Final Examination Questions
WALL STREET INSTRUCTORS'

CONTINUING EDUCATION COURSES IN
LIFE INSURANCE


1.     For an investor in the 28% tax bracket, a contribution of $2,000 to a deductible IRA results in an immediate tax savings of:

     a.     0
     b.     $200
     c.     $400
     d.     $560



2.     The Internal Revenue Service will tax income in an IRA when it is:

     I.     earned in the account
     II.     transferred from one custodian to another
     III.     rolled over from one custodian to another
     IV.     withdrawn from the account

     a.     I only
     b.     IV only
     c.     II and III only
     d.     I, II and III only



3.     For tax year 2001, an IRA can be established anytime between:

     a.     April 15, 2001  and  April 15, 2002
     b.     January 1, 2001 and December 31, 2001
     c.     January 1, 2001 and April 15, 2002
     d.     April 15, 2001 and December 31, 2001



4.     All of the following are considered "earned income" EXCEPT:

     a.     wages
     b.     salary
     c.     dividends
     d.     commissions



5.     Mary Jackson, age 52, works part-time at a local department store      during the Christmas season.  She earned $1,500. She has no other earnings.  How much may she may contribute to an IRA?

     a.     0
     b.     $1,000
     c.     $1,500
     d.     $2,000



6.     Dr. Knight,  a retired dentist aged 73, earned $2,500 speaking at a seminar.  How much may he contribute to an traditional IRA?

     a.     0
     b.     $1,250
     c.     $2,000
     d.     $2,500




7.     Dr. Knight,  a retired dentist aged 73, earned $2,500 speaking at a seminar.  How much may he contribute to an Roth IRA?

     a.     0
     b.     $1,250
     c.     $2,000
     d.     $2,500




8.     Mr. Brady, age 45, earned $60,000 in 1998.  By mistake, Mr. Brady      contributed $3,000 to his IRA for tax year 1998.  Mr. Brady must pay a      penalty of:

     a.     0
     b.     $60
     c.     $120
     d.     $180



9.     John and Mary Smith report joint taxable income of $75,500 in 1998.  John, age 62,  earns $70,500.  He is covered by his company's pension      plan.  Mary works part-time as a secretary for her church. She is not covered by any pension.   She earned $5,000.  They may contribute:

     I.     $2,000 to John's non-deductible IRA
     II.     $2,000 to John's deductible IRA
     III.     $2,000 to Mary's non-deductible IRA
     IV.     $2,000 to Mary's deductible IRA

     a.     I and III
     b.     I and IV
     c.     II and III
     d.     II and IV



10.     John and Mary Jones report joint taxable income of $162,500 in 1998..  John, age 62, earns $157,500.  He is covered by his company's pension      plan.  Mary works part-time as a secretary for her church. She is not covered by any pension.   She earned $5,000.  They may contribute:

     I.     $2,000 to John's non-deductible IRA
     II.     $2,000 to John's deductible IRA
     III.     $2,000 to Mary's non-deductible IRA
     IV.     $2,000 to Mary's deductible IRA

     a.     I and III
     b.     I and IV
     c.     II and III
     d.     II and IV



11.     John Morgan, a single taxpayer, has worked for XYZ Corporation for four years, earning $56,000 per year.  XYZ offers a qualified pension plan.  John's pension benefits will be fully vested next year.  For this year, John may:

     a.     contribute $2,000 to a non-deductible IRA
     b.     contribute $2,000 to a deductible IRA
     c.     contribute $2,000 to an IRA, of which $1,250 is deductible
     d.     not contribute to an IRA



12.     Jim Polk, a single taxpayer, is covered by an employer provided pension plan.  He earns $37,000 in 1998.  If he contributed $2,000 to an IRA, how much of this contribution would be deductible?

