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Series 66 > 66-10 > Flashcards

66-10 Flashcards

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Series 66 flashcards
1
Q

True or False: Only one person must provide information to open a joint account.

A

False

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2
Q

Municipal bond interest is exempt from __________ tax.

A

federal

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3
Q

Who is eligible to contribute to a qualified annuity?

A

Public school employees [403(b)] and certain non-profit organization employees [501(c)3]

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4
Q

What is the penalty for making excess contributions to an IRA?

A

6% of the excess

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5
Q

True or False: Excess contributions made to an IRA will still be deductible and will grow tax-deferred.

A

False

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6
Q

IRA contributions must be made in what form?

A

Cash

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7
Q

What are some of the investments that are not suitable for IRA contributions?

A

Collectibles, insurance, and metals (except U.S. gold and silver coins)

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8
Q

Anyone with __________ income may contribute to an IRA.

A

earned

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9
Q

Rollovers must be completed within ____ days.

A

60

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10
Q

Only one rollover is allowed per rolling ____ months.

A

12

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11
Q

True or False: To avoid a late withdrawal penalty, IRAs have a required minimum distribution (RMD) provision.

A

True

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12
Q

How is a Roth IRA contribution different from a Traditional IRA contribution?

A

The Roth IRA contribution is always made on an after-tax basis.

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13
Q

Early withdrawal without penalty is allowed for what reasons?

A

Death, disability, qualified higher education expenses, or first-time home buyer ($10,000 limit)

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14
Q

ERISA gave the U.S. Government jurisdiction over ___________________ plans.

A

private pension

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15
Q

According to ERISA, are there any standards that must be followed regarding how money is invested?

A

Yes. The plan’s trustee must abide by the Uniform Prudent Investor Act.

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16
Q

Describe the employees who must be eligible to contribute to an ERISA qualified plan.

A

Employees who are 21 years or older with one year of full-time service

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17
Q

What retirement plans are available to the self-employed?

A

Keogh Plans and SEPs

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18
Q

May an employee of a corporation who contributes to a corporate pension plan also contribute to a Keogh plan?

A

Yes, provided the Keogh contribution is solely based upon the employee’s self-employment income.

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19
Q

May an individual with a Keogh Plan also fund an IRA?

A

Yes, but since the Keogh is a qualified plan, the IRA contributions may not be tax-deductible.

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20
Q

_____ Plans are college savings plans with high contribution limits set by the state sponsor.

A

529

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21
Q

Describe the tax treatment of contributions made to a 529 Plan.

A

They are after-tax contributions that may possibly grow tax-free.

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22
Q

A savings plan which funds both elementary and higher education is referred to as the ____________________________.

A

Coverdell

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23
Q

If not needed for a child’s education, may the funds in a 529 Plan be transferred to a relative’s 529 Plan?

A

yes

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24
Q

If an employer makes a Keogh contribution on its own behalf, what must be done for its employees?

A

A contribution at the same percentage must be made for the employee.

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25
Q

Which annuity allows for a pre-tax contribution - Qualified or Non-Qualified?

A

qualified

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26
Q

Which annuity is funded with after-tax dollars - Qualified or Non-Qualified?

A

non-qualified

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27
Q

A limited partnership could be formed by a minimum of how many individuals?

A

two

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28
Q

What document is filed with the state of legal domicile to create a partnership?

A

Certificate of Limited Partnership

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29
Q

What does the Partnership Agreement define?

A

The rights, liabilities, and obligations of each partner

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30
Q

To become a limited partner, the __________________’s signature is required on the Subscription Agreement.

A

general partner’s

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31
Q

____________ Partners are the primary contributors of capital.

A

limited

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32
Q

How is interest on municipal bonds treated for tax purposes?

A

Federally tax-exempt, but may be subject to state and local tax

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33
Q

Income or estate tax is an example of a _______________________ tax.

