FINC 355: RETIREMENT AND ESTATE PLANNING FINAL EXAMINATION Instructions: This final exam is a mix of multiple choice and true false questions. You must use the answer sheet provided. Questions answered and submitted on the final itself will not be considered. 1. Traditional 401(k) plans can be funded entirely through salary reductions by employees, enabling employers to bear no additional cost for employee compensation. 2. A cash balance plan establishes a separate fund for each plan participant. 3. Defined benefit plans provide more benefit security than do age-weighted or cross-tested plans. 4. All group insurance programs offered to employees must comply with ERISA reporting and disclosure requirements. 5. A cross-tested plan uses a fixed age-weighted formula. The plan is designed to maximize benefits for a firm’s highly compensated employees while providing whatever is necessary for remaining employees to satisfy nondiscrimination regulations. 6. An employee cannot be covered under both a defined benefit and a defined contribution plan. 7. A self-employed person with less than 10 employees can use a money purchase plan to fund his or her own retirement. 8. Unlike a traditional IRA, a Roth IRA contribution is not restricted by active participation in an employer’s retirement plan. 9. An early distribution penalty can be assessed on Roth IRA withdrawals. 10. Account holders with more than one Roth IRA can treat them as separate accounts when calculating tax consequences of distributions from any of them. 11. A trust cannot provide for creditor protectioninsurance 12. Including a spendthrift clause is recommended for children with money management or substance abuse problems. 13. All of the following are true regarding tax implicatons of cash balance plans, except a. employer contributions to the plan are deductible when made b. taxation of the employee on employer contributions is deferred c. the plan is not subject to minimum funding rules of the Internal Revenue Code d. certain employers who adopt a cash balance plan may be eligible for a business tax credit up to $500 e. employees may make voluntary contributions to a “deemed IRA” established under the plan 14. Which of the following is (are) true regarding elective deferrals in a Section 401(k)? a. elective deferrals are not subject to Social Security and Federal Unemployment payroll taxes b. elective deferrals are always made on an after-tax basis c. if the company elects to have a safe harbor plan, elective deferrals must meet the actual deferral percentage test d. account funds can be withdrawn without a premature distribution penalty if the employee becomes disabled or dies e. since employees elect the amount of funds to defer, nondiscrimination tests do not apply to elective deferrals 15. Which of the following types of employer plans are exempt from most or all ERISA provisions? a. plans of state, federal, or local governments or governmental organizatio ...

1. FINC 355: RETIREMENT AND ESTATE PLANNING
FINAL EXAMINATION
Instructions: This final exam is a mix of multiple choice and
true false questions. You must use the answer sheet provided.
Questions answered and submitted on the final itself will not be
considered.
1. Traditional 401(k) plans can be funded entirely through
salary reductions by employees, enabling employers to bear no
additional cost for employee compensation.
2. A cash balance plan establishes a separate fund for each
plan participant.
3. Defined benefit plans provide more benefit security than
do age-weighted or cross-tested plans.
4. All group insurance programs offered to employees must
comply with ERISA reporting and disclosure requirements.
5. A cross-tested plan uses a fixed age-weighted formula.
The plan is designed to maximize benefits for a firm’s highly
compensated employees while providing whatever is necessary
for remaining employees to satisfy nondiscrimination
regulations.
6. An employee cannot be covered under both a defined
benefit and a defined contribution plan.
7. A self-employed person with less than 10 employees can
use a money purchase plan to fund his or her own retirement.
8. Unlike a traditional IRA, a Roth IRA contribution is not
restricted by active participation in an employer’s retirement
plan.
9. An early distribution penalty can be assessed on Roth IRA
withdrawals.
10. Account holders with more than one Roth IRA can treat
them as separate accounts when calculating tax consequences of
distributions from any of them.