     a.     0
     b.     $  600
     c.     $1,400
     d.     $2,000



13.     Which of the following statements are true?

     I.     An individual may transfer an IRA between custodians no more      than once per year
     II.     There are no limitations on transfers between custodians of IRAs
     III.     An individual may rollover an IRA between custodians no more than once per year
     IV.     There are no limitations on rollovers between custodians on IRAs

     a.     I and III only
     b.     I and IV only
     c.     II and III only
     d.     II and IV only




14.     Bunker Hunt, age 53, established an Individual Retirement Account with fully deductible contributions.  He withdraws $10,000 from his IRA and uses the money to invest in silver futures.  After a couple weeks he sells the futures for a substantial gain, and redeposits $10,000 into an IRA.  Which of the following is true?

     a.     The withdrawal is fully taxable as capital gains.
     b.     The withdrawal is fully taxable as ordinary income and subject to a 10% penalty.
     c.     Only the earnings portion of the withdrawal is taxable as ordinary income.
     d.     There is no tax consequence to the withdrawal.



15.     Which of the following is an example of an IRA rollover:

     a.     movement of IRA assets directly from a bank custodian to a           brokerage firm custodian
     b.     movement of pension plan assets from the plan's trustee to an IRA custodian
     c.     withdrawal of IRA assets from a bank custodian and subsequent deposit with a brokerage firm custodian
     d.     movement of assets from a Keogh plan's trustee to an IRA custodian



16.     Robert Cratchet, age 65, is retiring.  He elects to receive $175,000 as a lump sum distribution from his employer's pension plan.  Which of the following is a reason for rolling over the lump sum into an IRA?

     a.     to eliminate taxes on the distribution
     b.     to delay taxes on the distribution
     c.     to receive current income from the IRA
     d.     federal law requires rollover of lump sum distributions into an IRA



17.     Mr. Franklin, age 40, established an IRA and made deductible      contributions annually from 1982 until 1986.   Due to the Tax Reform Act of 1986, current contributions would be non-deductible.  Because of this, Mr. Franklin has not contributed to the IRA since 1986.  The account has grown in value to $50,000.  Mr. Franklin is laid off from his present job.  As part of his severance package, he receives a lump sum distribution from his employer's pension plan.  Mr. Franklin is seeking another job with retirement benefits.  His best course of action is to:

     a.     accept the lump sum distribution and pay taxes on it
     b.     roll the lump sum distribution into his existing IRA
     c.     establish a new IRA and roll the distribution into the new IRA
     d.     use income averaging methods to calculate the taxes owed on distribution



18.     All of the following are acceptable investments in an Individual      Retirement Account EXCEPT:

     a.     preferred stocks
     b.     zero coupon bonds
     c.     variable annuity contracts
     d.     term life insurance policy


19.     All of the following investments are prohibited in an IRA EXCEPT:

     a.     stamp collection
     b.     limited edition lithographs
     c.     US Gold Eagle coins
     d.     Canadian Maple Leaf gold coins



20.     The most popular investments in self-directed IRAs are:

     a.     common stocks
     b.     corporate bonds
     c.     mutual funds
     d.     certificates of deposit



21.     All of the following mutual funds would be suitable for a conservative      IRA investor EXCEPT:

     a.     mutual funds investing in corporate bonds
     b.     mutual funds investing in utility stocks
     c.     mutual funds investing in US government bonds
     d.     mutual funds investing in municipal bonds



22.     Investors concerned with the effects of inflation would most likely      invest their IRA assets in:

     a.     corporate bond mutual fund
     b.     zero coupon bonds
     c.     mutual fund investing in utility stocks
     d.     mutual fund investing in growth stocks


23.     Which of the following may withdraw funds from an IRA?

     I.     a 47 year old woman
     II.     a 53 year old permanently disabled man
     III.     the beneficiary of an IRA upon the death of the account holder
     IV.     a 74 year old man

     a.     II and III only
     b.     III and IV only
     c.     I, II and IV only
     d     I, II, III and IV



24.     Which of the following may withdraw funds from an IRA without      penalty?

     I.     a 47 year old woman
     II.     a 53 year old permanently disabled man
     III.     the beneficiary of an IRA upon the death of the account holder
     IV.     a 74 year old man

     a.     I and II only
     b.     III and IV only
     c.     II, III and IV only
     d     I, II, III and IV