A

progressive or graduated

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34
Q

How is basis determined for the recipient of gifted securities?

A

Basis will be the donor’s cost or market value, whichever is lower.

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35
Q

When securities are gifted, the recipient’s holding period will be _______________________.

A

same as the donor’s

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36
Q

What business structure provides flow-through tax treatment and has a P&L reported on the owner’s personal tax return?

A

An S Corporation

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37
Q

List some important considerations when determining the suitability of recommendations made to customers.

A

Investment objectives, financial situation, risk tolerance, tax status

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38
Q

List some of the different types of institutional clients.

A

IAs, BDs, investment, insurance, or trust companies, banks, savings and loan associations, and pension plans

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39
Q

If a client wins $1 million, what should an agent or an IAR do?

A

Update the client’s information that is on file

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40
Q

To open any account on behalf of a corporation, what document must agents and IARs examine?

A

Corporate Resolution

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41
Q

True or False: C Corporations are subject to double taxation.

A

True. The corporation pays tax on its earning and any distributions are taxed to the owners (shareholders).

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42
Q

The maximum number of shareholders in an S Corporation is _____.

A

100

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43
Q

What is the primary purpose of forming a family limited partnership (FLP)?

A

To minimize estate tax and gift tax liabilities

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44
Q

What is required to receive the tax benefits of a family limited partnership?

A

A legitimate business purpose is required. (If created solely for tax benefits, the IRS may disallow the benefits.)

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45
Q

The tax treatment of a limited liability company (LLC) is similar to the treatment of what other entity?

A

a Subchapter S Corporation

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46
Q

What are the contents of an estate?

A

The total assets and liabilities of a decedent

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47
Q

What are the different terms used to identify the individual who sets up a trust?

A

Creator, maker, grantor, donor, trustor, settlor

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48
Q

The __________ is the person who has fiduciary control over a trust.

A

trustee

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49
Q

What are the differences between a simple and a complex trust?

A

A simple trust must distribute earnings, but not principal. Complex trusts may retain earnings or distribute principal.

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50
Q

What are the benefits of setting up an irrevocable trust?

A

It will reduce estate taxes and also avoid probate.

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51
Q

What is the benefit of establishing a revocable trust?

A

It avoids probate.

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52
Q

When investing for an estate, the most suitable investments are normally _______-term.

A

short-term

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53
Q

Who establishes a testamentary trust?

A

The estate of the deceased

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54
Q

When is an inter vivos trust established?

A

during the donor’s lifetime

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55
Q

In a trust, all actions of the trustee must be for the benefit of the ______________.

A

beneficiary

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56
Q

To whom will the earnings produced in an irrevocable trust normally be taxed?

A

the trust

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57
Q

The earnings generated in a revocable trust will be taxed to the __________.

A

grantor

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58
Q

In which type of trust could the grantor not also be the trustee?

A

A testamentary trust, since it is established by the estate of the grantor

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59
Q

When selling inherited securities, how is the beneficiary’s cost basis calculated?

A

The cost basis is the asset’s market value at the time of death (a stepped-up basis)

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60
Q

When receiving securities as a gift, how is the recipient’s cost basis calculated?

A

The cost basis is the lower of the donor’s original basis or the market value at the time of the gift.

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61
Q

Will estate tax apply when assets are left to a spouse?

A

Generally there is no estate tax between spouses. However, if the spouse is a non-U.S. person, the exclusion is denied.

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62
Q

A revocable trust will eliminate __________, but will not reduce _________ tax.

A

eliminate probate, but not reduce estate tax

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63
Q

An irrevocable trust will eliminate __________ and will reduce _________ tax liability.

A

eliminate probate and will reduce estate tax liability

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64
Q

A trust is required to be managed for the benefit of the _____________.

A

beneficiary

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65
Q

Name the person who establishes a trust.

A

the grantor or donor

66
Q

Define an estate.

