AD BANKER SIE CHAPTER 7

A registered representative is working with a client, aged 70, who wishes to take a withdrawal from an IRA account. Which of the following statements is true?
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A registered representative is working with a client, aged 70, who wishes to take a withdrawal from an IRA account. Which of the following statements is true?
The amount withdrawn may be subject to ordinary income tax

This client is over the age 59 ½, so there is no 10% penalty. Distributions from IRAs may be subject to ordinary income tax.
Contributions to a 403(b) plan may be made by which method?
By salary reduction agreement

403(b) is a pretax salary reduction plan. Contributions must be made by payroll deduction. The other choices are distractors.
In most states, which of the following statements is false regarding UTMA accounts?
All option transactions are specifically prohibited

In an UTMA account, a custodian is appointed to handle the investment affairs for the account. As fiduciaries, custodians are required to protect the interests of the child. Most states operate under the Uniform Prudent Investors Act (UPIA) that establishes standards for fiduciaries. Under this Act, the portfolio must be invested in a prudent and diversified manner. The account is looked at as a whole account, as opposed to scrutinizing the individual investments. Under UGMA and UTMA rules, trading on margin (with borrowed funds) is prohibited since it would put the child in debt. Certain option transactions, such as protective puts or covered call writing, are used to reduce risk within a portfolio and could be considered prudent investment choices.
A client is considering saving money for their child's education. The client wants the money to grow on a tax-deferred basis but wants to retain the ability to use the investment for both private high school and college expenses. Which of the following options would be the best vehicle for this investor?
Coverdell savings account

Coverdell savings accounts are an often overlooked education savings program. The key benefit of a Coverdell is that the money inside of the account can be used for paying the costs of private elementary and high school tuition. Money that is contributed to a Coverdell is not tax deductible. However, the growth in the account is tax deferred. Assuming that the money is used for qualified educational expenses, the withdrawals from the account will be tax-free. Up to $10,000 per year of 529 plan assets may be used for K-12 tuition due to 2018 tax law changes, but that is not 1 of the choices.
What type of order is directed by the customer and the RR must place the trade, even if it may be unsuitable?
Unsolicited

A solicited order is based on a recommendation by the representative. Solicited orders must comply with suitability requirements. An unsolicited order is directed by the customer. The RR must place the unsolicited trade, even if unsuitable. Trades must be marked as solicited or unsolicited. A discretionary order is an order in which the registered rep determines the name of the security, size of the order, and/or action to be taken (buy or sell). The customer must authorize this type of order by granting power of attorney to the RR. Otherwise, the order must be non-discretionary, even if the RR determines time/price.
Which of the following is needed to open a cash account for a corporation?
A corporate resolution

A corporate resolution is always required to open a corporate account. A corporate charter is required for margin and option accounts but not required for cash accounts.
A married couple wanted to open a joint account at a neighboring broker-dealer firm. One of the spouses could not attend the meeting since they were out of the country on business. Which of the following statements concerning who must sign the new account form is correct?
A principal must sign the form

According to FINRA rules, the only signature required on a new account application is that of the approving principal. Industry rules do not require the customer's signature, nor the signature of the registered representative on the new account application.
Which of the following statements is true regarding an account with a limited non-durable power of attorney trading authorization?
The third party can enter orders in the account

A limited power of attorney allows the third party to place trades, but not remove any assets from the account. A non-durable power of attorney ceases if the client is declared mentally incompetent.
Which of the following may not be purchased on margin?
Registered mutual fund shares

Since mutual fund shares are a continuous new issue, they may not be purchased on margin. Nasdaq securities and NYSE securities are marginable securities. ETFs are exchange traded and may be purchased on margin.
Trades occur at 39.50, 39, 38.75, 37.50, 37, and 36.75, consecutively. If an order was placed to sell at 37 stop limit, which of the following statements is correct?
The order is triggered at 37 but not executed

The order is a stop limit order. It is triggered at or below the stop price. However, when the order is triggered, it becomes a limit order. No limit price different from the stop price is specified, so the limit price is also 37. There were no trades at 37 or better (which is "or higher" for a sale). So, there was no execution.
Contributions that exceed the allowable amount into qualified retirement plans:Are subject to a 6% excess contribution penalty tax until the excess is withdrawn Qualified plans are subject to annual contribution limits that are adjusted for inflation. Contributions that exceed the required limit are subject to an annual 6% excess contribution penalty tax until the excess is withdrawn.Which of the following statements is false regarding a sole proprietorship?The owner of the business has limited liability A sole proprietorship is a business owned by 1 person. While the owner has complete control over the business, they also have personal legal liability since the business and the owner are the same. All profits and losses of the operation are filed on the owner's personal tax return. A sole proprietorship has a limited life, as it is based on the life of the owner.A married couple has a joint account where either party can make investment decisions. If 1 of them dies, the account reverts to the other party. What kind of arrangement is this?Joint tenants with rights of survivorship In joint tenants with rights of survivorship, both parties can direct the monies in the account. In addition, if 1 of the owners dies, the account will be reregistered to the surviving owner without having to go through the decedent's estate. In a tenants in common arrangement, the decedent's portion of the account goes to their estate, not to the other owner of the account. Transfer on death (TOD) is a designation found on certain individual accounts.What does Regulation T of the Securities Exchange Act of 1934 have to do with margin accounts?It designated the Federal Reserve Board to regulate the extension of credit for broker-dealer customers Under a portion of Regulation T of the Securities Exchange Act of 1934, the Federal Reserve Board has the right to regulate the extension of credit for customers wishing to borrow money or securities from the broker-dealer. A margin account is a brokerage account in which the broker-dealer lends the customer money to buy securities for their account (long margin transaction) or lends the customer's securities to sell in the market (short margin transaction).What is a margin account?An account where a customer may borrow money or securities from a broker-dealer Margin accounts involve the extension of credit to the customer by the broker-dealer. In a margin account, a customer may borrow money or securities from a broker-dealer. This is different than a cash account, which requires the customer to pay for all trades with cash.