Q

Attached are 10 questions that need to be answeredfrom the information form the Case Study.Please DO NOT use the sameanswers that have been answered on this site already, because they are wrong!I need a fresh pair of eyes on these questions to have then answered correctly.

If you have any questions, please contact me as soon as possible.

Download Attachments:

Question 1. 1. Which of the following retirement plan alternatives would allow Tom the greatest deductible contribution while providing him with only a small cash flow commitment each year based on 2014 plan contribution limits? (Points : 5) SEP plan Defined benefit plan Section 401(k) plan Profit-sharing plan Question 2. 2. Tom is interested in adopting a retirement plan for his business. His primary goals are to contribute the maximum amount allowable to his tax-deferred savings and to minimize the expense and paperwork associated with the plan. Which of the following retirement plans would you recommend for Tom's business? (Points : 5) SIMPLE IRA Defined benefit plan Simplified employee pension (SEP) plan Profit-sharing plan Question 3. 3. Martha has been impressed with the appreciation of the coin collection she received as a gift from her mother and would like to take advantage of this by using coins as an investment in the IRAs. Which of the following statements regarding coins as investments in IRAs is CORRECT? (Points : 5) American Eagle gold coins are permitted IRA assets. No more than 25% of Martha's IRA assets may be invested in coins. Martha should approach her coin dealer and ask that a collection similar to the collection her mother gave her be created as an investment for the IRAs. Any government-issued gold coins, such as Krugerrands and American Eagles, are appropriate for IRA investment. Question 4. 4. Assume the Holts made a $13,000 contribution ($6,500 each) to their traditional IRA accounts for 2014. What is the maximum amount of their deductible IRA contributions for 2014? (Points : 5) $5,500 $6,500 $11,000 $13,000 Question 5. 5. Which of the following (is)are characteristics of Martha's TSA Section 403(b) plan? I. Martha's maximum contribution is $17,500 for 2014. II. 10-year forward averaging is available for lump-sum distributions. III. Rollovers to IRAs are permitted. (Points : 5) I and II I and III II and III III only Question 6. 6. As a beneficiary, who is the primary user of the stretch IRA rules? (Points : 5) Adult child Surviving spouse Decedent's estate Qualified charity Question 7. 7. Tom has decided to open a 2nd coat store in a nearby suburb. He has decided to offer a Section 401(k) profit-sharing plan to employees at the original store, but not at the 2nd store. The purpose of the retirement plan is to fund Tom's retirement, not to retain employees. Which of the following statements is(are) CORRECT? I. This is allowed under the permitted disparity rules. II. This is not allowed because the 2 stores are affiliated through common ownership. III. This is allowed because it is a personal retirement savings vehicle. IV. Tom is required to offer the plan to all employees who meet the eligibility rules for the qualified plan. (Points : 5) I only I and III II only II and IV Question 8. 8. Given Uncle Stirling's failing health, Martha has been thinking about the decisions she will need to make as the sole beneficiary of Stirling's $1 million IRA. She is a little overwhelmed at the amount and wants to ensure she ultimately uses these funds wisely for her and Tom's retirement. Which of the following will be an option for Martha upon Stirling's death? (Points : 5) She can elect 10-year forward averaging because Uncle Stirling was eligible to use it. She can use a direct trustee-to-trustee transfer into an IRA and defer any minimum distributions until she is age 70. She can use a direct trustee-to-trustee transfer into an IRA but may not begin taking distributions without a penalty until she is age 59. She can use a direct trustee-to-trustee transfer into an inherited IRA but must begin to take distributions over her remaining life expectancy. Question 9. 9. Tom's ex-wife, Dorinda, finds she doesn't really need the money she gets from Tom as part of the divorce agreement. She wants to save the alimony for her retirement years. What is the amount that Dorinda can contribute to a traditional IRA? (Points : 5) $0 $2,400 $3,600 $5,500 Question 10. 