FINRA Series 6 — All Questions

In an account registered as joint tenants with rights of survivorship, when one owner dies:

• a.The account converts automatically to tenants in common between the surviving owner and the deceased owner's estate
• b.The deceased owner's interest passes to the deceased owner's estate under the residuary clause of the deceased owner's will
• c.The deceased owner's interest passes automatically to the surviving owner✓
• d.The account must be liquidated and the proceeds split evenly

Rights of survivorship mean the surviving tenant takes full ownership without the assets passing through probate. Passing the interest to the estate is the defining feature of tenants in common, not JTWROS. Nothing in the registration forces liquidation or an automatic change of form, though the firm will require a death certificate and new paperwork.

Two business partners open an account as tenants in common with a 70/30 ownership split. If one partner dies, that partner's share:

• a.Passes to the surviving partner
• b.Is divided evenly between the surviving partner and the deceased partner's estate under state law
• c.Passes to the deceased partner's estate according to that partner's will or state law✓
• d.Passes to the beneficiary named on the account, outside the estate and without probate

Tenants in common may hold unequal shares, and each owner's share passes to that owner's estate under the will or state law, not to the co-tenant. Passing automatically to the survivor is the right of survivorship that belongs to joint tenants with rights of survivorship. A named beneficiary that bypasses probate is a transfer-on-death registration, and ownership is never split evenly or taken over by the broker-dealer.

Which statement about an UTMA custodial account is correct?

• a.Gifts to the account may be revoked by the donor at any time
• b.The custodian may pledge the account's securities as collateral for a personal loan only with the custodian's written notice to the firm
• c.The account may have two custodians so parents can share responsibility for the single minor beneficiary of the account
• d.Gifts are irrevocable, and the account may have only one custodian and one minor beneficiary✓

A gift into a custodial account is an irrevocable transfer to the minor, and the structure permits exactly one custodian and one minor per account. Joint custodians and joint minors are not allowed, so parents wanting shared control cannot achieve it through the registration. Using the minor's property for the custodian's benefit would violate the custodian's fiduciary duty.Uniform Transfers to Minors Act

An UGMA account for an 11-year-old is registered under which taxpayer identification number, and how is income reported?

• a.The donor's Social Security number, with income taxed to the donor
• b.The custodian's Social Security number, with income taxed to the custodian
• c.The broker-dealer's tax identification number, with income taxed to the firm
• d.The minor's Social Security number, with income taxed to the minor✓

Although the custodian controls the account, the property belongs to the minor, so the minor's Social Security number appears on the registration and the minor is the taxpayer. Some unearned income of a young child may still be taxed at the parents' rate under the kiddie tax rules, but the income is reported for the minor. The custodian, donor, and firm are never the account's taxpayer.Uniform Gifts to Minors Act

When the beneficiary of a custodial account reaches the age of majority set by state law:

• a.The assets must be re-registered in the former minor's own name and control passes to that person✓
• b.Ownership reverts to the original donor
• c.The custodian may continue managing the account indefinitely for as long as the family wishes it to continue
• d.The account must be liquidated and the proceeds donated

Custodianship ends at the state's age of majority or termination age, and the property is retitled in the now-adult beneficiary's name with full control over it. The custodian's authority is not open-ended. Because the original gift was irrevocable, neither the donor nor anyone else can reclaim the assets.Uniform Transfers to Minors Act

To open a brokerage account in the name of a trust, the firm must obtain:

• a.A court order appointing the trustee, in every case before any brokerage account may be opened for the trust
• b.Only the trustee's Social Security number
• c.The trust agreement or a certification of trust identifying the trustee and the trustee's powers✓
• d.Written consent from every trust beneficiary

The firm needs documentation establishing who the trustee is and what investment authority the trust grants before accepting instructions. A personal Social Security number is not sufficient because the trust is a separate legal entity with its own tax identification number. Court appointment and beneficiary consents are not routinely required for a properly documented trust.

Which document must a broker-dealer obtain before opening a corporate cash account?