25.     Mrs. Lincoln purchased a blue chip growth fund in her IRA a couple of years ago.  Mrs. Lincoln is approaching retirement and is looking for a      more conservative investment.  She sells the growth fund shares for a $25,000 gain and invests the proceeds in a US government bond fund. The tax on the capital gains is:

     a.     payable in the year of the sale
     b.     deferred until Mrs. Lincoln reaches age 59?
     c.     deferred until Mrs. Lincoln retires     
     d.     deferred until proceeds are withdrawn from the IRA



26.     Due to financial hardship, Mr. Johnson, age 46, withdraws $5,000 from his IRA.  He is in the 28% tax bracket.  On the withdrawal, he must pay:

     a.     $500 penalty
     b.     $1,400 in taxes
     c.     $1,400 in taxes and a $500 penalty
     d.     $2,500 penalty



27.     Withdrawals may be taken, penalty-free, from an IRA prior to age 59 1/2 under all of the following circumstances EXCEPT:

     a.     the account holder is disabled
     b.     the account holder is deceased
     c.     substantially equal payments are scheduled for a lifetime
     d.     due to financial hardship




28.     A 79 old widow has an IRA account valued at $39,500 as of January 1, 1991.  Her life expectancy, according to IRS tables, is 10.0 years.  To avoid paying a penalty, she must withdraw:

     a.     $500
     b.     $1,975
     c.     $3,950
     d.     $19,750



29.     Mrs. Thompson celebrated her 70th birthday August 1, 1998.  She is required to begin withdrawals from her IRA no later than:

     a.     December 31, 1998
     b.     April 1, 1999
     c.     December 31, 1999
     d.     April 1, 2000



30.     A 74 year old man has an IRA valued at $66,000 as of January 1,      1998.  According to IRS tables, his life expectancy is 13.2 years.  He      withdrew $3,000 from the IRA during 1998.  In addition to the taxes owed on the withdrawal,  he is subject to a penalty of:

     a.     0
     b.     $1,000
     c.     $1,500
     d.     $2,000



31.     Roth IRAs are sometimes called:

     a.     SEP IRAs
     b.     SIMPLE IRAs
     c.     backloaded IRAs
     d.     nondeductible IRAs



32.     Contributions to a Roth IRA are:

     a.     always tax deductible
     b.     sometimes tax deductible
     c.     never tax deductible
     d.     subject to the same rules as traditional IRAs



33.     Which of the following are true?

     a.     Persons over age 70? may establish a Roth IRA
     b.     Persons over age  70? may contribute to a Roth IRA
     c.     Persons over age 70?  may rollover IRA assets
     d.     all of the above



34.     Which of the following may not contribute to a Roth IRA?

     a.     a 75 year old single taxpayer with earned income of $70,000
     b.     a 65 year old married taxpayer with earned income of $150,000
     c.     a 45 year old single taxpayer with earned income of $105,000
     d.     a 39 year old married taxpayer with earned income of $165,000



35.     Which of the following may not contribute to any IRA this year?

     a.     Mr. Able, a 69 year old single taxpayer earning $75,000 this year
     b.     Ms. Bravo, a 79 year old married taxpayer earning $10,000 this      year
     c.     Mr. Charlie, a 65 year old married taxpayer earning $17,000 this      year
     d.     Ms. Delta, a 72 year old single taxpayer earning $120,000 this      year



36.     The maximum amount that may be contributed annually to a Roth IRA is:

     a.     100% of earned income
     b.     $2,000
     c.     the greater of a or b
     d.     the lesser of a or b



37.     Contributions made to a Roth IRA by taxpayers whose income exceeds the permissible levels are subject to:

     a.     confiscation by the IRS
     b.     a 6% penalty tax
     c.     a 10% penalty tax
     d.     a 50% penalty tax