2. 11. A trust cannot provide for creditor protectioninsurance
12. Including a spendthrift clause is recommended for children
with money management or substance abuse problems.
13. All of the following are true regarding tax implicatons of
cash balance plans, except
a. employer contributions to the plan are deductible when
made
b. taxation of the employee on employer contributions is
deferred
c. the plan is not subject to minimum funding rules of the
Internal Revenue Code
d. certain employers who adopt a cash balance plan may be
eligible for a business tax credit up to $500
e. employees may make voluntary contributions to a “deemed
IRA” established under the plan
14. Which of the following is (are) true regarding elective
deferrals in a Section 401(k)?
a. elective deferrals are not subject to Social Security and
Federal Unemployment payroll taxes
b. elective deferrals are always made on an after-tax basis
c. if the company elects to have a safe harbor plan, elective
deferrals must meet the actual deferral percentage test
d. account funds can be withdrawn without a premature
distribution penalty if the employee becomes disabled or dies
e. since employees elect the amount of funds to defer,
nondiscrimination tests do not apply to elective deferrals
15. Which of the following types of employer plans are exempt
from most or all ERISA provisions?
a. plans of state, federal, or local governments or
governmental organizations
b. plans of churches, synagogues, or related organizations
c. plans maintained solely to comply with workers’
compensation, unemployment compensation, or disability

3. insurance laws
d. all of the above
e. none of the above because no employer plans are exempt
from ERISA provisions
16. Irrevocable Life Insurance Trusts (ILIT) are primarily
designed to ensure that the death benefit is excludable from the
insured’s federal gross estate.
a. true
b. false
17. Are all of the items listed below reasons why having a will
is important? (True or False)
· The state directs how the decedent’s property is transferred
· A spouse’s share of the decedent’s estate may be equal to a
child’s
· Children may be treated equally although not equitably
· May require the appointment of an administrator who will
usually have to furnish a surety bond, thereby raising the costs
of administration
· The administrator of the estate is determined by the court
18. Paul owns the following property:
1. Boat (fee simple)
2. Condominium on the beach (tenancy in common with his
brother and sister)
3. House and two cars with his wife, Karen (tenancy by the
entirety)
4. Checking account with his son, William (POD)
5. Karate business (JTWROS with his partner, Mike)
Which items will go through probate? Which property
ownership could he sell without the consent of a co-owner?
19. Two brothers have consulted you about the purchase of a

4. lakefront cottage. The brothers plan to use the cottage on a
seasonal basis. They are unsure of how they should title the
property. Which of the following items of information do you
need to obtain before making a recommendation?
1. The purchase price of the cottage
1. How much each brother plans to contribute toward the
purchase of the cottage
1. Whether the brothers want their interest in the cottage to pass
under their wills when they die
1. 1 and 2
1. 3 only
1. 1, 2, and 3
1. 2 and 3
20. Are all of the items listed below reasons why having a will
is important? (True or False)
· The state directs how the decedent’s property is transferred
· A spouse’s share of the decedent’s estate may be equal to a
child’s
· Children may be treated equally although not equitably
· May require the appointment of an administrator who will
usually have to furnish a surety bond, thereby raising the costs
of administration
· The administrator of the estate is determined by the court
21. Annual additions to an age-weighted plan include
a. employer contributions to participants’ accounts
b. employee contributions to own account
c. forfeitures from other accounts
d. only a and b
e. all of the above
22. Which plan has benefit levels that are guaranteed by both
the employer and the Pension Benefit Guaranty Corporation
(PBGC)?
a. money purchase plan

5. b. target benefit plan
c. cross tested plan
d. defined benefit plan
e. tax-deferred annuity
23. Advantages of defined benefit plans include all of the
following, except
a. defined benefit plans are easy to design and easy to
explain to employees
b. employees obtain a tax-deferred retirement savings
medium
c. retirement benefits at adequate levels can be provided for
all employees regardless of age
d. benefit levels are guaranteed both by the employer and, for
some plans, by the PBGC
e. for an older highly compensated employee, a defined
benefit plan will allow the maximum amount of tax-deferred
retirement saving
24. Which of the following is (are) true regarding the tax
implications of having a money purchase plan?
a. employer contributions and plan earnings are tax-deferred
for the employee
b. employers beginning a new plan are eligible for a $2,500
business tax credit in the first year to help with startup costs
c. the employer tax deduction is limited to 25% of total
payroll of the employees covered under the plan
d. only a and b
e. only a and c
25. All of the following are true regarding money purchase
plans, except
a. most money purchase plan benefit formulas use a factor