• a.The personal guarantee of each officer
• b.A corporate resolution identifying who is authorized to trade on the corporation's behalf✓
• c.A copy of the corporation's most recent audited financial statements for the two most recent completed fiscal years
• d.A prospectus for the corporation's own securities

The corporate resolution establishes the entity's authority to open the account and names the individuals empowered to act. Financial statements may be requested in other contexts but are not a prerequisite for a cash account. Officers do not personally guarantee a corporate account, and the corporation's own offering documents are irrelevant.

A customer asks a representative to select which mutual funds to buy and when to buy them, without checking first. The representative may do so only if:

• a.The customer gives written discretionary authority and a principal approves the account for discretionary trading✓
• b.The customer's account exceeds a minimum balance set by the firm
• c.The customer confirms each trade verbally within one business day
• d.The representative documents the customer's verbal instruction in a file memo

Discretion over asset, amount, and timing requires prior written authorization from the customer plus firm acceptance and supervisory review of the discretionary account. Verbal permission is limited to time and price discretion for a specific order on the day it is given. Account size never substitutes for written authority.FINRA Rules

Whether a Traditional IRA contribution is deductible for a given taxpayer depends primarily on:

• a.Whether the contribution is made before or after the calendar year ends
• b.The custodian's fee schedule
• c.The investments selected inside the IRA
• d.Whether the taxpayer or spouse is covered by an employer retirement plan and the taxpayer's modified adjusted gross income✓

Anyone with earned income may contribute to a Traditional IRA, but deductibility phases out based on income when the taxpayer or spouse participates in a workplace plan. Investment choices and custodian fees have no effect on deductibility. Contributions may be made up to the tax filing deadline for the prior year, which affects timing but not the deduction test.Internal Revenue Code

Which statement about Roth IRA distributions is accurate?

• a.Earnings are always taxable but contributions are not
• b.Distributions are taxed the same as Traditional IRA distributions
• c.All distributions are tax free from the day the account is opened
• d.Earnings are tax free if the account has been open five years and the owner is at least 59 1/2, disabled, or deceased, or is buying a first home within limits✓

A qualified Roth distribution requires both the five-year holding period and a qualifying event, and it comes out entirely free of federal income tax. Contributions, having already been taxed, may be withdrawn at any time without tax or penalty, so it is wrong to say nothing is available early. Traditional IRA distributions of deductible contributions and earnings are fully taxable, which is the key difference.Internal Revenue Code

A 44-year-old takes $15,000 from a Traditional IRA to remodel a kitchen. The federal tax consequence is:

• a.No tax and no penalty, because IRA owners may withdraw principal at any time without any restriction on the timing
• b.Ordinary income tax on the taxable amount plus a 10% early distribution penalty✓
• c.Tax only, because home improvements are a qualified expense
• d.A 10% penalty only, with no income tax until age 59 1/2 is finally reached by the account owner

Distributions before age 59 1/2 are included in ordinary income and carry an additional 10% penalty unless an exception applies, and home remodeling is not an exception. The narrow exceptions include death, disability, qualified higher education expenses, up to $10,000 for a first-time home purchase, substantially equal periodic payments, and certain medical costs. Tax and penalty apply together, not one or the other.Internal Revenue Code

Which statement about required minimum distributions is correct?

• a.RMDs apply only to accounts larger than $1 million
• b.Traditional IRA owners must begin RMDs at the age set by current law, while Roth IRA owners face no RMDs during their lifetime✓
• c.Both Traditional and Roth IRA owners must begin RMDs at the same age
• d.Roth IRA owners must begin RMDs but Traditional IRA owners need not

Tax-deferred accounts such as Traditional IRAs must begin distributing at the statutory age, currently 73 and scheduled to rise, because the government eventually wants its deferred tax. Roth IRAs were funded with after-tax dollars, so the original owner never faces lifetime RMDs, though inherited Roth accounts have their own rules. Account size does not determine whether RMDs apply.SECURE Act 2.0

A 401(k) plan is best described as:

• a.A defined contribution plan funded through employee salary deferrals, often with employer matching contributions✓
• b.A non-qualified deferred compensation arrangement available only to executives
• c.An individual retirement account funded solely by the account owner outside of work, with no involvement from the employer at any point
• d.A defined benefit plan that promises a fixed monthly pension

A 401(k) lets employees defer part of their salary into a qualified plan on a pre-tax or Roth basis, frequently with an employer match, and the eventual benefit depends on contributions and investment results. A defined benefit plan guarantees a formula-based pension instead. IRAs are individual accounts, and non-qualified plans are not subject to the same qualified plan rules.Internal Revenue Code

A 403(b) tax-sheltered annuity plan is available to employees of:

• a.Public schools and qualifying 501(c)(3) tax-exempt organizations✓
• b.Federal government agencies exclusively, which fund the plan through the federal Thrift Savings Plan structure
• c.Any corporation with fewer than 100 employees that sponsor a payroll savings arrangement
• d.Self-employed individuals only

Section 403(b) plans serve public education employees and staff of qualifying tax-exempt organizations such as hospitals and charities. Small private employers commonly use SIMPLE or SEP plans, and the self-employed may use SEP or solo 401(k) arrangements. Federal employees participate in the Thrift Savings Plan.Internal Revenue Code

A key characteristic of a SEP IRA is that:

• a.Each employee must make a minimum annual salary deferral for the plan to remain qualified
• b.The plan requires annual actuarial certification
• c.Contributions are made by the employer into IRAs established for eligible employees✓
• d.Employees contribute by salary reduction and the employer must match up to 3% of pay

A simplified employee pension is funded by employer contributions deposited into each eligible employee's own IRA, which keeps administration light. Required employee salary deferrals belong to 401(k)-type plans, and a mandatory employer match of up to 3% of pay is a SIMPLE IRA feature. Annual actuarial certification belongs to defined benefit plans, and a SEP is a defined contribution arrangement, so no actuary is needed.Internal Revenue Code

A customer receives a distribution check from a former employer's 401(k) plan and wants to move the money to an IRA. Which statement is correct?

• a.The customer has 12 months to complete the rollover
• b.Rollovers from employer plans to IRAs are not permitted
• c.The customer generally has 60 days to deposit the funds into the IRA, and a direct trustee-to-trustee transfer avoids withholding and the deadline✓
• d.The customer may complete an indirect rollover as many times as desired in a 12-month period

An indirect rollover must be completed within 60 days or the distribution becomes taxable, and plan distributions paid to the participant are generally subject to mandatory federal withholding. A direct transfer between custodians sidesteps both problems and has no frequency limit. IRA-to-IRA indirect rollovers are limited to one in any 12-month period.Internal Revenue Code

Before recommending a variable annuity to a retail customer, a representative must have a reasonable basis grounded in which information?

• a.The separate account's performance over the past 12 months compared with peer funds
• b.The commission the product pays relative to alternatives and the surrender charge period it carries
• c.The customer's credit score, employment history and bank balances held at other firms
• d.The customer's age, financial situation, tax status, investment objectives, time horizon, liquidity needs, and risk tolerance✓

Regulation Best Interest requires a representative to have a reasonable basis grounded in the customer's investment profile, which includes age, other investments, financial situation and needs, tax status, investment objectives, experience, time horizon, liquidity needs and risk tolerance, before recommending a product. Compensation is a conflict of interest to be managed, not a basis for a recommendation, and recent performance or a credit score says nothing about whether a variable annuity fits this investor.Regulation Best Interest, 17 CFR 240.15l-1(b)(2)

A 72-year-old retiree needs to draw income from a $60,000 lump sum within the next 12 months and has no other liquid savings. Which recommendation is least suitable?

