FINC355 Professor Goohs – Retirement and Estate Planning Quiz 4 NAME ____________________________ Due Date: June 29, 2014 (in assignment folder) Please provide name above and provide answers in the chart below and submitting homework in MS Word in assignment folder for Quiz 4. (I’ll deduct points if you don’t). Problem Answer Example A 1 21 2 22 3 23 4 24 5 25 6 26 7 27 8 28 9 29 10 30 11 31 12 32 13 33 14 34 15 35 16 36 17 37 18 38 19 39 20 40 1. Which of the following is true about employer contributions to a money purchase plan? A. contributions cannot exceed 30% of an employee’s compensation B. in 2013, the maximum dollar amount of annual contributions to an employee’s account cannot exceed $90,000 C. plan contributions go into a pooled account rather than into individual employee accounts D. plan benefits accumulate in individual employee accounts, which will be available at retirement or termination of employment 2. Which of the following may be considered a disadvantage for employees of money purchase pension plans? A. employees bear investment risk under the plan B. employers bear investment risk under the plan C. plan distributions may be eligible for the 10-year special averaging computation D. good investment results increase plan benefits 3. A self-employed person with less than 10 employees can use a money purchase plan to fund his or her own retirement. A. True B. False 4. The IRS generally allows money purchase plans to provide for “in-service distributions”—that is, benefits payable before termination of employment. A. True B. False 5. 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 [calculated as $51,000 + .25(100,000) +.25(100,000) + .25(100,000) + .25(600,000); the owner’s contribution is capped at $51,000 (in 2013) because 25% of $250,000 is greater than the $51,000 statutory limit; the maximum contribution for all other workers is 25% of their compensation, 25% of ($300,000 + $600,000)] 6. Which one of the following provides the greatest amount of flexibility for employer profit sharing plan contributions? A. a discretionary provision B. a formula provision C. a money purchase paired plan provision D. a target benefit provision 7. After the minimum two-year holding requirement, what amounts may be withdrawn from a participant’s profit sharing plan account prior to retirement or termination? A. 100% of account assets B. no more than 25% of the account’s current value C. an amount not to ...

1. FINC355 Professor Goohs – Retirement and Estate Planning
Quiz 4
NAME ____________________________ Due Date: June
29, 2014 (in assignment folder)
Please provide name above and provide answers in the chart
below and submitting homework in MS Word in assignment
folder for Quiz 4. (I’ll deduct points if you don’t).
Problem
Answer
Example
A
1
21
2
22
3
23
4
24

2. 5
25
6
26
7
27
8
28
9
29
10
30
11
31
12
32
13
33

3. 14
34
15
35
16
36
17
37
18
38
19
39
20
40
1.
Which of the following is true about employer contributions to
a money purchase plan?
A. contributions cannot exceed 30% of an employee’s
compensation
B. in 2013, the maximum dollar amount of annual contributions
to an employee’s account cannot exceed $90,000

4. C. plan contributions go into a pooled account rather than into
individual employee accounts
D. plan benefits accumulate in individual employee accounts,
which will be available at retirement or termination of
employment
2. Which of the following may be considered a disadvantage for
employees of money purchase pension plans?
A. employees bear investment risk under the plan
B. employers bear investment risk under the plan
C. plan distributions may be eligible for the 10-year special
averaging computation
D. good investment results increase plan benefits
3. A self-employed person with less than 10 employees can use
a money purchase plan to fund his or her own retirement.
A. True
B. False
4. The IRS generally allows money purchase plans to provide
for “in-service distributions”—that is, benefits payable before
termination of employment.
A. True
B. False
5. 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

5. D. $276,000
E. $318,000
[calculated as $51,000 + .25(100,000) +.25(100,000) +
.25(100,000) + .25(600,000); the owner’s contribution is capped
at $51,000 (in 2013) because 25% of $250,000 is greater than
the $51,000 statutory limit; the maximum contribution for all
other workers is 25% of their compensation, 25% of ($300,000
+ $600,000)]
6. Which one of the following provides the greatest amount of
flexibility for employer profit sharing plan contributions?
A. a discretionary provision
B. a formula provision
C. a money purchase paired plan provision
D. a target benefit provision
7. After the minimum two-year holding requirement, what
amounts may be withdrawn from a participant’s profit sharing
plan account prior to retirement or termination?
A. 100% of account assets
B. no more than 25% of the account’s current value
C. an amount not to exceed the participant’s vested account
balance
D. an amount not to exceed the entire account balance, as long
as hardship requirements have been met
8. In a profit sharing plan, it is common to use “participant
investment direction,” meaning accounts can be invested at the
participant’s direction.
A. True
B. False
9. A disadvantage of profit sharing plans is that
A. employee bears the investment risk
B. actuarial costs make the plan expensive to administer