38.     If a taxpayer contributed more than the allowable amount to a Roth      IRA, the excess may be withdrawn, penalty free, at any time up to:

     a.     the end of the tax year
     b.     the taxpayer's tax filing date
     c.     the taxpayer's tax filing date plus extensions
     d.     the end of the calendar year



39.     Regarding the penalty tax on excess contributions to a Roth IRA, all of the following are true EXCEPT:

     a.     the penalty only applies to the year of the contribution
     b.     the penalty applies each year the contribution remains in the           account
     c.     the penalty applies until the excess is withdrawn
     d.     the penalty applies until the contributor underfunds future           contributions to "correct" the excess



40.     Distributions from a Roth IRA are tax-free if they are taken from the      account:

     I.     after age 59?
     II.     due to the account holder's disability
      III.     due to the account holder's death
     IV.     to pay for the first-time purchase of a primary residence

     a.     I only
     b.     II and III only
     c.     I, II and III only
     d.     I, II, III and IV



41.     To take a tax-free distribution from a Roth IRA, the contributions must first remain in the account for:

     a.     one tax year
     b.     two tax years
     c.     three tax years
     d.     five tax years



42.     If a taxpayer takes a "non-qualified" distribution from a Roth IRA, the      distribution is taxable as ordinary income.  The distribution is treated, for tax purposes:

     a.     as contributions first, then earnings
     b.     as earnings first, then contributions
     c.     the same as for distributions from non-deductible traditional IRAs
     d.     the same as for distributions from deductible traditional IRAs



43.     The penalty on "premature withdrawals", i.e. prior to age 59 1/2, from a Roth IRA is:

     a.     0%
     b.     6%
     c.     10%
     d.     50%



44.     A 74 year old man has a Roth IRA valued at $66,000 as of January 1, 1998.  According to IRS tables, his life expectancy is 13.2 years.  He withdrew $3,000 from the IRA during 1998.  He is subject to a penalty of:

     a.     0
     b.     $1,000
     c.     $1,500
     d.     $2,000



45.     If a 45-year old taxpayer owns a traditional IRA and wishes to convert that IRA into a Roth IRA, she may do so:

     a.     tax free
     b.     subject to the 20% withholding tax
     c.     but must pay tax as though the traditional IRA assets were           distributed, including a 10% penalty on premature withdrawals
     d.     but must pay tax as though the traditional IRA assets were           distributed, but no 10% penalty for premature withdrawals



46.     Simplified Employee Pensions may be established by all of the      following EXCEPT:

     a.     an employer with 50 employees
     b.     an employer with 150 employees
     c.     a self-employed individual
     d.     an employee with earned income



47.     Which of the following is the least expensive method for an employer to establish a retirement plan for its employees?

     a.     a profit sharing plan
     b.     a 401(k) plan
     c.     a Model SEP plan
     d.     a Non-Model SEP plan



48.     Employers offering a SEP plan must cover all employees who worked for them during the year and:

     I.     are at least 21 years old
     II.     earned at least $300 during the year
     III.     earned at least $5,000 during the year
     IV.     have worked for the employer for three of the past five years

     a.     I only
     b.     II only
     c.     I and III only
     d.     I, II, and IV only



49.     Which type of retirement plan may be established after the end of the      employer's tax year?

     a.     401(k) plan
     b.     Keogh plan
     c.     SEP plan
     d.     SIMPLE plan



50.     The maximum amount that may be contributed to a SEP on behalf of an employee is:          
     a.     $30,000
     b.     15% of compensation
     c.     the greater of a or b
     d.     the lesser of a or b



51.     Contributions to a SEP-IRA are deductible by:

     a.     the employee
     b.     the employer
     c.     both the employee and employer
     d.     neither the employee or employer



52.     For employees, contributions to a SEP-IRA are:

     a.     included in gross income
     b.     tax deductible
     c.     excluded from gross income
     d.     tax free



53.     A Model SEP is:

     a.     governed by a document executed by all eligible employees
     b.     a verbal agreement between the employer and employees
     c.     a written document executed by the employer
     d.     always submitted to the IRS for approval