• a.A deferred variable annuity with a seven-year surrender charge schedule✓
• b.A money market fund
• c.A short-term bond fund chosen for its stability and quick access to principal within a year
• d.A conservative balanced fund with a small equity allocation suited to a multi-year investment horizon

Locking the customer's only liquid money into a contract with a long surrender period directly conflicts with a one-year liquidity need and would likely trigger surrender charges. The other choices keep the money accessible with varying degrees of price risk. Liquidity needs and time horizon are central suitability factors, especially for older investors.FINRA Rules

A 28-year-old contributing monthly to an IRA states that the goal is maximum long-term growth and that no withdrawals are planned for 30 years. The most appropriate recommendation is:

• a.A single-state municipal bond fund
• b.A diversified equity growth fund✓
• c.A short-term Treasury fund
• d.A money market fund

A three-decade horizon and a growth objective favor equities, whose higher expected return compensates for interim volatility. Short-term Treasuries and money market funds are unlikely to outpace inflation over 30 years, exposing the investor to purchasing power risk. Municipal bonds are inappropriate inside an IRA because the tax exemption is wasted in a tax-deferred account.FINRA Rules

A customer wants to park six months of living expenses where the money is safe and available on short notice. Which fund best matches that objective?

• a.A money market fund✓
• b.A high-yield corporate bond fund
• c.A long-term government bond fund
• d.An aggressive growth fund

Money market funds emphasize preservation of principal and same-day or next-day liquidity, which fits an emergency reserve. High-yield bonds carry substantial credit risk and growth funds substantial market risk. Long-term government bonds have little credit risk but significant interest rate risk, so their value can fall when the money is needed.FINRA Rules

Which statement about the new account form for a retail cash account is correct?

• a.The form must be filed with FINRA before the first trade is executed in the customer's newly opened account
• b.Only the customer's signature is required, not a principal's review and approval of the new account
• c.The customer's signature is not required, but the form must be approved by a principal of the firm✓
• d.The customer must sign the form before any trade may be entered in the customer's newly opened retail cash account

For a standard cash account, the registered representative completes the form and a principal accepts the account; the customer's signature is not a regulatory requirement, although firms often collect one. Customer signatures are required for margin agreements, discretionary authority, and options accounts. New account forms are maintained at the firm, not filed with FINRA.FINRA Rules

A representative learns that an individual account holder has died. The representative should:

• a.Transfer the assets to the named beneficiary the same day
• b.Continue accepting instructions from the customer's spouse
• c.Liquidate all positions immediately to protect the estate
• d.Cancel all open orders, mark the account deceased, and await required documents such as a death certificate and letters testamentary✓

On notice of death the firm freezes the account, cancels open orders, and takes instructions only from the duly appointed representative of the estate after receiving proper documentation. Family members have no authority merely by relationship. Liquidating or transferring assets before documentation could expose the firm and the representative to liability.FINRA Rules

When a customer submits a transfer instruction to move an account from one broker-dealer to another through the automated transfer system, the carrying firm must:

• a.Validate or take exception to the instruction within one business day and complete the transfer within three business days of validation✓
• b.Validate or take exception to the instruction within three business days and complete the transfer within five business days after validation
• c.Obtain FINRA's approval before releasing the assets, then complete the transfer within three business days
• d.Validate within one business day, liquidate all positions to cash, and complete the transfer within thirty calendar days

Rule 11870 gives the carrying firm one business day to validate the transfer instruction or take exception, and three business days after validation to complete the transfer. The longer schedules of three and five days or thirty calendar days are not the rule. Assets move in kind whenever the receiving firm can hold them, so liquidating positions is wrong, and FINRA sets the timeframes but does not approve individual transfers.FINRA Rule 11870(b) and (e)

A firm must send the customer a copy of the account record for verification of the customer's investment profile information:

• a.Within 30 days of opening the account and at least once every 12 months thereafter whether or not anything changed
• b.Within 30 days of opening the account and at least once every 36 months thereafter✓
• c.Within 60 days of opening the account and at least once every 24 months while it stays open
• d.At account opening and again only when the customer asks for a copy in writing

SEC Rule 17a-3(a)(17) requires the firm to furnish the account record to the customer within 30 days of opening the account and at intervals no greater than 36 months afterward, and to notify the customer of any change of name or address. A 12-month or 24-month cycle, a 60-day first mailing, and a request-only approach are all different from the rule and would leave profile data stale.SEC Rule 17a-3(a)(17) (17 CFR 240.17a-3)