6. related to the employee’s service that favors owners and key
employees
b. nondiscrimination regulations provide a safe harbor for
money purchase plans
c. a plan benefit formula can be integrated with Social
Security
d. forfeitures, unvested amounts left behind by employees in
their plans, can be used to reduce future employer contributions
e. money purchase plan funds are generally invested in a
pooled account managed by the employer or a fund manager
selected by the employer
26. A tax-free rollover of a Roth IRA can be made to
a. another Roth IRA
b. a traditional IRA
c. a tax-deferred annuity
d. a and b
e. a and c
27. Ways that a Roth IRA differs from a traditional IRA
include:
a. initial investment and earnings can be withdrawn tax-free
b. Roth IRA contributions can be made past age 59½
c. Roth IRAs are never subject to minimum distribution rules
d. a and b
e. a and c
28. Directors of Xenon Corporation are considering changing
from a traditional defined benefit plan to another type of plan.
They have asked you to explain the advantages and
disadvantages of such a change. You explain that if Xenon
Corp. converts to

7. a. a defined contribution plan, most or all plan assets would
be credited immediately to vested employees
b. a cash balance plan, Xenon Corp. must increase the level
of contribution to older employees
c. a cash balance plan, Xenon Corp. would no longer need
actuarial services
d. only a and b
e. only a and c
29. Maxton Manufacturing, Inc., uses prior year testing to
monitor discrimination in its Section 401(k) plan. Last year,
the actual deferral percentage (ADP) for all nonhighly
compensated employees at Maxton was 4%. This year, the ADP
for highly compensated employees at Maxton can be as high as
a. 2%
b. 4%
c. 5%
d. 6%
e. 8%
30. The retirement plan for Bethel Shalom synagogue must
adhere to ERISA reporting and disclosure rules.
a. true
b. false
31. Harper Engineering, Inc., offers several benefits to
employees. Which of its benefits would be exempt from the
ERISA reporting and disclosure requirements?
a. Harper pays for life insurance to provide for employee
dependents if the employee dies
b. Harper gives each employee a small gift worth less than $5
on St. Patrick’s Day
c. Harper has a scholarship program that pays for employee
tuition for industry-relevant continuing education, based on the
employee passing the course, out of the employer’s general

8. assets
d. b and c
e. a and c
32. Sentenal Corp., a restaurant supply company, is a closely
held business. Tom Brady, founder and owner of the business is
59. Jeff Alcorn, age 53, is a key employee. The business
employs 10 other rank-and-file employees earning an average of
$30,000 per year. Both Tom and Jeff would like to contribute
between $30,000 and $40,000 per year to a qualified retirement
account. The advantages of using a profit sharing, age-weighted
plan at Sentenal rather than a defined benefit plan include:
a. the age-weighted plan is simpler to install
b. the age-weighted plan is less expensive to administer
c. the age-weighted plan allows more flexibility in plan
contributions
d. all of the above
e. only a and b
33. The law firm of Willie, Cheatum, and Howe is structured
as a professional corporation that has three key employees
between ages 39 and 43, two law clerks in their late 20s, and
two secretaries, both age 31. The three key employees earn
$500,000 per year. The law clerks are paid $30,000 and the
secretaries are paid $15,000 annually. Turnover for both the
law clerks and secretaries has been rather high, with at least one
law clerk and one secretary leaving about every 6 months for
the past year. Characteristics of the firm that would make a
cross-tested plan a less than optimal solution for the firm
include
a. the plan would have to be reconsidered at each new hire
b. the plan would provide relatively few advantages given the
age of the highly compensated group
c. having more than one highly compensated employee makes