6. C. there is no predictable level of employer funding under the
plan
D. A and B
E. A and c
10. Sandy Beech earns $40,000 as a guide for Tropical Tours,
Inc. Tropical Tours typically contributes 10% of profit to its
profit sharing plan. Total payroll for Tropical Tours is
$120,000. This year, Tropical Tours will contribute $21,000 to
its profit sharing plan. Sandy’s share this year will be
A. $3,000
B. $4,000
C. $7,000
D. $12,000
E. need more information to calculate
11. Which of the following are reasons why an employer might
use an ESOP/stock bonus plan?
(1) to guarantee specific retirement income amounts for
employees
(2) to provide a tax-advantaged means for employees to
acquire company stock
(3) to allow the company to borrow money for business needs
(4) to broaden company ownership to help prevent a hostile
takeover
A. (1) only
B. (1) and (2) only
C. (1) (2) and (3) only
D. (2) (3) and (4) only
12. Jackson Kerpatrik, age 40, is an employee of Beason
Industries. Beason has an ESOP. This year, the ESOP
purchased stock for $500 and allocated it to Jackson’s account.
Twenty-five years from today, Jackson retires and receives this

7. stock in a lump sum distribution. At the time of his retirement,
the stock that was allocated to Jackson’s account this year is
worth $5,000. Jackson pays taxes on
A. $500
B. $4,500
C. $5,000
D. no tax at time of distribution; all initial deposits and gains
taxed when stock is sold
E. $500 at time of distribution; gains are taxed when the stock
is sold
13. Which of the following types of contributions into a savings
or thrift plan are allowable?
(1) after-tax employee
(2) matching employer
(3) pre-tax employee
(4) deductible employee
A. (1) only
B. (1) and (2) only
C. (1) (2) and (3) only
D. (2) (3) and (4) only
14. Savings plans and profit sharing plans share which of the
following features?
A. generous provision for employee withdrawal of funds
B. all contributions made on a before-tax basis
C. participants can select investment vehicles from a broad
range of options
D. A and B
E. A and C
15. Jane Tally has a thrift/savings plan with her employer. She
knows
A. her contribution to the plan is voluntary and made with after-
tax dollars

8. B. 100% of her contribution to her account is vested
immediately
C. her employer’s contributions to her account must comply
with Internal Revenue Code requirements for qualified plans
D. all of the above
E. only A and B
16. In addition to elective salary reduction contributions, which
of the following may be used as an alternative for making
contributions into a 401(k) plan?
A. employer after-tax matching contributions
B. employee pre-tax matching contributions
C. annual bonus received in cash or for contribution to the plan
D. SEP contributions
17. Employees can make in-service withdrawals from their
401(k) plans
A. True
B. False
18. Traditional 401(k) plans can be funded entirely through
salary reductions by employees, enabling employers to bear no
additional cost for employee compensation.
A. True
B. False
19. Elective deferrals in a 401(k) plan can be distributed upon
occurrence of all of the following, except
A. retirement
B. disability
C. severance from employment with the employer
D. attainment of age 55 ½ by the participant
E. plan termination (if the employer has no other defined
contribution plan other than an ESOP)

9. 20. Which of the following is a primary objective of cross-
tested plans?
A. to provide higher allocations for older plan entrants
B. to guarantee annual employer contributions to meet
retirement income targets
C. to provide maximum benefits to new/young employees
D. to provide maximum benefits to highly compensated
employees
21. A target plan is a pension plan that uses an age-weighted
contribution formula.
A. True
B. False
22. Tom Smyth owns a business that sponsors a cross-tested
defined benefit plan, but he wants to adopt a simpler alternative
that would still allow a current tax deduction and be easier to
explain, design, and administer. Tom’s best alternative, given
his concerns, would be
A. another defined benefit plan
B. a money purchase plan
C. a nonqualified deferred compensation plan
D. an individual retirement savings plan
E. a target benefit plan
1
Couple transforms Harlem apartment with
park views

10. Julie and Adam Tucker bought and renovated two units
June 18, 2014, 6:07 a.m. EDT
9 ways to guarantee your retirement
Take these steps to secure enough savings for the future
By Jocelyn Black Hodes
Once upon a time, retirement meant stopping work at 65 and
spending the rest of your days doing whatever you wanted while
your Social
Security and company pension checks rolled in.
Not anymore.
As a financial adviser, the number one reason my clients came
to me was to get help planning for their retirement — and it was
a good thing they did.
Pension funds and company 401(k) contribution match programs
are disappearing. And under current laws, funding for Social
Security could run out in
25 years — just as many of us are approaching retirement age.
The fact is: We are more responsible now than at any time in
the last century for funding our financial futures. And yet,
nearly half of Americans say they aren’t contributing to any
retirement plan.
Meanwhile, consumer debt keeps rising — as do the prices
we’re paying for just about everything. Is it any wonder that
so many people are pushing off retirement?
The good news is that, for every retirement pitfall to watch out
for—and we’ve identified 10 big ones — there are ways to
sidestep them to secure enough savings for your future. Here’s