A

The total of all assets and liabilities of a decedent

67
Q

True or False: When conducting a client’s financial analysis, liquid investments would be considered long-term assets.

A

false. they are current assets

68
Q

True or False: When formulating a financial plan, it is always important to consider the client’s liquidity needs.

A

True

69
Q

Identify the acronym: AMT

A

Alternative Minimum Tax

70
Q

Identify the acronym: RMD

A

Required Minimum Distribution

71
Q

Identify the acronym: IRA

A

Individual Retirement Account

72
Q

What is ERISA?

A

Employment Retirement Income Security Act

73
Q

Identify the acronym: ESA

A

Education Savings Account (Coverdell)

74
Q

Identify the acronym: SEP

A

Simplified Employee Pension Plan

75
Q

Identify the acronym: UGMA/UTMA

A

Uniform Gifts to Minors Act / Uniform Transfers to Minors Act (governs custodial / minor’s accounts)

76
Q

Define a sole proprietorship.

A

A business that is owned by one person who is responsible for all management decisions and entitled to all profits

77
Q

For a qualified retirement plan, what document details the plan’s needs, goals, time horizon, and investment philosophy?

A

The investment policy statement

78
Q

______________ retirement plans need not meet IRS requirements for employee coverage, contribution limits, and vesting.

A

non-qualified

79
Q

Name two examples of nonqualified retirement plans.

A

Payroll deduction plans and deferred compensation plans

80
Q

True or False: A beneficiary of a trust account must pay the associated taxes.

A

False. Taxes are paid by the trust

81
Q

List some of the common financial goals.

A

Income, growth, preservation of capital, liquidity, tax relief, and speculation

82
Q

If a client is reluctant to disclose information, what must an IAR do?

A

Take the information given and create a plan based on that information. An IAR may not make assumptions.

83
Q

True or False: Spouses may give an unlimited amount to one another and not be subject to the gift tax.

A

True

84
Q

Regarding clients, list some of the non-financial considerations an IAR must consider?

A

Age, occupation, time horizon, investment experience, and social values

85
Q

Define the investment policy statement.

A

A document that describes a retirement plan’s investment strategy, as well as the specific needs of the plan

86
Q

True or False: Employees are fully vested in their own contributions.

A

True

87
Q

True or False: A defined contribution plan provides employees with a fixed monthly payment at retirement.

A

False

88
Q

Who is eligible for a 457 plan?

A

Employees of state and local governments

89
Q

How often may an individual roll over an IRA?

A

once every 12 months

90
Q

When may an individual withdraw from an IRA without penalty?

A

After he turns 59 1/2

91
Q

S-Corporations are not subject to ________________.

A

double taxation

92
Q

Reinvesting dividends in a mutual fund creates a ________ event.

A

taxable

93
Q

What is the cost basis for a gift of a collectible (e.g., jewelry)?

A

the donor’s cost

94
Q

What is the formula for calculating an individual’s personal net worth?

A

Assets - Liabilities = Net Worth

95
Q

What is the formula for calculating an individual’s personal discretionary income?

A

Income - Expenses = Discretionary Income

96
Q

True or False: S-Corporations may have foreign residents as owners.

A

False

97
Q

What is the difference in owner’s liability when forming an LLC as opposed to a sole proprietorship?

A

The owners of an LLC have limited liability, while the owner of a sole proprietorship has unlimited personal liability.

98
Q

What would be an advantage to choosing corporation formation as opposed to a partnership?

A

Partnerships are dissolved due to the death of one of the partners, while corporations may continue.

99
Q

If someone receives a collectible (e.g. jewelry) as a gift, what is the cost basis for tax purposes?

A

donor’s original cost

100
Q

What are the general characteristics of a Joint Tenants With Right of Survivorship (JTWROS) account?

A

It has multiple owners and each has trading rights. If one owner dies, her account value passes to the other owner(s).

101
Q

What are the general characteristics of a Joint Tenants in Common (JTIC) account?