54.     An employer may establish a Model SEP if the employer:

     a.     integrates SEP contributions with Social Security
     b.     currently maintains a profit sharing plan
     c.     terminates all other existing qualified plans
     d.     establishes IRAs for all eligible employees




55.     When determining if a SEP plan is top-heavy, which of the following are considered "key personnel"?

     I.     officers of the employer
     II.     owners holding 5% or more ownership in the employer
     III.     non-owner employees earning $150,000 or more per year
     IV.     any of the 10 largest owners in the employer

     a.     I and IV only
     b.     II or IV only
     c.     I and III only
     d.     I, II and IV only



56.     If a SEP plan is "top-heavy", the employer must:

     a.     vest benefits more quickly
     b.     reduce the contributions made for key personnel
     c.     make a mandatory contribution of 3% of each non-key employee's compensation
     d.     terminate the plan



57.     The penalty imposed on employers who contribute more than the      allowable amount to a SEP is:

     a.     6%
     b.     10%
     c.     20%
     d.     50%



58.     All of the following employer "contribution formulas" for a SEP are      acceptable EXCEPT:

     a.     6% of an employee's compensation
     b.     $2,000 per year
     c.     6% of an employee's first $15,000 of compensation and 3% of compensation over $15,000
     d.     6% of an employee's compensation in excess of $25,000



59.     If an eligible employee has not established an IRA account to receive the employer's SEP contribution:

     a.     the plan is disqualified
     b.     the contribution must be paid directly to the employee
     c.     the employer may establish an IRA in the name of the employee
     d.     no SEP contributions may be made to any other employee IRAs for that year



60.     In the case of self-employed individuals who establish a SEP, the      contribution limits are based on:

     a.     gross revenues
     b.     net income before deducting the SEP contribution
     c.     net income after deducting the SEP contribution
     d.     gross revenues after deducting the SEP contribution



61.     Excess contributions distributed to SEP participants before the end of      the tax year are subject to:

     a.     ordinary income taxation
     b.     a 10% penalty for premature distribution
     c.     a 6% penalty on excess contributions
     d.     all of the above



62.     Distributions may be taken from a SEP-IRA as early as:

     a.     age 21
     b.     age 59½
     c.     retirement
     d.     70½



63.     Distributions from a SEP-IRA must begin no later than:

     a.     retirement
     b.     plan termination
     c.     age 59½      
     d.     age 70½



64.     Contributions to a SEP-IRA must be made no later than the:

     a.     end of the calendar year
     b.     the end of the employer's tax year
     c.     the employer's tax filing date
     d.     the employer's tax filing date plus extensions



65.     Employers must notify participants in a SIMPLE plan of the employer's contribution method for the year no later than:

     a.     the start of the election period
     b.     30 days before the election period
     c.     60 days before the election period
     d.     90 days before the election period



66.     An employer's matching contribution to an employee's SIMPLE IRA account, is based on the employee's:

     a.     compensation
     b.     compensation up to a maximum of $150,000 -- adjusted from           inflation
     c.     years of service
     d.     earnings history



67.     An employer offering a SIMPLE IRA plan must either:

     I.     match employee elective deferrals dollar-for dollar
     II.     match employee elective deferrals dollar-for dollar up to 3% of compensation
       III.     contribute no more than 2% of the employee's compensation as a non-elective contribution
     IV.     contribute 2%  of the employee's compensation as a non-elective contribution

     a.     I or III
     b.     I or IV
     c.     II or III
     d.     II or IV



68.     The maximum allowable employee elective contribution to a SIMPLE IRA plan is:

     a.     less than that allowed in a "regular" IRA
     b.     more than that allowed in a "regular" IRA
     c.     the same as that allowed in a "regular IRA
     d.     offset by contributions to "regular" IRAs



69.     SIMPLE plans may be established in the form of a:

     I.     401(k) plan
     II.     IRA plan
     III.     SEP plan

     a.     I only
     b.     II only
     c.     I and II only
     d.     I and III only



