Retirement Plans and Taxation Flashcards
7 cards from real Series 65 – Uniform Investment Adviser Law Exam practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Retirement Plans and Taxation flashcards as text
What is the tax treatment of dividends received from a mutual fund held in a taxable account when reinvested automatically?
Answer: They are taxable in the year received, even if reinvested
Reinvested mutual fund dividends are still taxable income in the year they are paid, even though the investor never receives the cash directly.
A client in the 37% marginal tax bracket holds stock for 13 months before selling at a gain. What tax rate applies to the long-term capital gain?
Answer: 20%
High-income taxpayers in the top ordinary income bracket are subject to the 20% long-term capital gains rate on assets held more than one year.
What is the primary purpose of a qualified domestic relations order (QDRO) in retirement planning?
Answer: To split a retirement plan between spouses as part of a divorce settlement
A QDRO is a court order that assigns a portion of a retirement plan participant's benefits to an alternate payee (typically a former spouse) in a divorce.
Under ERISA, which of the following best describes a plan fiduciary's duty of loyalty?
Answer: Acting solely in the interest of plan participants and beneficiaries
ERISA's duty of loyalty requires plan fiduciaries to act exclusively in the interest of plan participants and beneficiaries, not the employer or themselves.
Which of the following describes the 'net unrealized appreciation' (NUA) strategy in retirement planning?
Answer: Taking a lump-sum distribution of employer stock and paying ordinary tax only on the cost basis
The NUA strategy allows a participant to pay ordinary income tax only on the cost basis of employer stock at distribution; subsequent gain is taxed at lower long-term capital gains rates.
An investor contributes $5,000 to a Traditional IRA but later determines they were ineligible to deduct the contribution. What should they file to avoid future double taxation on withdrawal?
Answer: Form 8606
Form 8606 tracks nondeductible IRA contributions, establishing the tax basis so the non-deductible portion is not taxed again upon distribution.
Which of the following best describes the 'backdoor Roth IRA' strategy?
Answer: Making a non-deductible Traditional IRA contribution then converting it to a Roth IRA
The backdoor Roth IRA involves making a non-deductible contribution to a Traditional IRA and then converting it to a Roth IRA, bypassing direct Roth IRA income limits.