A

It has multiple owners and each has trading rights. If one owner dies, his account value passes to his estate.

102
Q

What form of business provides owners with limited liability and income that flows through to its investors?

A

LLC

103
Q

What would an IAR consider when performing a capital needs assessment for a client?

A

The client’s future earnings potential, expenses, and life expectancy, but also inflation expectations

104
Q

Retirement goals, future college tuition, and remaining mortgage payments are examples of _______ needs.

A

capital

105
Q

True or False: When managing assets in a trust, the trustee should consider the grantor’s tax status.

A

False

106
Q

Identify the acronym: AGI

A

adjusted gross income

107
Q

What is adjusted gross income (AGI)?

A

An individual’s taxable income (e.g., wages, commissions, tips, dividends, and interest)

108
Q

What happens to a general partnership when a general partner dies?

A

it is dissolved

109
Q

If an IAR’s client has just died without a will, from whom may she accept instructions?

A

intestate Administrator

110
Q

True or False: Employers are required to contribute a specific amount to their employees’ SEP-IRAs.

A

False

111
Q

What factors would determine a person’s tax status?

A

Age, marriage status, state or country of residence, earned income, and unearned income.

112
Q

What is the tax rate called that applies to the last dollar amount a person earns?

A

Marginal Tax Rate

113
Q

The ________ tax rate is used to tax the last dollar amount a person earns.

A

marginal

114
Q

True or False: The amount left on a mortgage is found on a customer’s cash flow statement.

A

False

115
Q

True or False: Mortgage payments are found on a customer’s cash flow statement.

A

True

116
Q

True or False: Tax refunds are found on a customer’s cash flow statement.

A

True

117
Q

When is an individual (single filer) eligible to make tax-deductible contributions to a Traditional IRA?

A

When not covered by an employer-sponsored plan or when covered by a plan and below an adjusted gross income limit.

118
Q

Which plans impose income limitations on the contributors, 529 plans or Coverdell ESAs?

A

Coverdell

119
Q

How are S Corporations treated for tax purposes?

A

S Corporations have the same flow-through treatment as partnerships (i.e., they are not taxable entities).

120
Q

What business structure does not provide for flow-through tax treatment?

A

C Corporations

121
Q

True or False: When investing in a 401(k) plan, all forms of taxes are deferred on the money contributed.

A

False. Although income taxes are deferred, unemployment and Medicare taxes must still be paid in the current year.

122
Q

____% of earned income up to $_______ is the maximum contribution to an IRA.

A

100% up to $5,500

123
Q

If Joe is 55 years old, how much could he contribute to his IRA?

A

For anyone 50 or older, an additional $1,000 is allowed, making the maximum contribution $6,500.

124
Q

A contribution of $_______ can be made to a Spousal IRA for a non-working spouse.

A

$5,500

125
Q

True or False: 529 Plans allow for a 5-year front-end contribution of $70,000, which avoids gift tax.

A

True

126
Q

Grandparents contributing to a grandchild’s 529 Plan may give how much money and still avoid gift tax consequences?

A

Front-loading 5 years of contributions is allowed; therefore, each could contribute $70,000 for a total of $140,000.

127
Q

A gift of securities between spouses will be subject to gift tax when more than what amount?

A

no limit on gift size between spouses

128
Q

Without incurring gift taxes, individuals may give gifts of up to $________ per year to any number of persons.

A

$14,000

129
Q

How much may be contributed to a Simplified Employee Pension (SEP) plan?

A

Employers may contribute 25% of employee income up to $51,000 per year.

130
Q

What is the maximum annual contribution to a 401(k)?

A

$17,500

131
Q

What is the maximum annual contribution to a 403(b)?

A

$17,500

132
Q

What is the maximum annual contribution to a 457?

A

$17,500

133
Q

What are some of the acceptable investments for IRA contributions?

A

Stocks, bonds, mutual funds, and CDs

134
Q

There is a ____% penalty for early withdrawals from an IRA.