9. coverage tests related to the plan more difficult to apply
d. all of the above
e. none of the above
34. Shannon McDougal will retire December 31 of this year.
Shannon has worked for Shamrock Construction for 30 years.
During his last 5 years, he earned $40,000, $47,000, $44,000,
$46,000, and $48,000. Shamrock’s retirement plan uses a unit
credit formula that awards employees 1.5% for each year of
service using a financial average of the last 3 years. Shannon’s
annual benefit will be:
a. $19,500
b. $20,250
c. $20,700
d. $21,150
e. $21,600
35. April Showers, age 30, opened the Unique Boutique 5
years ago. April has five employees ranging in age from 25 to
42. Earnings have fluctuated. Profits have been made only in
the last two years. April should
a. not have a defined benefit plan because it is designed for
older business owners
b. have a defined benefit plan because it will maximize
April’s tax deduction
c. not have a defined benefit plan because there are a large
number of years until the owner or employees retire
d. have a defined benefit plan because the owner can get
$1,500 tax credit for establishing a new retirement plan
e. not establish a defined benefit plan because it is not likely
April can meet the annual funding requirements
36. Mandy Thomas, age 47, is the owner of The Golf Pro
Shop. Mandy wants to retire at age 55. The company adopted a
defined benefit plan 2 years ago, 3 years after the business

10. opened. Mandy wants to increase the amount that she
contributes to her own retirement. Mandy can
a. increase the amount without limit
b. increase the amount within limits set by the Internal
Revenue Code
c. increase the amount, but must also contribute to all other
company employee accounts by the same proportion
d. increase the amount, but maximum benefit will be cut in
half because the plan is less than 10 years old
e. she cannot increase her contribution
37. The owner of Whitney Corporation, Inc., earned $250,000
in 2013. In the same year, three highly compensated employees
earned $100,000 each. The remaining 30 line workers earn
about $20,000 each, for a total payroll of $600,000 for this
group of workers. Whitney Corporation made the maximum
allowable contribution to each employee’s money purchase plan
in 2013. In 2013, what was the total amount that Whitney
Corporation contributed to their money purchase plan?
a. $51,000
b. $150,000
c. $225,000
d. $276,000
e. $318,000
38. Orville Winbacher died last year at age 58, leaving
$500,000 accumulated in a Roth IRA. Which of the following is
(are) true?
a. monies in the Roth IRA must be distributed within a year
of the Orville’s death either to his estate or to a beneficiary
b. distribution from the account can be made over the life of
a designated beneficiary if begun within a year of Orville’s
death
c. initial distribution of Orville’s Roth IRA funds to a
beneficiary are tax-free, but subsequent investment returns on
amounts distributed are taxable

11. d. a and b
e. b and c
39. George Flint was transferred to Chicago three years ago.
When he left Detroit, he sold his home and put some of the
money in a new Roth IRA. He and his wife, Wilma, have been
renting a home for the past 3 years. Recently, the homeowner
decided to sell. George is interested in buying the home. George
can make a penalty-free withdrawal from his Roth IRA to help
complete the purchase.
a. true
b. false
40. Brothers Tim and Jim Shanton have asked you, their
financial advisor, to settle a friendly quarrel between them. Tim
argues that a Roth IRA and a traditional IRA are actuarially
equivalent if $4,000 is available for investing on a before-tax
basis, contributions to the traditional IRA are deductible, tax
rates are expected to stay the same, and both have the same
interest rates. So, it makes no difference which vehicle one uses
to save for retirement. Jim insists that a Roth IRA is the better
investment. You tell them
a. Tim is wrong; the tax deduction available for a traditional
IRA allows more money to work for the contributor
b. Jim is wrong; at least for some low-income individuals, the
traditional IRA is a better investment because of its relatively
lower tax rates
c. Tim is right; the two investments are equivalent in every
respect when considered at the end of an investment horizon at
least 10-years long
d. Jim is right; the ability to make tax-free withdrawals from
a Roth IRA gives a greater return even when contributions and
interest rates are equivalent over time
e. both are right; the two investments are actuarially
equivalent, but absence of a minimum distribution date and
more liberal penalty-free withdrawal options may make the Roth