ERISA, which governs private-sector employer retirement plans, requires that such plans:

• a.Invest exclusively in the employer's own stock, concentrating each participant's retirement savings in a single company's securities
• b.Follow fiduciary standards and minimum participation, vesting, and funding rules to protect plan participants✓
• c.Be offered to government and church employees, the two groups ERISA was specifically written to cover
• d.Guarantee participants a fixed rate of return on their account balances each year regardless of plan investment results

ERISA imposes fiduciary duties and sets minimum eligibility, vesting, and funding standards so participants' benefits are protected and prudently managed. Concentrating a plan entirely in employer stock would violate diversification and prudence duties. Government and church plans are generally exempt from ERISA, and defined contribution plans do not guarantee a return.ERISA

An ABLE account allows tax-advantaged saving for:

• a.Qualified disability expenses of a beneficiary who became disabled before a specified age, with interests treated as municipal fund securities like a 529 plan✓
• b.Any adult's general retirement, with no disability requirement
• c.College tuition only, with no other qualified uses
• d.Short-term trading in individual stocks

ABLE accounts let eligible individuals with disabilities save for qualified disability expenses without losing means-tested benefits, and like 529 college plans their interests are municipal fund securities under MSRB oversight. Eligibility requires the disability to have begun before a specified age. They are not general retirement accounts, are not limited to tuition, and are not trading accounts.Internal Revenue Code Section 529A

A SIMPLE IRA is designed for:

• a.Large corporations with thousands of employees
• b.Government agencies exclusively
• c.Individuals who have no earned income
• d.Small employers, generally those with 100 or fewer employees, funded by employee salary reduction plus an employer contribution✓

A SIMPLE IRA serves small businesses, generally with 100 or fewer employees, combining employee salary-deferral contributions with a required employer match or non-elective contribution. Large employers typically use 401(k) plans, government workers use plans like the TSP or 457, and earned income is required to contribute. SIMPLE plans keep administration light for small firms.Internal Revenue Code

A Coverdell Education Savings Account (ESA) differs from a 529 plan in that the Coverdell:

• a.Has no contribution limit
• b.Has a relatively low annual contribution limit and income-based eligibility phaseouts, though earnings used for qualified education expenses are tax free✓
• c.Is a municipal fund security regulated by the MSRB
• d.Allows unlimited contributions regardless of the beneficiary's age

A Coverdell ESA offers tax-free growth for qualified education expenses but caps annual contributions at a low amount and phases out eligibility at higher incomes, unlike a 529 plan's high limits and no income test. The 529 plan, not the Coverdell, is the municipal fund security. Coverdell contributions also generally must stop once the beneficiary reaches a set age.Internal Revenue Code

In an account registered as joint tenants with rights of survivorship, when one owner dies, that owner's interest:

• a.Passes automatically to the surviving owner, outside probate✓
• b.Passes to the deceased owner's estate under the will under state law
• c.Forces liquidation of the account
• d.Reverts to the broker-dealer

Rights of survivorship give the surviving tenant full ownership without probate. Passing to the estate is the tenants-in-common feature; a broker-dealer never takes ownership but will require a death certificate and new paperwork.

Two partners own an account as tenants in common, 60/40. If one partner dies, that partner's share:

• a.Passes to the surviving partner
• b.Passes to the deceased partner's estate under the will or state law✓
• c.Reverts to the broker-dealer
• d.Is split evenly between the survivor and the decedent's heirs by operation of law

Tenants in common allows unequal ownership, and each owner's share passes to the owner's estate, not to the co-tenant. Survivorship is the JTWROS feature and does not apply here.

Which of the following correctly describes an UTMA custodial account?