A

10%

135
Q

When must IRA withdrawals begin in order to avoid the late withdrawal penalty?

A

By April 1st of the year after an individual turns age 70 1/2

136
Q

How are withdrawals from a Traditional IRA treated for tax purposes?

A

ordinary income

137
Q

How are withdrawals from a Roth IRA treated for tax purposes?

A

tax-free if account is open for at least 5 years and not an early withdrawal

138
Q

Contributions to a Keogh plan are solely based on _________________ income.

A

self-employment

139
Q

How much may be contributed to a Coverdell each year?

A

$2,000

140
Q

In a 529 Plan, what happens if the funds are withdrawn, but not used for qualified education expenses?

A

The earnings would be subject to ordinary income tax plus a 10% penalty.

141
Q

Define vesting.

A

The right an employee gradually acquires by length of service at a company to receive employer-contributed benefits

142
Q

True or False: SEPs require employees to become immediately vested in the full amount contributed.

A

True

143
Q

In a qualified annuity, how is the payout taxed?

A

The entire payout is taxed as ordinary income, since the annuity was funded with pre-tax dollars.

144
Q

What is a Simplified Employee Pension (SEP) Plan?

A

An employer-sponsored IRA for the self-employed and its employees

145
Q

For employers offering SEP plans, where are contributions made on behalf of their employees directed?

A

In the employee’s individual SEP IRA

146
Q

How much may be contributed to a 529 plan and avoid gift tax?

A

$14,000

147
Q

True or False: A gift made to an UGMA/UTMA account is the preferred method of funding a child’s college education.

A

False. The assets in an UGMA/UTMA account are owned by the child, which may reduce the eligibility for student aid.

148
Q

Why is a client’s profession relevant when determining suitability?

A

It may indicate the client’s level of sophistication and the potential need for liquidity

149
Q

If a mutual fund’s dividends are re-invested, what impact will this have on the cost basis of a client’s shares?

A

If re-invested dividends are used to acquire additional shares, the client’s cost basis will increase.

150
Q

What amount may be gifted without being subject to the gift tax?

A

$14,000

151
Q

In calculating an IA’s net worth, what assets are NOT included?

A

Homes, home furnishings, automoblies, goodwill, and pre-paid expenses are not included.

152
Q

Under the provisions of UGMA/UTMA, when does a minor obtain ownership of the assets in the account?

A

A minor is the owner at the time a gift is made, but does not gain control of the assets until he reaches legal age.

153
Q

What is the maximum annual contribution for a Keogh Plan?

A

20% of pre-tax income up to $51,000 each year

154
Q

After 3:25 p.m., what happens if the S&P 500 declines by 20%?

A

market is closed for remainder of day

155
Q

Per IRS Publication 950, the gift tax annual exclusion is $______, but is adjusted by the cost of living (now $______).

A

$10,000/$14,000

156
Q

Due to a significant event, when is an issuer required to file a Form 8-K?

A

within four business days of the event

157
Q

An investor buys stock for $100 and receives a $10 dividend. If she sells for $95, what is her capital gain or loss?

A

Her loss is $5 ($100-$95). The $10 dividend is taxed separately and is not treated as a capital event.

158
Q

If Bruce intends to buy an IPO in his wife’s individual account, what is the regulatory issue?

A

Bruce must obtain signed third party authorization from his wife in order to complete this trade.

159
Q

What form is filed with the IRS when a financial institution acts as a fiduciary (e.g., receiver or conservator)?

A

56-F

160
Q

When selling a primary residence, how much of the gain (if any) is excluded from taxes?

A

$250,000 for single filers or $500,000 for joint filers

161
Q

True or False: Under ERISA, business decisions (e.g., choosing the type of plan) are made by fiduciaries.

A

False. Business decisions are made by settlors and are referred to as settlor functions.

Series 66 (12 decks)

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