Series 7 Retirement Plans Practice Questions

Correct answer: D. pay off a personal credit card balance

The 10% early-withdrawal penalty on pre-59 1/2 IRA distributions has statutory exceptions, including qualified higher-education expenses, a first-time home purchase (up to a $10,000 lifetime cap), total and permanent disability, death, substantially equal periodic payments, certain unreimbursed medical expenses, and health insurance premiums while unemployed. Paying off a personal credit card balance is not one of the listed exceptions, so that distribution remains subject to both ordinary income tax and the 10% penalty.

• AA. Qualified higher education expenses for the owner, spouse, child, or grandchild are a statutory exception under IRC 72(t), so this distribution avoids the 10% additional tax (regular income tax still applies).
• BB. The first-time homebuyer exception under IRC 72(t) allows up to $10,000 over the owner's lifetime to be withdrawn penalty-free for a qualifying home purchase. The $10,000 figure is fixed in the statute, so this is a valid exception.
• CC. Substantially equal periodic payments under IRC 72(t)(2)(A)(iv) are a statutory exception when taken over the owner's life expectancy or the joint life expectancy of the owner and a beneficiary. The payments must continue for at least five years or until age 59½, whichever is later.
• DD. Paying off a personal credit card balance is not listed among the statutory exceptions in IRC 72(t). An early distribution used for this purpose is subject to the 10% additional tax plus ordinary income tax, so it is the item that is NOT an exception.

• Source: Exam outline: FINRA Series 7 Content Outline, accessed October 2026

Correct answer: D. Only the employer contributes to a SEP IRA, and the contribution must be made at a uniform percentage of compensation for all eligible employees, including the owner

A SEP IRA is funded entirely by employer contributions. Employees do not make salary-deferral contributions as they would in a 401(k). The employer must apply the same contribution percentage of compensation to every eligible employee, including the owner, and SEP contribution limits are substantially higher than standard Traditional IRA limits. SEPs are popular precisely because they're simple and available to businesses of any size, including sole proprietors.

• AA. SEP IRAs do not permit employee salary-deferral contributions (outside of legacy SARSEPs); only the employer contributes, unlike a 401(k).
• BB. SEP IRAs are popular specifically with small businesses and the self-employed; there is no minimum employee count like 100 required to establish one.
• CC. SEP IRA contribution limits are actually much higher than Traditional IRA limits, not lower, since they're based on a percentage of compensation up to a high annual dollar cap.
• DD. SEP contributions come only from the employer, and the plan must use a uniform contribution percentage of compensation applied consistently across all eligible employees, including the owner.

• Source: Exam outline: FINRA Series 7 Content Outline, accessed October 2026

Correct answer: B. The distribution is subject to ordinary income tax but not the 10% early withdrawal penalty, since 457(b) plans are not subject to that penalty

Governmental 457(b) plans are not subject to the 10% early-withdrawal penalty tax that applies to qualified plans and IRAs, regardless of the participant's age at distribution; the distribution is still taxed as ordinary income when received. The option that adds the 10% penalty simply imports qualified-plan rules where they do not apply. The option calling the distribution tax-free up to her own contributions is wrong because 457(b) deferrals are typically made pre-tax, so the distribution is taxable. The option adding a 20% penalty because the plan is nonqualified deferred compensation is also wrong: that penalty applies to arrangements that fail the Section 409A rules, and an eligible governmental 457(b) plan is not subject to it.

• AA. This applies the early-withdrawal rule that governs 401(k) and 403(b) plans. Governmental 457(b) distributions are not subject to the 10% additional tax based on age, so being under 59 1/2 does not trigger it. The exception is amounts rolled into the plan from other plans or IRAs.
• BB. 457(b) distributions are taxed as ordinary income, but a key distinguishing feature of these plans is that the 10% early withdrawal penalty simply does not apply, unlike 401(k)s and 403(b)s.
• CC. Traditional governmental 457(b) deferrals are made pre-tax, so there is no after-tax basis to recover and the distribution is taxed as ordinary income. Only a designated Roth account would change this, and the scenario does not describe one.
• DD. No additional 20% penalty tax applies to 457(b) distributions. The 20% figure is mandatory federal income tax withholding on eligible rollover distributions paid to the participant. It is a prepayment credited against her income tax, not an extra tax.

• Source: Exam outline: FINRA Series 7 Content Outline, accessed October 2026

Correct answer: B. May contribute to their own IRA, based on the working spouse's compensation, up to the annual contribution limit, as long as they file a joint return

The spousal IRA rule allows a non-working (or low-earning) spouse to make IRA contributions in their own name, using the working spouse's compensation to satisfy the earned-income requirement, provided the couple files a joint tax return. Each spouse has their own separate IRA. The accounts are never combined. And both may contribute up to the full individual annual limit, subject to the couple's combined compensation covering both.