• a.Gifts are irrevocable, and the custodian must manage the assets solely for the minor's benefit✓
• b.The custodian may pledge the securities as collateral for a personal loan
• c.The assets must be turned over to the minor at age 18 in every state
• d.Gifts may be revoked by the donor at any time before the minor reaches the state's age of majority

A gift into a custodial account is an irrevocable transfer to the minor, and the custodian must manage the property solely for the minor's benefit (Uniform Transfers to Minors Act). The custodian may not pledge it for a personal loan, the donor cannot take the gift back, and the age at which the minor takes control is set by state law, commonly 18 to 21, not a single age.

An UGMA account for a 10-year-old is registered under which taxpayer identification number, and who is the taxpayer?

• a.The broker-dealer's TIN; the firm
• b.The donor's SSN; the donor
• c.The minor's SSN; the minor (subject to the kiddie-tax rules)✓
• d.The custodian's SSN; the custodian

The property belongs to the minor, so the minor's SSN appears on the account and the minor is the taxpayer, though some unearned income may be taxed at the parents' rate under the kiddie tax (Uniform Gifts to Minors Act).

When a custodial-account beneficiary reaches the state's age of majority:

• a.The account must be liquidated
• b.Ownership reverts to the original donor
• c.The custodian may keep managing it indefinitely
• d.The assets are re-registered in the former minor's name and control passes to that person✓

Custodianship ends at the age of majority; the property is retitled to the now-adult beneficiary with full control (Uniform Transfers to Minors Act). Because the original gift was irrevocable, the donor cannot reclaim it.

To open a brokerage account for a trust, the firm must obtain:

• a.Written consent from every trust beneficiary
• b.A court order appointing the trustee, in every case before the firm may accept any instruction on the account
• c.The trust agreement or a certification of trust identifying the trustee and the trustee's powers✓
• d.Only the trustee's Social Security number

The firm needs documentation showing who the trustee is and what authority the trust grants. A personal SSN is insufficient because the trust is a separate legal entity with its own tax ID; court appointment and beneficiary consents are not routinely required.

Before opening a corporate cash account, a broker-dealer must obtain:

• a.A prospectus for the corporation's own securities
• b.A corporate resolution identifying who is authorized to trade for the corporation✓
• c.Two years of audited financial statements
• d.Each officer's personal guarantee

The corporate resolution establishes the entity's authority and names the individuals empowered to act. Officers do not personally guarantee a corporate account, and financial statements are not a prerequisite for a cash account.

A customer wants a representative to choose which funds to buy and when, without checking first. The representative may do so only if:

• a.The customer confirms each trade within one business day
• b.The account exceeds a firm-set minimum balance that the firm requires before granting any trading authority for that customer
• c.The customer gives prior written discretionary authority and a principal approves the account for discretionary trading✓
• d.The representative documents the customer's verbal instruction

Discretion over asset, amount, and timing requires prior written authorization plus firm acceptance and supervisory review (FINRA Rules). Verbal permission is limited to time-and-price discretion for a specific order that day.

For a standard retail cash account, which statement is correct?

• a.Only the customer's signature is required, not a principal's
• b.The representative completes the form and a principal accepts the account; the customer's signature is not a regulatory requirement✓
• c.The form must be signed by the firm's chief compliance officer instead of a principal, and approved before the account can place its first trade
• d.The customer's signature is always required before any trade

For a cash account the representative completes the form and a principal accepts it; the customer's signature is not a regulatory requirement, though firms often collect one. A customer signature is required for margin, discretionary and options accounts, the chief compliance officer need not sign, and the form is a firm record that is not filed with FINRA.

On learning that an individual account holder has died, the representative should:

• a.Cancel open orders, mark the account deceased, and await documents such as a death certificate and letters testamentary✓
• b.Liquidate all positions immediately to protect the estate
• c.Transfer the assets to the named beneficiary the same day
• d.Continue accepting instructions from the customer's spouse

On notice of death the firm freezes the account, cancels open orders, and accepts instructions only from the estate's duly appointed representative after proper documentation (FINRA Rules). Family members have no authority by relationship alone.

