Retirement Plans — Review for the Series 7 Exam

By Steven M. Rice

The Series 7 exam tests your knowledge of qualified versus non-qualified retirement plans, health savings accounts (HSAs), and so on. Besides being able to distinguish between qualified and non-qualified plans, you should be able to compare traditional IRAs and Roth IRAs.

Practice questions

  1. All of the following are non-qualified retirement plans EXCEPT

    A. deferred compensation plans

    B. payroll deduction plans

    C. 401(k) plan

    D. 457 plan

    Answer: C. 401(k) plan

    Deferred compensation plans, payroll deduction plans, and 457 plans are all non-qualified retirement plans. 401(k)s are qualified salary reduction plans that allow investors to deposit pretax money.

  2. A 55-year-old self-employed massage therapist earns $95,000 per year and has no other retirement plan except a traditional IRA. If she deposits $4,500 into her IRA, which of the following is TRUE?

    A. It is partially tax deductible.

    B. It is not tax deductible.

    C. It is fully tax deductible.

    D. Because she is self-employed, she must open a Keogh.

    Answer: C. It is fully tax deductible.

    Because the therapist has no other retirement plan, the IRA contributions are fully tax deductible. She may deposit up to $5,500 per year and be able to write it off on her taxes. If she had another retirement plan, she could still contribute to the IRA, but the contribution may or may not be tax deductible depending on the amount of earned income.

  3. Which of the following is NOT TRUE relating to Health Savings Accounts?

    A. They may not be opened by someone on Medicare.

    B. They allow pretax contributions.

    C. If withdrawals are not related to qualified medical expenses, there is a 10% tax penalty on the amount withdrawn.

    D. Withdrawals related to qualified medical expenses are tax-free.

    Answer: C. If withdrawals are not related to qualified medical expenses, there is a 10% tax penalty on the amount withdrawn.

    Health Savings Accounts (HSAs) are available for individuals with high-deductible health plans (HDHPs) to save money for medical expenses that insurance doesn’t cover. Money may be contributed on a qualified (pretax) basis. Money may be withdrawn tax-free if withdrawn for qualified medical procedures that insurance doesn’t cover fully. If money is withdrawn for any other reason, there will be a 20 percent tax penalty assessed.