D. adequately provide for all the retirement income the typical retiree needs to live comfortably.
229. (p. 644) Trends in the number of workers contributing to the Social Security system and the number of
workers drawing benefits from the system suggest that future generations will:
A. have more frequent cost-of-living adjustments.
230. (p. 644) The tax-deferred investment plan that allows employees to save part of their income for retirement is
called a(n):
D. Keogh plan.
231. (p. 644) The earnings on a traditional IRA are:
A. never taxed, in order to encourage people to invest for their retirement.
232. (p. 645) A Roth IRA offers employees an incentive to save for their retirement by:
D. allowing employers to match the employee’s contribution to the IRA.
233. (p. 646) Investments in IRA accounts:
D. are taxed at the lowest individual tax rate regardless of the actual tax bracket of the investor.
234. (p. 646) One benefit of a simple IRA is that it allows:
D. employees to withdraw funds from the IRA prior to retirement without penalty.
235. (p. 646-647) A retirement plan where employers often match part of an employee’s contribution is known as a:
A. simple IRA.
236. (p. 645) The maximum amount that can be invested in a traditional IRA:
A. is fixed at $2,500 per year.
237. (p. 645) Withdrawals from a traditional IRA prior to the age of 59½ are:
A. tax deferred until you reach 65 years of age.
238. (p. 646) The new simple IRA plans allow employees of ________ companies to contribute larger amounts
D. international
239. (p. 647) The tax-sheltered program to encourage self-employed people to accumulate retirement funds is
called a(n):
A. 401(k) plan.
240. (p. 647) The people who assist families in developing a comprehensive program that covers investments,
taxes, insurance, and retirement plans are called:
D. stockbrokers.
241. (p. 648) For someone with a family that includes young children, the first step in estate planning should be
to:
A. establish a will.
242. (p. 648) A _______ is a document that names a guardian for your children, states how you want your assets
distributed, and names an executor to handle your estate when you die.
A. trust arrangement
243. (p. 648) A(n) __________ is the person named in a will to assemble and value the assets of the deceased,
handle tax matters, and distribute the assets.
D. intermediator
244. (p. 644) Which of the following is least likely to result from the problems facing the Social Security system?
A. an increase in the age at which full Social Security benefits are received
245. (p. 644) The earnings of a traditional individual retirement account (IRA) are:
A. taxed at the time they are earned.
246. (p. 645) The biggest advantage of the new Roth IRA is that:
D. withdrawals from the retirement plan are tax-deferred until the individual reaches 59½ years of age.
247. (p. 644) The increase in the number of retirement plans approved by the federal government likely indicates
that:
A. the government budget is approaching a surplus.
D. taxed both at the time the money is earned and at the time the earnings are withdrawn.
249. (p. 647) A Keogh retirement plan would be used by a(n)
D. librarian at a city library.
250. (p. 645) Financial planners encourage individuals to begin contributing funds into an IRA as early as possible.
The major benefit of early and regular contributions is that:
D. the tax rates are likely to be lower in the future, so higher tax savings on contributions will be maximized by
making the contributions now.
251. (p. 648) Jack is thinking about preparing a durable power of attorney. This indicates that he wants to:
A. ensure that a single lawyer will be able to handle all of his legal needs.
252. (p. 646) As an employee of New Hampshire Industries, Kathleen has an opportunity to invest pre-tax income
in an employer-sponsored retirement plan. Her employer will contribute 50 cents for every dollar that Kathleen
contributes to this fund. This is an example of a(n):
D. restricted private investment (RPI) plan.
253. (p. 647) Zach quit his job to open his own Internet consulting business. He now realizes that he no longer has
the benefit of a corporate retirement system. He should consider investing in a(n):
A. simple 401(k) plan.
254. (p. 645) Bob has decided to contribute $2,800 to a Roth IRA. He is currently in the 25% tax bracket. How
will his contribution affect his income tax for the current year?
A. It will reduce the amount of taxes he owes in the current tax year by $700.
255. (p. 645) James is in the 30% tax bracket. What is the after-tax cost of a $3,000 contribution to his traditional
IRA account?
A. $900
256. (p. 645) Hilda has contributed to a Roth IRA for the last several years. She is now in her late sixties and has
just retired. She plans to withdraw $3,000 this year from her Roth IRA. If she is in the 25 percent tax bracket,
how much tax will she have to pay on her withdrawal?
257. (p. 644) Which of the following is an indication that the government has recognized that problems with Social
Security funding make it highly unlikely that future Social Security benefits will be sufficient to provide retirees
with enough income for a comfortable retirement?
A. The government has provided cost-of-living adjustments to Social Security recipients.
258. (p. 648) Shorty is worried that his health may soon deteriorate to the point where he will no longer be able to
take care of his own finances. One way he could ease his mind would be to:
D. invest all of his financial assets into a Keogh plan.
259. What advice might a personal financial advisor offer a recent college graduate desiring to become
financially secure?
260. What are the advantages of investing in a home?
261. Identify and discuss the six steps that individuals can take to gain control of their personal finances.
262. Compare the basic features of the traditional IRA and Roth IRA.
263. How does term insurance differ from whole life insurance? Describe the newer types of life insurance that
have been offered in recent years.
264. Describe the major steps involved in estate planning.
265. (p. 635) One of the first things the financial planner was likely to have them do would be to:
A. open an individual retirement account (IRA).
266. (p. 636) By using the financial planner’s advice, Penny and Ira were able to find ways to cut back on their
spending and began to live more modestly. They began to have a few hundred dollars left over each month after
handling their normal expenses. Which of the following is the first thing they should do with their extra
D. buy bonds in a major corporation
267. (p. 640) As their situation began to improve, the financial adviser began discussing investment strategies with
Penny and Ira. He suggested that they might want to invest in the stock market. He surprised them by saying
that they should try to buy stocks during a major downturn in the market—just when most people were trying to
sell. This statement suggests that the financial adviser agreed with the:
D. random walk theory of investment strategy.
268. (p. 639) Once Ira and Penny achieved a more solid financial foundation, they began to consider the purchase
of a home. From a financial standpoint, a sound strategy for them to consider would be to:
D. make sure that their house payments are less than the rent they were paying on their old apartment.
269. (p. 647) In saving for retirement, Penny could take advantage of the unique tax shelter offered only to
small-business owners in a:
A. 401(k) plan.
AppD Summary