70.     The primary advantage of a SIMPLE plan is that employers are      relieved of:

     a.     vesting requirements under ERISA
     b.     non-discrimination rules
     c.     matching contribution requirements
     d.     drawing up plan documents



71.     Which of following are permitted to offer SIMPLE plans to their      employees?

     a.     employers with fewer than 100 employees
     b.     only employers with employees covered by a collective bargaining agreement
     c.     employers who offer other qualified retirement plans
     d.     any of the above




72.     When counting employees who are "eligible" for a SIMPLE plan, the      employer must count:

     a.     all employees who worked for the employer during the year
     b.     only those employees who may make contributions to the plan
     c.     only those employees not covered by a collective bargaining           agreement
     d.     all employees who worked for businesses under the common           control of the employer



73.     Which are true of SIMPLE IRA plans?

     a.     new plans may be established on a fiscal or calendar year
     b.     existing plans may continue to operate on a fiscal or calendar year basis
     c.     existing plans may continue to operate on a fiscal year basis, but      new plans must be established on a calendar year basis only
     d.     all SIMPLE plans must operate on a calendar year basis



74.     If an employer adopts the most strict "participation rules", which      "eligible employees" may participate in the SIMPLE plan, i.e.,      contribute to the plan?

     a.     all "eligible" employees may participate
     b.     only those "eligible" employees who earned at least $5,000 from the employer this year
     c.     only those "eligible" employees who earned at least $5,000 from the employer in the past two years
     d.     only those "eligible" employees who earned at least $5,000 from the employer in any of the past two years



75.     An "eligible" employee works for two unrelated employers, earning $20,000 from each for the past two years.  Each employer offers a SIMPLE IRA. If the employee is eligible to contribute to Employer A's plan this year, the employee:

     a.     may not contribute to Employer B's plan this year
     b.     may contribute to either Employer A or Employer B's plan, but not both during the same year     
     c.     may contribute up to $6,000 to Employer A's plan and $6,000 to Employer B's plan this year
     d.     may contribute up to a total of $6,000 this year in both Employer A and Employer B's plan



76.     Which of the following are mandatory in a SIMPLE IRA?

     I.     employee elective deferrals
     II.     employee voluntary contributions
     III.     employer matching contributions
     IV.     employer non-elective contributions

     a.     I only
     b.     I or II only
     c.     III or IV only
     d.     I, III or IV only



77.     Which of the following are NOT permitted in a SIMPLE IRA?

     a.     employee elective deferrals
     b.     employee voluntary, after tax contributions
     c.     employer matching contributions
     d.     employer non-elective contributions



78.     Employees may terminate participation, i.e. elective deferrals, in a SIMPLE plan:
     a.     only on the election date
     b.     by giving notice within 30 days of the election date
     c.     by giving notice within 60 days of the election date
     d.     at any time


79.     Employers must "segregate" participating employees' elective deferrals into the SIMPLE IRA plan:

     a.     as quickly as possible
     b.     by the 15th day after the end of the month in which the employee would have otherwise received the deferral in cash
     c.     by the end of the employer's tax year
     d.     by the filing date of the employer's tax return


80.     Employers may deposit their matching or non-elective contributions into the SIMPLE IRA plan:

     a.     as soon as is reasonably possible
     b.     by the 15th day after the end of the month in which the employee would have otherwise received the deferral in cash
     c.     by the end of the employer's tax year
     d.     by the filing date of the employer's tax return



81.     All contributions to a SIMPLE IRA plan must vest no slower than:
     a.     three year cliff vesting
     b.     five year cliff vesting
     c.     three-to-seven year graded vesting
     d.     immediately



82.     Which of the following are "immediately and fully" vested in a SIMPLE IRA plan?

     I.     employee elective deferrals
     II.     employee voluntary contributions
     III.     employer matching contributions
     IV.     employer non-elective contributions

     a.     I only
     b.     I and II only
     c.     III and IV only
     d.     I, III and IV only

.