11. how.
Consider inflation
It’s inevitable: the more time passes, the more expensive things
get. So, when planning for the future,
make sure not to overlook inflation and its impact on the value
of your money in the future. For
example: to have what feels like $1 million today in 30 years,
you need to have saved nearly $2.5
million! While that sounds downright depressing — trust me, I
sympathize — the bigger point here is
to make sure you don’t forget that pesky 3% annual cost of
living increase (on average) when you’re
calculating your retirement needs.
While you’re at it, consider how much you’ll really need to live
the kind of retirement you want to live.
Will your future lifestyle require millions? Or could you get by
with less?
Want to hedge against inflation? Owning a home can help. The
S&P/Case-Shiller index of property
values increased 10.9% from March 2012 to March 2013, the
biggest 12-month gain since April 2006.
Talk-show host David Letterman is set to retire next year.
Getty Images for Spike TV
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12. of a New York Fifth Avenue building. They created a
2,300-square-foot, three-bedroom home overlooking
Central Park.
Kid President's tips for a healthy summer
Summer can be as healthy as it can be fun. 11-year-old
Robby Novak, known as Kid President, shares tips for
healthy summer lunches and activities.
You can also consider Treasury Inflation-Protected Securities
(TIPS). They provide for inflation-
adjusted increases in both principal value and interest payments,
are considered to be less volatile
and more protective against credit and interest rate risk than
conventional bonds. TIPS can be a smart
core holding in your portfolio, but should still be combined with
equities for better long-term growth.
Also keep in mind that TIPS, like bonds, can lose value. You
can buy them either directly from the government or through
mutual funds or ETFs (which
are more tax-friendly). And remember that the average returns
on stocks are still better than inflation too. The S&P 500 index
has returned an average
of 10% over its history.
Don’t rely on company or government benefits
Fewer and fewer companies today offer a defined benefit plan,
aka “pension,” that will pay you a certain amount of income
each month after retiring.
According to the Bureau of Labor Statistics, only around 18%
of full-time private industry workers had a defined pension

13. benefit in 2011 — down from
35% in 1990. And, according to a recent report from the
Congressional Budget Office, under present laws, Social
Security will exhaust its trust funds in
2038, and would have to cut benefits by 19% to match payroll-
tax revenues.
How to prepare? Consider:
Opening an IRA. Maxing out your contributions each year is
ideal. But if you can’t do that, put away as much as you can on
a monthly basis, and
see if you can increase the contribution amount every quarter.
Researching annuities. An annuity is a contract between you and
an insurance company that can provide you with a reliable
income stream for a
certain period in exchange for a lump-sum investment or series
of investments.
Save, save, save
I know I may sound like a broken record, but more than half of
all workers and retirees say they have
less than $25,000 in savings, according to a 2011 survey by the
Employee Benefit Research Institute.
And while we all may have a thousand and one excuses for why
we can’t save, the reality is that
saving something, anything, is still better than saving nothing.
Saving money doesn’t have to be hard
if we make it a priority and as automatic as possible. Start with
the smallest amount you can put away
a week, and try to increase it monthly, or quarterly, as you build
a bigger and bigger savings account.
If you need inspiration, try one of our seven savings challenges.

14. Don’t let debt drag you down
What are that cashmere sweater and leather bag really costing
you? Depends on whether you paid
with cash or put it on a credit card. Debt is one of the biggest
threats to our retirement, and it’s
endemic to Americans. The average U.S. household has nearly
$150,000 of mortgage debt, $35,000
of student loan debt and over $15,000 of credit card debt. That
adds up to a whopping $200,000 of
total debt!
How to break the debt cycle and start saving? In addition to
focusing on paying down high-interest debt and building an
emergency fund (with enough
to cover 3 to 6 months of expenses) so you can avoid going into
further debt in the event of unexpected expenses, consider that
choices you’re making
now have a direct impact on your future stability. If you find
yourself with a sudden impulse to splurge, pull back and pause
to think about the larger
picture. If you live below your means now, you won’t have to
do it in the future when you may have fewer options (and less
income).
Consider the cost of child care
Poll any group of working mothers out there and you’ll find one
issue common to all that causes many a late night worry: the
cost of child care. With a
recent report indicating that 40% of mothers are now the
household breadwinner and 63% of women breadwinners are
single mothers, it’s only an issue
that’s going to become more important as time goes by. And
while it may be encouraging to see the rise of women

