
$4,400 
$5,500 


Question 22.22. A single taxpayer, age 54, retired 2 years ago and is receiving a pension of $600 per month from her previous employer's qualified pension plan. She has recently taken an employment position in a small CPA firm that has no pension plan. She will receive $80,000 annually in compensation from the CPA firm as well as $7,200 from her pension plan each year. How much can she contribute, if any, to a deductible traditional IRA in the year 2014? (Points : 1) 
$0 
$4,000 
$5,500 
$6,500 


Question 23.23. Larry is 63 and has an IRA with an account balance of $1 million. He is preparing for retirement in a few years. He has found a home for his retirement years and wants to use the IRA as a means to immediately purchase this home. Which of the following statements regarding the home purchase is(are) CORRECT? 
I. If Larry uses the IRA as security for the loan for the home purchase, he has entered into a prohibited transaction. 
II. The amount of the loan secured by the IRA will be treated as a distribution from the IRA and will be included in Larry's gross income. (Points : 1) 
I only 
II only 
Both I and II 
Neither I nor II 


Question 24.24. Clara, age 50, opened a Roth IRA in Year 1 and made a $5,000 contribution for that year. In Years 2, 3, and 4, she made additional annual contributions of $5,000. Clara died in Year 4 after making her contribution for that year. The beneficiary is Josh, who has asked his financial planner when he may take a total distribution from Clara's Roth IRA penalty free and tax free. What does the planner tell him? (Points : 1) 
A new 5-year holding period began with the year of Clara's death (Year 4) and Josh must wait until January 1, Year 9 for a tax-free and penalty-free distribution. If Clara died after beginning required minimum distributions for the Roth IRA, Josh must take distributions over 
Clara's lifetime beginning in the year Clara would have attained 70½ for the distributions to be penalty and tax free. 
Because the distribution is made to Josh as a beneficiary upon Clara's death, the distribution can be taken immediately without incurring a penalty or income taxes 
Any distribution must satisfy the 5-year holding period that began in Year 1 with Clara's first contribution to the Roth IRA in order to be penalty and tax free. 


Question 25.25. Roger is 73 years old. He has an AGI of $35,000 of which $10,000 is earned income. What amount can Roger contribute to a traditional IRA and/or a Roth IRA in 2014? (Points : 1) 
Roger can contribute $6,500 to a Roth IRA only. 
A total of $6,500 in contributions may be allocated between the traditional IRA and the Roth IRA. 
Roger can contribute $6,500 to either a traditional IRA or a Roth IRA. 
Roger can no longer contribute to any IRA, as he is older than 70½ in 2014. 


Question 26.26. What is the amount of penalty that applies to a distribution from a qualified plan or IRA that is insufficient in amount after the required beginning date? (Points : 1) 
10% of the earnings distributed 
15% of the required minimum distribution 
25% of the remaining account balance 
50% of the difference between the required minimum distribution and the amount actually distributed 


Question 27.27. Upon retirement at age 65, Thomas begins receiving a $1,000 per month joint and 50% survivor annuity benefit from his employer's defined benefit plan. The annuity is to be paid over the joint lives of Thomas and his wife, Amy, age 64. 
Thomas's annuity starting date is January 1, 2014. Over the past 20 years, Thomas contributed $62,000 in after-tax contributions to the plan. The expected number of annuity payments for their joint life expectancy is 310. What is the amount of the tax-free portion of each monthly payment? (Points : 1) 
$200 
$310 
$500 
$620 


Question 28.28. When must an individual commence distributions from a traditional IRA? (Points : 1) 
No later than April 1 of the calendar year in which the individual attains age 70½ 
No later than as specified in IRS life expectancy tables for the year of the individual's birth 
No later than April 1 of the calendar year following the year in which the individual attains age 70½ 
No later than April 1 of the calendar year in which the individual attains age 59½ 


Question 29.29. Which of the following statements regarding interest charged to a plan participant for a loan from the participant's qualified retirement plan account is(are) CORRECT? 
I. Generally, interest on a loan from a qualified plan is nondeductible consumer interest for the participant- borrower. 
II. For taxpayers who itemize deductions, interest on qualified plan loans secured by the participant's principal residence is tax deductible. 
III. Interest on all qualified plan loans made to key employees is always nondeductible by the key employee. 
IV. Charging interest to a plan participant for a qualified plan loan depends on whether interest charges are allowed by the plan document. (Points : 1) 
I, II and III 
I, II and IV 
II and III 
II, III and IV 


Question 30.30. If a loan is to be provided from a Section 401(k) profit-sharing plan and is NOT to be considered a taxable distribution, it must be (Points : 1) 
generally repaid within 5 years 
available to all owners over age 59½ 
adequately secured with negotiable collateral 
an amount no greater than $100,000 


Question 31.31. Which of the following statements regarding qualified joint and survivor annuities (QJSAs) and qualified preretirement survivor annuities (QPSAs) is(are) CORRECT? 
I. QPSAs and QJSAs must be offered to participants in target benefit pension plans. 
II. Section 401(k) plans are not required to offer QJSAs and QPSAs if certain provisions are met. 
III. Section 403(b) plans that match employee deferrals must meet the automatic survivor benefit rules. 
IV. Automatic survivor benefit requirements may be waived by the plan participant with the written consent of the spouse. (Points : 1) 
I only 
II and III 
IV only 
I, II, III and IV 


Question 32.32. Which of the following is(are) subject to the required minimum distribution (RMD) requirements after the account owner- plan participant dies? 
I. Traditional IRAs 
II. Roth IRAs 
III. Qualified plans (Points : 1) 
I only 
I and II 
II and III 
I, II and III 


Question 33.33. Which of the following statements regarding beneficiary designations for qualified plans and IRAs is NOT correct? (Points : 1) 
An advantage when designating the estate as the beneficiary is that the taxation of the benefit is more favorable at the estate income tax rate than at the individual tax rate. 
An estate cannot be treated as a designated beneficiary even if the beneficiary designation is also named in the account owner's will. 
If the decedent had already begun receiving required minimum distributions before death, any installment payout must be over the remaining distribution period of the deceased, reduced by 1 each year. 
For deaths occurring before the required beginning date for distributions from the IRA or qualified plan, the benefits to the estate must be distributed using the 5-year rule. 