12. IRA more attractive
41. Which of the following statis is (are) NOT correct?
a. A durable power of attorney for health care is always a
direct substitue for a living will.
b. A living will only covers a narrow range of situations.
c. A living will must generally meet the requirements of a
formally drafted state statue.
d. Many well-intentioned living wills have failed because of
vagueness and/ or ambiguities.
42. A __________ is a legal request for how one’s estate
should be distributed upon death
a. Letter of last insturction
b. Will
c. Asset distribution
d. None of the above
43. The person transferring asssets to antoher person in a trust
is called the
a. Trustee
b. Grantor
c. Executor
d. None of the above
44. A ______________ is a legal documemnt created by
indiviudals to specify their preferences if they become mentally
or physically disabled
a. Power of attorney
b. Living trustr
c. Codicil
d. Living will
45. A _____________ trust, the grantor is no longer the owner
of the assets in the trust disabled

13. a. Living
b. Revocable living
c. Irrovocable living
d. Non of the above
46. Which of the following is not true regarding estate taxes?
a. They are dependent on the value of an estate
b. Any funds that are provided as a result of a life insurance
policy are counted as part of the state for tax purposes
c. All the assets in an estae can be distributed tax-free to
children or others
d. All of the above are true
47. Which of the following situaitons would NOT constitute a
transfer that comes within the gift tax statues?
a. Robin creates a trust under the terms of which her daughter is
to get income for life and her granddaughter the remainder at
the daughter’s death.
b. Robbie purchases real propety and has the title conveyed to
himslef an to his brother as joint tenants.
c. Randal creates an irrovocable trust giving inocme for life to
his wife and providing that at her death the corpus is to be
distributed to his son.
d. Ray purchases a U.S. savings bond made payable to himself
and his wife, Raquel. Raquel cashes the bond to be used for her
own benefit.
e. Rose creates a joint bank account for herself and her daugher.
There have been no withdrawls from the account.
48. A living trust is one in which the grantor creates an inter
vivos trust that is funded with part of all of the grantor’s
property.
a. True
b. False

14. 49. Which of the following transfers qualify for the unlimited
marital deduction?
a. Outright bequest to resident alien spouse
b. Property passing to citizen spouse in QTIP
c. Income beneficiary of CRT is a nonresident alien spouse
(trust is not a QDOT)
d. Outright bequest to resident spouse who, prior to the
decedent’s death, was a noncitizen bu who after the decedent’s
death and before the estate return was filed, became a U.S.
citizen.
e. b and d
50. The generation-skipping transfer tax (GSTT) is in addition
to the unified gift and estate tax and is designed to tax large
transfers tht skip a generation (i.e. from grandparent to
grandchile). The purpose of the tax is to collect potentially lost
tax dollars from the skipped generation. Which of the following
transfers qualify for the unlimited marital deduction.
a. True
b. False
1
FINC 355: RETIREMENT AND ESTATE PLANNING
FINAL EXAM ANSWER SHEET WEEK 8
Here is the Final Exam Answer Sheet that you should submit to
your Final Exam Folder. Please submit this answer sheet in MS
Word format with the following file name:
LastNameFirstInitial_FinalExamAnswerSheet.docx. For
example, if you name is John Smith, the file name of your
Answer Sheet should be SmithJ_FinalExamAnswerSheet.docx.
If you have any questions or comments, please do not hesitate
to contact me.

15. NAME: _____________________________________
Question Number
Answer
Question Number
Answer
1
26
2
27
3
28
4
29
5
30
6
31
7
32
8

16. 33
9
34
10
35
11
36
12
37
13
38
14
39
15
40
16
41
17

17. 42
18
43
19
44
20
45
21
46
22
47
23
48
24
49
25
50

18. 1