10. What is the minimum number of employees that a defined benefit plan must cover to conform to IRS regulations? (Points : 5) 50 employees The lesser of 50 employees or 40% of all eligible employees The lesser of 40 employees or 50% of all employees The lesser of 50 employees or 50% of all employees Case Study CFP_105_InstructorGuide.indb 1 11/26/2013 9:30:36 AM Tom and Martha Holt Case Study Tom and Martha Holt have come to you, a financial planner, for help in developing a plan to accomplish their financial goals. Assume today is December 31, 2014, and you have gathered the following information. Personal Background and Information Tom Holt (Age 56) Tom owns his own business, a coat store, with Schedule C net income of $50,000 in the current year. Tom has no employees except for his son, Justin, who works part time. Tom has been exploring opportunities to expand his business, possibly even opening an additional store in another town. Martha Holt (Age 51) Martha is a professor of psychology at State University where she has been employed full time for 17 years. Her W-2 income of $65,000, for 9 months of teaching, is paid ratably over 12 months at $5,416.67 per month. The Holts Tom and Martha have been married for seven years. Both are in excellent health. Stanley Holt Stanley Holt is Tom's widowed father. He is independent and very active at age 77. He lives next door to the condo the Holts own about five miles from their home. Stanley receives pension plan benefits, IRA required distributions, and Social Security income. Debra and Richard Bennett Debra and Richard Bennett are Martha's parents, and she is their only child. Debra attained age 70 on June 30, 2014, and Richard turned 71 on November 30, 2014. They live in another state near Debra's brother, Stirling Morgan. The Bennetts are moderately wealthy and enjoy traveling and spoiling their four grandchildren. Stirling Morgan Stirling is age 80 and is in poor health. He does not have children and has designated Martha as his only heir. Most of Stirling's estate is comprised of an IRA with a current account balance in excess of $1 million. Stirling withdraws only the RMD each year. 1 CFP_105_InstructorGuide.indb 1 11/26/2013 9:30:36 AM 2 Case Study Quiz The Children Tom and Martha have two children (twins), Tom Jr. and Mary (age five). Tom has two children, Justin (age 17) and Riley (age 12) from a previous marriage. Justin works part time in the coat store (less than 20 hours per week). Personal and Financial Objectives 1. Retire when Tom is 62 and Martha is 57. 2. Increase their tax-advantaged savings. 3. Be debt free of all mortgages at retirement. 4. Minimize estate taxes and avoid probate. 5. Transfer the coat business to Justin at Tom's death or retirement. Economic Information They expect inflation to average 4% over the long term. The market has a historical return of 12% and a standard deviation of 14%, both of which are expected to continue into the future. T-bills are currently yielding 3%, whereas T-bonds are yielding 5%. Insurance Information Life Insurance CFP_105_InstructorGuide.indb 2 Characteristics Policy #1 Policy #2 Person insured Tom Martha Face amount $200,000 $200,000 Cash value $0 $0 Type of policy Term Group term Annual premium $1,600 Partially employer paid Martha pays $20 per month Beneficiary Martha Debra (Martha's mother) Contingent beneficiary None None Policyowner Tom Martha Settlement option Life Annuity None chosen 11/26/2013 9:30:37 AM Case Study 3 Health Insurance State University Plan Persons Covered Family Type of policy Major medical Coverage 80/20, $2,500 stop loss Deductible $500 family deductible Premiums Employer paid Automobile Insurance Personal Auto Policy Liability $100,000/$300,000/$50,000 Medical payments $10,000/person/accident Uninsured motorist $50,000/accident Collision deductible $500 Comprehensive deductible $500 Annual premium for two cars $1,000 Homeowners Insurance Residence HO-3 Policy Dwelling $196,000 Personal property $98,000 Personal liability $100,000/occurrence Medical payments $5,000/person/occurrence Deductible $250 Premium (annual) $1,000 Other 80% coinsurance requirement HO-6 Condominium Form CFP_105_InstructorGuide.indb 3 Personal liability $300,000 Medical payments $2,000/person/occurrence Deductible $500 Premium (annual) $850 Other $15,000 covers renters with a rider 11/26/2013 9:30:37 AM 4 Case Study Quiz Disability Insurance Long-Term Disability Policy Insured Martha Definition of disability Own occupation Premium Employer pays 60%; Martha pays 40%; total of $600/year Elimination period 90 days Benefit 60% of gross pay (currently $3,250 per month) to age 65 Section 79 Costs for Group Term Insurance (Cost per $1,000 of protection for one month) Age, Years Cost 45-49 $0.15 50-54 $0.23 55-59 $0.43 Income Tax Information The Holts file as married filing jointly. They are in the 25% federal bracket. There is no state income tax. Justin and Riley are claimed as dependents by Tom's former wife, Dorinda. Retirement Information Savings The Holts are currently saving $15,700 annually, consisting of $10,000 of IRA contributions, $3,750 in reinvested dividends, and $1,950 in Martha's retirement plan. Titling of Retirement Accounts Beneficiary Designation Tom's IRA Martha Martha's IRA Tom Martha's DC retirement plan Tom Social Security Benefits Tom's Social Security benefits at full retirement age are estimated to be $18,000 per year (in today's dollars). Martha expects to receive a benefit of about $22,800 (also in today's dollars) based on her personal work history. CFP_105_InstructorGuide.indb 4 11/26/2013 9:30:37 AM Case Study 5 Retirement Plan State University has a mandatory defined contribution plan that contributes 7% of Martha's salary. Martha elects to contribute 3% after tax. Tax-Sheltered Annuity (TSA) Section 