• AA. A non-working spouse can still contribute to their own IRA using the working spouse's compensation under the spousal IRA rules. Lack of personal earned income doesn't bar contributions here.
• BB. Correct. Under spousal IRA rules, a non-working spouse may contribute to their own IRA up to the annual limit based on the working spouse's compensation, provided the couple files a joint return.
• CC. There is no rule limiting the non-working spouse to half of the other spouse's contribution. Each spouse can contribute up to the full individual limit, subject to combined compensation.
• DD. IRAs are individually owned; spousal contributions go into a separate IRA titled in the non-working spouse's own name, not a joint account.

• Source: 26 U.S.C. § 219, accessed October 2026

Correct answer: B. A direct (trustee-to-trustee) rollover, where funds move directly from one plan/custodian to another without passing through the participant's hands

A direct, trustee-to-trustee rollover moves funds from one custodian to another without the participant ever taking constructive receipt of the money, which eliminates both the mandatory 20% withholding that applies to employer-plan distributions paid to the participant and the risk of failing to complete the rollover within 60 days.

• AA. An indirect rollover with the check payable to the owner is exactly the scenario subject to mandatory 20% withholding and the 60-day deadline risk.
• BB. A direct, trustee-to-trustee rollover moves funds without the participant ever taking possession, which avoids both the 20% mandatory withholding and any risk of missing the 60-day deadline.
• CC. Wrong. An IRA-to-IRA rollover that passes through the owner's hands still carries the 60-day deadline risk. A missed deadline makes the amount taxable and possibly penalized. It also is not the employer-plan transfer that triggers mandatory 20% withholding, so it does not meet both conditions in the stem.
• DD. Wrong. Here the participant receives the distribution, so the plan must withhold 20%. The participant must also finish the rollover within 60 days, and any amount not redeposited is taxable. This approach has both the withholding and the deadline problems, so it avoids neither.

• Source: 26 U.S.C. § 3405, accessed October 2026

Correct answer: C. 73

SECURE 2.0 raised the RMD beginning age to 73 for individuals born between 1951 and 1959, with a further increase to age 75 for those born in 1960 or later. The old 70½ rule applied only to those who turned 70½ before 2020 and was replaced first by age 72, then further raised to 73.

• AA. Age 70½ was the RMD age before the original SECURE Act raised it; it no longer applies to this birth cohort.
• BB. Age 72 applied under the original SECURE Act to certain birth years, but SECURE 2.0 raised the RMD age further for those born in 1951-1959, superseding age 72 for someone born in 1957.
• CC. Under SECURE 2.0, individuals born between 1951 and 1959 must begin RMDs by April 1 following the year they turn 73, which applies to someone born in 1957.
• DD. Age 75 applies under SECURE 2.0 to individuals born in 1960 or later, not to someone born in 1957, who falls under the age-73 rule.

• Source: 26 U.S.C. § 401, accessed October 2026

Correct answer: D. Ordinary income tax may apply and an additional early-distribution tax may be imposed

Traditional IRA withdrawals are taxed as ordinary income, and a distribution before age 59½ without a qualifying exception also carries an additional 10% early-distribution tax. Buying a car is not an exception.

• AA. A five-year rule relates to qualified Roth distributions; a traditional IRA withdrawal remains taxable.
• BB. Statutory exceptions include items such as disability, first-home purchase up to a limit, and qualified education; a car purchase is not one.
• CC. The payment method has no effect on the tax treatment of a distribution.
• DD. The distribution is ordinary income and, absent an exception, is also subject to the additional early-distribution tax.

• Source: 26 U.S.C. § 408, accessed October 2026

Correct answer: A. Contributions can be made regardless of the owner's age, provided the owner has earned income for the year

The SECURE Act of 2019 eliminated the age cap on traditional IRA contributions effective for tax years beginning in 2020; an individual may contribute at any age as long as they have earned income at least equal to the contribution amount. Choice B describes the old, repealed rule. Choice C confuses IRA contribution eligibility with the early-withdrawal penalty age. Choice D describes an unrelated eligibility concept, not a traditional IRA contribution requirement.

• AA. Correct. Current law removed the age cap on Traditional IRA contributions entirely. The only requirement is that the individual have earned income for the year (or a working spouse with earned income).
• BB. The age 70½ contribution cutoff was eliminated by the SECURE Act; there is no longer any upper age limit on making contributions as long as the owner has earned income.
• CC. There is no upper age restriction tied to 59½. That age is relevant to penalty-free withdrawals, not to contribution eligibility.
• DD. Coverage by an employer plan, matching or not, affects whether the contribution is tax-deductible, not whether a contribution can be made in the first place.

• Source: 26 U.S.C. § 219, accessed October 2026