Question 34.34. Harry has an IRA that he wishes to leave to his grandchildren, Mary (age 25), John (age 10), and Abigail (age 2). Harry would like to designate the beneficiaries in such a way as to provide as much tax-free wealth accumulation as possible. Assuming all of the grandchildren are alive at the time of Harry's death, which beneficiary designation will provide the greatest benefit? (Points : 1) 
In trust for the benefit of the grandchildren 
In separate accounts for each of the grandchildren-25% to Mary, 35% to John, and 40% to Abigail 
Designating 100% of the IRA assets to Mary 
Designating all grandchildren as equal beneficiaries of the IRA 


Question 35.35. Gordon owns a traditional IRA. He has designated his 4 nieces as beneficiaries. Their ages range from 14 to 47. If Gordon dies this year, each niece may use her own life expectancy to determine the applicable distribution period if separate accounts are established no later than (Points : 1) 
December 31 of this year 
April 15 of next year 
September 30 of next year 
December 31 of next year 


Question 36.36. To qualify for disability income benefits under Social Security, a worker must have an impairment that (Points : 1) 
is related solely to alcoholism 
is expected to result in death within 6 months 
is expected to last at least 12 months or result in death 
is related solely to drug addiction 


Question 37.37. Roger is 45 years old. He has achieved 40 credits of coverage for Social Security purposes. If his full retirement age (FRA) is 67, how many additional credits of coverage must he earn between now and age 66 to remain fully insured? (Points : 1) 
0 
20 
30 
40 


Question 38.38. Under the Social Security system, immediate survivor income benefits based on a deceased worker's primary insurance amount and coverage are available to which of the following persons? 
I. A surviving spouse, age 55, caring for the worker's 13-year-old child 
II. Unmarried, dependent children under age 18 
III. Unmarried children who become disabled before age 22 
IV. Any surviving, disabled, divorced spouse over age 50, with no children, who was married to the decedent for more than 10 years (Points : 1) 
I only 
II and III 
III and IV 
I, II, III, and IV 


Question 39.39. What is the amount of the taxable wage base cap in 2014 that is subject to Social Security taxation? (Points : 1) 
$52,000 
$117,000 
$260,000 
Unlimited 


Question 40.40. When does the maximum family benefit limitation NOT apply to reduce total Social Security benefits payable? (Points : 1) 
When the husband receives a spousal benefit based on the wife's employment record 
When both the husband and wife receive a retirement benefit based on their own employment record 
When a divorced spouse qualifies for benefits because she is caring for a dependent child of the worker- participant 
When the wife receives a spousal benefit based on the husband's employment record 


Question 41.41. Which of the following is a retirement plan that is not easily understood by employees, the employee assumes the investment risk, favors older plan participants, and does not permit elective deferrals? (Points : 1) 
Target benefit pension plan 
Money purchase pension plan 
Traditional defined benefit plan 
Traditional profit-sharing plan 


Question 42.42. Which of the following retirement plans would be appropriate for a general partnership with stable cash flows? (Points : 1) 
ESOP 
Age-weighted profit-sharing plan 
Stock bonus plan 
Tax-sheltered annuity 


Question 43.43. A variable universal life insurance benefit provided as a part of a qualified defined contribution plan is considered incidental so long as the employer's contributions toward that benefit are no more than ______ of aggregate contributions to the plan. (Points : 1) 
25% 
35% 
50% 
100% 


Question 44.44. Life insurance may be a suitable investment for all of the following retirement plans EXCEPT (Points : 1) 
Section 403(b) plans 
defined benefit plans 
SEP plans 
profit-sharing plans 


Question 45.45. Which of the following is a retirement plan that is easily understood by employees, the employee assumes the investment risk, does not favor older plan participants, and permits elective deferrals? (Points : 1) 
SEP plan 
Traditional profit-sharing plan 
Cash balance pension plan 
SIMPLE IRA 


Question 46.46. David has been calculating his retirement savings needs and determines he has $250,000 of assets set aside in today's dollars to fund a total retirement savings need of $800,000 15 years from now. How much more does he need to save, assuming a 7% annual after-tax rate of return throughout this period? (Round to the nearest dollar.) (Points : 1) 
$110,242 
$289,957 
$550,000 
$689,758 


Question 47.47. Significant income change (Points : 1) 
1, 2 and 4 
1 and 2 
3 only 
3 and 4 


Question 48.48. Personal buying habits (Points : 1) 
1 and 2 
3 and 4 
1, 3, and 4 
1, 2, 3, and 4 


Question 49.49. What is a reasonable assumption of an annual inflation rate to apply in the preretirement planning period? (Points : 1) 
2% 
4% 
6% 
8% 


Question 50.50. The capital utilization approach to retirement needs analysis assumes the client will (Points : 1) 
need both the principal and income from the retirement fund to support his retirement income needs 
outlive his projected life expectancy by several years 
contribute additional amounts to the retirement fund throughout retirement 
live off the income from the retirement fund and leave the principal intact