403(b) Plan The university has a TSA plan for Martha. Martha currently does not participate in the Section 403(b) plan. The plan contains a loan provision. CFP_105_InstructorGuide.indb 5 11/26/2013 9:30:37 AM 6 Case Study Quiz STATEMENT OF CASH FLOWS Tom and Martha Holt January 1, 2014-December 31, 2014 INFLOWS Tom's Schedule C net income Martha's faculty salary Dividend income from equity portfolio Condo rental income (net of management fees) Interest income from bonds Total Inflows OUTFLOWS Savings and investments Fixed Outflows Alimony and child support payments to Dorinda Mortgageprincipal residence (P&I) Taxesprincipal residence Insuranceprincipal residence Mortgage condorental (P&I) Condo operating costs Taxescondo Condo association dues Condo insurance premium Auto note payment Auto insurance premium Life insurance premium (policy 1 and 2) Disability insurance premium Total fixed outflows Variable outflows Taxes Food (including dining out) Transportation Clothing/personal care Entertainment/vacations Medical/dental Utilities and household expenses Church donations Miscellaneous $50,000 65,000 4,750 12,000 5,000 $136,750 $15,700 $ 6,000 19,498 1,800 1,000 14,591 1,200 800 3,600 850 5,928 1,000 1,840 240 $58,347 $25,038 4,800 2,600 2,800 4,000 2,000 2,000 520 68 $43,826 Total variable outflows Total outflows Net cash flow CFP_105_InstructorGuide.indb 6 $117,873 $ 18,877 Tax Detail: Deductible self-employment tax is $3,533 for 2014. 11/26/2013 9:30:37 AM Case Study 7 STATEMENT OF FINANCIAL POSITION Tom and Martha Holt As of December 31, 2014 ASSETS1 LIABILITIES AND NET WORTH Cash and cash equivalents JTWROS Cash and checking JTWROS Money market Liabilities4 $ Total Cash and Equivalents $ 15,000 Automobile notes payable $ 20,000 Mortgage condo 35,000 Mortgage personal residence 14,750 99,330 2 3 Total Liabilities 153,115 $ 267,195 Invested Assets Tom Proprietorship $ 400,000 Tom IRATom Martha IRAMartha Tom Equity stock portfolio Martha Bond portfolio JTWROS Condo rental real estate Martha Retirement plan 40,000 50,000 135,000 40,000 2 160,000 80,000 Total Invested Assets $ 905,000 Net worth $1,057,805 Total liabilities and net worth $1,325,000 Use Assets JTWROS Residence3Dwelling JTWROS Residence3Land 20,000 Martha Coin collection 25,000 Tom Automobiles 20,000 JTWROS Personal property 60,000 Total Use Assets Total Assets $ 260,000 $ 385,000 $1,325,000 Notes to financial statements: 1 \u0007Assets are stated at fair market value. 2 \u0007Condo refinanced in 2011 at 10.5% for 15 years. The first payment was due January 15, 2012. 3 \u0007Personal residence financed December 1, 2012, for $165,000 at 8.5% fixed for 15 years. 4 \u0007Liabilities are stated at principal only. Client name = separate property JTWROS = joint tenancy with rights of survivorship CFP_105_InstructorGuide.indb 7 11/26/2013 9:30:37 AM 8 Case Study Quiz Information Regarding Assets and Liabilities Proprietorship The business was purchased by Tom 10 years ago for $100,000. There have been no additional capital contributions. Equity Portfolio Mutual Fund Shares FMV Basis Beta Standard Deviation A 1,000 $25,000 $10,000 1.3 25% B 2,000 $40,000 $40,000 1.0 15% C 6,000 $60,000 $45,000 0.9 20% D 200 $10,000 $15,000 1.2 18% Notes to Equity Portfolio: The portfolio of mutual funds has a correlation of 0.50 with the market. \u0007The portfolio has had a historical return of 14% with a volatility of approximately 18% as measured by standard deviation. Bond Portfolio The bond portfolio was a gift to Martha from her Uncle Stirling five years ago. The value of the portfolio at the time of the gift was $28,000. Stirling paid gift tax of $10,000 on the gift. The bonds currently earn 7.5% annually. Stirling had originally paid $33,000 for the bonds. Rental Property (Condo) This condo was purchased in January 1981 for $110,000 by Tom as separately owned property. Tom retitled the property as joint tenants with rights of survivorship with Martha after their marriage. The depreciation method used was accelerated cost recovery system, 15 years. The current adjusted taxable basis of the condo is $0 plus the land cost of $10,000. The property is exclusively rental property. Coin Collection The coin collection was acquired from Debra Bennett, Martha's mother, as a gift. At the time of the gift, Debra's basis was $5,000, whereas the fair market value of the collection was $30,000. Debra paid gift tax of $5,000 on the gift. The annual exclusion was unavailable for this gift. Divorce Decree Tom was divorced from Dorinda, age 45, seven years ago after 13 years of marriage and he remarried the same year. Under the divorce decree, Tom is required to make payments to his former spouse (Dorinda) of $500 per month for child support and alimony until Riley attains age 18. The alimony amount is $300 per month and the child support amount is $200 per month. Because Dorinda receives a substantial distribution annually from a trust set up by her grandparents, she does not work outside of the home. Instead, she devotes her time to raising the children. CFP_105_InstructorGuide.indb 8 11/26/2013 9:30:37 AM