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NEW QUESTION # 27
Which of the following statements is true when comparing a traditional individual retirement account and a Roth individual retirement account?
Answer: C
Explanation:
A qualified Roth IRA withdrawal is tax-free, while distributions from a traditional IRA are generally taxable as ordinary income. This is the core distinction tested in choice D. Traditional IRA contributions may be deductible depending on income, filing status, and plan participation, but distributions are generally taxed because the account is funded on a pre-tax or tax-deferred basis. Roth IRA contributions are made with after- tax dollars, meaning the investor does not receive a current tax deduction, but qualified distributions of earnings and contributions may be withdrawn tax-free if the requirements are met. Choice A is incorrect because traditional IRAs are subject to required minimum distributions, while Roth IRAs generally are not subject to lifetime RMDs for the original owner. Choice B reverses the tax treatment concept. Choice C is incorrect because beneficiary designation is not limited to a spouse for Roth IRAs. The SIE outline includes retirement accounts, IRA characteristics, required minimum distributions, and contributions under customer account registrations. It also expects candidates to understand tax-advantaged investment vehicles and account structures. Reference: Section 3.2.2 Customer Account Registrations, retirement accounts, required minimum distributions, and contributions.
NEW QUESTION # 28
An investor decides to use a registered representative to make investment decisions for his account, as well as decide when to place any trades. Which of the following types of accounts should the investor open?
Answer: C
NEW QUESTION # 29
Which of the following security types may contain convertible features allowing the holders to exchange the securities for other issues of the company?
Answer: A
Explanation:
Preferred stock may include convertible features that allow holders to exchange the preferred shares for another security of the issuing company-most commonly common stock-at a specified conversion ratio.
That is why choice B is correct. Convertible preferred combines characteristics of equity income (a stated dividend) with the potential upside participation of common stock through the conversion privilege. The conversion feature is set by the issuer and described in the security's terms at issuance.
Choice A is not the best answer because "common stock" itself is not typically described as "convertible" into other company issues; conversion features are commonly attached to preferred stock or bonds (convertible debentures), not standard common shares. Choice C, commercial paper, is a short-term unsecured corporate money market instrument; it is not typically issued with conversion features-its hallmark is short maturity and credit quality, not embedded equity options. Choice D, an ETF, is an investment company product whose shares represent an interest in a portfolio; ETFs are not typically "convertible" into other issues of the company in the way convertible preferred is.
This is a product-knowledge question aimed at understanding embedded features and how issuers structure securities. For SIE purposes, remember: convertibility is most commonly associated with preferred stock and certain corporate bonds, and it provides investors with an option-like feature that can change the security's risk
/return profile (income plus potential appreciation).
NEW QUESTION # 30
Offering 403(b) tax-sheltered annuity accounts to which of the following groups is permissible?
Answer: D
Explanation:
Step by Step Explanation:
* 403(b) Accounts: These tax-advantaged retirement plans are specifically for employees of public schools, tax-exempt organizations, and certain other nonprofit employers, such as hospitals.
* Incorrect Options:
* Volunteer Workers: Ineligible unless they are also employees.
* Small Business Owners and Military Personnel: These groups typically qualify for other retirement plans, not 403(b).
:
IRS Publication 571 (403(b) Plans): IRS 403(b) Guidance.
NEW QUESTION # 31
Which of the following statements is true regarding Treasury securities?
Answer: B
Explanation:
Treasury securities (Treasury bills, notes, and bonds) are obligations of the U.S. government. A key testable feature is their tax treatment: interest earned on Treasuries is subject to federal income tax (though it is generally exempt from state and local income taxes). That makes choice B correct.
Choice A is incorrect because FDIC insurance applies to bank deposit products (e.g., bank CDs, savings accounts) held at insured depository institutions, within insurance limits. Treasury securities are not bank deposits; they are direct government securities, so "FDIC-insured" is not the right concept. Treasuries are considered to have very low credit risk due to U.S. government backing, but that is different from FDIC insurance.
Choice C is incorrect because Treasuries trade in both the primary market (when issued by the Treasury) and the secondary market (after issuance). In fact, Treasuries are among the most actively traded securities in the world, and secondary-market trading is a major source of liquidity and price discovery. Investors can buy newly issued Treasuries at auction (primary) or purchase existing Treasuries from other investors and dealers (secondary).
Choice D is incorrect because securities issued by states and municipalities are municipal securities (muni bonds/notes), not Treasury securities. Treasuries are issued by the U.S. Department of the Treasury, while municipal bonds are issued by states, cities, counties, and other political subdivisions or authorities.
On the SIE, this question targets product knowledge: issuer identity, trading markets, and tax characteristics of government vs. municipal vs. bank products.
NEW QUESTION # 32
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