When a customer transfers an account between broker-dealers through the automated transfer system, the carrying firm must:

• a.Obtain FINRA approval before releasing the assets
• b.Complete the transfer within 30 calendar days of receiving the instruction
• c.Validate or take exception within three business days, then complete the transfer within five business days
• d.Validate or take exception within one business day and complete the transfer within three business days of validation✓

The automated customer account transfer process requires the carrying firm to validate or take exception within one business day and to complete the transfer within three business days of validation (FINRA Rule 11870). No FINRA approval is needed to release assets, a 30-day window is far too long, and the three-and-five-day timeline is wrong. Assets transfer in kind whenever the receiving firm can hold them.

A firm must send the customer a copy of the account record for verification of the investment profile:

• a.Only when the customer requests it in writing each year
• b.Within 30 days of opening the account and at least once every 36 months thereafter✓
• c.Only when the account is closed, at which point the firm mails a final copy of the profile
• d.Every 12 months without exception

SEC books-and-records rules require an initial verification copy within 30 days of opening and a refresh at least every 36 months, plus updates when the firm learns of a material change (Securities Exchange Act of 1934).

Whether a Traditional IRA contribution is deductible depends primarily on:

• a.The custodian's fee schedule
• b.Whether the taxpayer or spouse is covered by an employer plan and the taxpayer's modified adjusted gross income✓
• c.The investments chosen inside the IRA and whether they generate taxable income during the year for the customer's account
• d.Whether the contribution is made before or after year-end

Anyone with earned income may contribute, but deductibility phases out by income when the taxpayer or spouse is in a workplace plan (Internal Revenue Code). Investment choices and fees do not affect deductibility.

A qualified (tax-free) distribution of Roth IRA earnings requires that:

• a.The owner be at least 65
• b.The account be worth less than $100,000
• c.The distribution be taken in the first year
• d.The account has been open five years and the owner is at least 59 1/2, disabled, or deceased, or is buying a first home within limits✓

A qualified Roth distribution needs both the five-year holding period and a qualifying event, after which earnings are federally tax-free (Internal Revenue Code). Contributions, already taxed, may be withdrawn at any time tax- and penalty-free.

A 45-year-old withdraws $18,000 from a Traditional IRA to remodel a kitchen. The federal tax consequence is:

• a.No tax or penalty, since owners may withdraw at any time
• b.Ordinary income tax on the taxable amount plus a 10% early-distribution penalty✓
• c.A 10% penalty only, with no income tax until age 59 1/2, when the tax-deferred income finally becomes taxable
• d.Tax only, because home improvements are a qualified expense

Distributions before 59 1/2 are included in ordinary income and carry a 10% penalty unless an exception applies; kitchen remodeling is not an exception (Internal Revenue Code). Exceptions include death, disability, qualified education, and up to $10,000 for a first home.

Which of the following statements regarding required minimum distributions (RMDs) is accurate?

• a.Both Traditional and Roth IRA owners must begin RMDs at 73 if born from 1951 through 1959, or at 75 if born later
• b.Roth IRA owners must take RMDs at the Traditional ages, but only on the earnings portion of the Roth balance
• c.Traditional IRA owners must begin RMDs at age 73 or 75, depending on birth year, while original Roth IRA owners face no lifetime RMDs✓
• d.Traditional IRA owners must begin RMDs at age 72 for every birth year, and Roth owners must follow suit

Under SECURE 2.0, the age at which Traditional IRA owners must begin required minimum distributions is 73 for those born from 1951 through 1959 and 75 for those born in 1960 or later (Internal Revenue Code Section 401(a)(9)(C)(v)). Original Roth IRA owners have no lifetime RMDs at all, so Roth and Traditional owners do not follow the same rule, and there is no earnings-only Roth requirement. Age 72 was the starting age before 2023, not the current rule for every birth year.Internal Revenue Code Section 401(a)(9)(C)(v)

Which of the following best describes a 401(k) plan?