15. breadwinners in the U.S., the
increase in working mothers has resulted in significantly more
spending on child care, which ain’t cheap.
For example, in 2011, annual fees for infant care in licensed
centers ranged from $4,600 to $15,000 depending on the state
and fees for before and/or
after-school care ranged from $2,000 to $11,000. The cost of
child care can seem like a second mortgage and the emotional
toll (mainly motherly guilt
— I know, I admit it I’ve felt it too) can make it even more
draining.
We need to consider more creative ways to better balance work
and children so that we are not just working to pay for child
care and feeling badly
about it at the same time. Some options:
Nanny shares.
Living close to (or with) family who can — and will — help.
Moving to a state with lower child care costs.
And, of course, make sure you’re sharing child care
responsibilities with your partner as equally as possible.
Don’t buy into market mayhem
As we witnessed in 2008, many investors saw much of their
portfolios all but disappear in a matter of a few bad market
months, scaring them into
pulling out of the stock market in a panic. Unfortunately, that
knee-jerk reaction only made things worse for them. That’s
because the S&P 500 index
rebounded in 2009 and returned over 26%!

16. Maybe you were spooked about investing then and still are —
and that’s understandable. The problem is that letting emotion,
especially fear, dictate
your investment decisions can sabotage your future success.
Investing is always a gamble, but not investing might be even
more risky in terms of not
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being able to otherwise grow your money sufficiently (or
outpace inflation).
The reality is that stock investing is one of the few ways to earn
an average of 10% over the long term, so it’s worth biting the
bullet and riding the
market roller coaster (it’s easier with your eyes shut). Be smart
about it by starting early, diversifying your investment portfolio
using an appropriate
asset allocation strategy, rebalancing periodically, adding
money on a regular basis, keeping your investment costs low,
and staying put for the long run.
Keep an eye on your career
Even with the economy rebounding, the job market can still be
tough to navigate. A 2011 Census Bureau report revealed that
the average U.S. family
became poorer during the decade between 2000 and 2010 — the
first decade-long income decline in at least a half-century.

17. Specifically, median
household income fell 2.3 % to $49,445 in 2010, the lowest
since 1996. Combine those facts with more jobs going the way
of the dodo bird, as they’re
outsourced or replaced by newer jobs requiring new training and
education, and you have a recipe for a labor crisis.
So, now what? The key is to stay relevant and keep learning.
Pursue in-demand careers with good income potential that will
not land you in a deep hole
of student loan debt (article on this exact topic coming soon!).
Also consider rebranding yourself by repackaging your skills to
help you stay competitive
in the marketplace.
Deal with dependency
Welcome to the “Sandwich Generation.” According to the Pew
Research Center, more than one out of every 8 Americans aged
40 to 60 is both caring
for and supporting a child and a parent, hence being sandwiched
between what can sometimes be a very expensive rock and a
hard place. There is
plenty you can do to make sure you don’t become the family
martyr and sacrifice your retirement for the needs of others.
Remember:
Loans exist for college, but not for retirement. Consider only
paying for a portion of your child’s college education, to give
you reserves to stock
away into a retirement fund.
Get Long Term Care Insurance — both for you and your
parents. A policy can help cover or pay for a range of services
including in-home health
care, a nursing home stay, or adult day care. It all depends on

18. the amount of coverage you want and, of course, how much you
can afford.
Assess your parents’ situation with an in-depth talk. While you
may not have been raised to talk about money with your parents,
it’s important to
understand what their assets are now, what their expectations
for their living situations are in the future, and what kind of
medical decisions they
may want you to make for them in the future. It can be
uncomfortable, but the more information you have now, the
more you can prepare when
decisions need to be made later.
Don’t let divorce bring you down
Divorce is never pleasant, but even in situations where
everything is divided 50/50, divorced women often discover that
a seemingly fair settlement is
still far from equitable. This is because women are typically
awarded custody of the children and left to do the lion’s share
of child rearing, even in
shared custody cases.
While caring for children is certainly a privilege, the cost can
be a heavy burden. Lesson: The only person you should depend
on for your financial
security is yourself, even if you are married. Some things to
consider to plan against the possibly detrimental effects of
divorce:
Don’t forget to put yourself first. Even if you have joint
accounts with a partner, make sure you’re maintaining your own
individual accounts,
including an emergency fund.

19. Maintain an individual line of credit. If you don’t already have
one major credit card in your name only, open one so that in the
event of divorce and
the dissolution of joint accounts, you’re still maintaining your
own personal credit history.
Take an inventory of all your assets and debts, including all
“nonmarital” assets that are considered to belong to only one
spouse. This is crucial
information to have on-hand for your lawyer, and for yourself,
so you’ll know where your money is and where it goes.
Jocelyn Black Hodes is DailyWorth’s resident financial adviser.
The story “Nine ways to guarantee your retirement” originally
appeared on DailyWorth.com.
Read these related stories:
Five questions that determine your financial future
Is it too late to start saving?
Act your age: a decade-by-decade guide to saving
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