• a.An individual retirement account funded solely by the owner outside of work, with no involvement from the employer at any stage
• b.A defined contribution plan funded by employee salary deferrals, often with an employer match✓
• c.A non-qualified deferred compensation plan for executives only
• d.A defined benefit plan that promises a fixed monthly pension

A 401(k) lets employees defer salary on a pre-tax or Roth basis, frequently with an employer match; the benefit depends on contributions and investment results (Internal Revenue Code). A defined benefit plan guarantees a formula-based pension instead.

Eligibility to participate in a 403(b) tax-sheltered annuity plan is limited to employees of:

• a.Self-employed individuals only
• b.Public schools and qualifying 501(c)(3) tax-exempt organizations✓
• c.Federal government agencies exclusively
• d.Any corporation with fewer than 100 employees

Section 403(b) plans serve public-education employees and staff of qualifying tax-exempt organizations such as hospitals and charities (Internal Revenue Code). Federal employees use the Thrift Savings Plan; the self-employed use SEP or solo 401(k) plans.

A key feature of a SEP IRA is that:

• a.Contributions are made after tax and grow tax-free like a Roth, with no current tax deduction available to the employer
• b.The plan requires annual actuarial certification
• c.Contributions are made by the employer into IRAs established for eligible employees✓
• d.Only employees may contribute, through salary reduction

A simplified employee pension is funded by employer contributions deposited into each eligible employee's own IRA (Internal Revenue Code). Salary deferral is the 401(k)/SIMPLE mechanism, and no actuary is needed for this defined-contribution plan.

For what type of employer is a SIMPLE IRA intended?

• a.Employers with up to 500 employees that want to fund the plan entirely with employer contributions
• b.Self-employed individuals with no employees, funded entirely by the owner
• c.Small employers, generally those with 100 or fewer employees, funded by employee salary reduction plus an employer contribution✓
• d.Public schools and tax-exempt organizations that offer tax-sheltered annuities

A SIMPLE IRA serves small businesses, generally with 100 or fewer employees, combining employee salary deferrals with a required employer match or a 2% nonelective contribution (Internal Revenue Code Section 408(p)). A plan funded only by the employer is a SEP, a sole proprietor with no employees uses an individual 401(k), and tax-sheltered annuities are 403(b) plans.Internal Revenue Code Section 408(p) (26 U.S.C. 408(p))

A customer receives a distribution check from a former employer's 401(k) and wants to move it to an IRA. Which statement is correct?

• a.The customer generally has 60 days to deposit the funds, and a direct trustee-to-trustee transfer avoids withholding and the deadline✓
• b.Funds from a 401(k) can be rolled over only into another employer plan, not into an IRA
• c.The check is paid to the customer with no tax withheld, so the customer can deposit the full amount into the IRA within 60 days of receipt
• d.The customer has 90 days to deposit the funds before the distribution becomes taxable

A rollover into an IRA must be completed within 60 days or the distribution becomes taxable, and a plan distribution paid to the participant has 20% mandatory withholding that the customer must replace to roll over the full amount. A direct trustee-to-trustee transfer avoids both. Employer plans can roll into IRAs, the window is 60 days rather than 90, and IRA-to-IRA indirect rollovers are limited to one per 12 months (Internal Revenue Code Sections 402(c) and 408(d)(3)).Internal Revenue Code Sections 402(c) and 408(d)(3) (26 U.S.C. 402(c), 408(d)(3))

A Coverdell Education Savings Account differs from a 529 plan in that the Coverdell:

• a.Allows contributions for a beneficiary of any age, as a 529 plan does
• b.Has a relatively low annual contribution limit and income-based eligibility phaseouts, though qualified withdrawals are tax-free✓
• c.Is a municipal fund security regulated by the MSRB
• d.Limits tax-free withdrawals to college costs, with no use for elementary or secondary school expenses

A Coverdell has a low annual limit ($2,000 per beneficiary) with income-based phaseouts, though qualified withdrawals are tax-free; the 529, not the Coverdell, is the municipal fund security. Contributions generally must stop when the beneficiary turns 18, so it does not accept contributions at any age, and qualified expenses include elementary and secondary school costs as well as college (Internal Revenue Code Section 530).Internal Revenue Code Section 530 (26 U.S.C. 530)