Bits and Bots

Question 1

Duty to report: how many days to report your bad action to the CFP board?

Answer 1

30

Question 2

What are the fitness standards?

Answer 2

The standards new CFP candidates must pass. Kind of a background check

Question 3

When applying the fitness standards, what can the board do to you?

Answer 3

Permanent Absolute Bar
Ineligible
Require you to file a petition

Question 4

If a CFP applicant must submit a petition, which part of CFP Board reviews your petition?

Answer 4

Disciplinary and Ethics Commission (DEC)

Question 5

If a CFP applicant submits a petition, what are the possible rulings?

Answer 5

DEC can Dismiss (you’re good to get your CFP letters)
Private Censure (you get your letters but it goes on your private record)
Public Censure (you get the letters but your name goes on a press release)
Suspension (90 days - 5 years)
Revocation (permanent bar)

Question 6

HSA non qualifying withdrawal - when and what happens?

Answer 6

Under 65 and not medical? Taxable income + 20% penalty
Over 65 and not medical? Just taxable income and no penalty

Question 7

What can you do with life insurance dividends?

Answer 7

CRAPO
Cash, reduced premium, accumulate, paid up additions, 1 year term policy

Question 8

Non qualified withdrawal from a MEC life insurance policy - treatment of distribution

Answer 8

If under 59.5, pull out LIFO at ordinary income + 10% penalty.

Question 9

Annuity distribution taxation?

Answer 9

• Withdrawal? LIFO
• Annuitized? Tax free portion is the exclusion ratio: Basis/(annual payment X life expectancy)

Question 10

Non-Qualified Annuity distribution penalty?

Answer 10

If under 59.5, 10% penalty unless you’re disabled, dead, substantially equal payments over 5 years until you hit 59.5

Question 11

If you make an insurance claim, how much do they pay out for a partial loss?

Answer 11

If coinsurance is over 80%, then company pays the claim less deductible.
If it’s under 80%:
(did have / should have) x claim
minus deductible

Question 12

Umbrella payout if your homeowners isn’t covered up to the umbrella limit?

Answer 12

You’re out of pocket on what you should have had less what you had.

Question 13

Systemic risk is what?

Answer 13

Risk in the system you can’t diversify from
PRIME
Purchasing power risk, reinvestment risk, interest rate risk, market risk, exchange rate risk

Question 14

Unsystemic risk is what?

Answer 14

Risk you can diversify from: business risk, financial risk, default risk, regulation risk, country risk

Question 15

CAPM and SML vs.
Efficient frontier and CML

Answer 15

Security market line is the CAPM plot. Rf + B(Rm-Rf).
This is different from the efficient frontier where the CML uses std dev as the risk measure

Question 16

Margin call price

Answer 16

(1+i)/(1+m) X purchase price

Question 17

Straddle

Answer 17

Bet on big vol.
Buy a put and call on same stock, expiration date and strike price

Question 18

Collar

Answer 18

hedges your stock and call pays for your put premium
Long stock
Short call
Long put

Question 19

Spread

Answer 19

Bet on low vol
Buy and sell same contract

Question 20

Long Hedge

Answer 20

You’re short the commodity and buy a futures contract

Question 21

Gain / loss on Section 1245 (personalty property)

Answer 21

Sale>Orig BV? Cap gains + OI on dep
Sale < Adj BV? Ord loss
Otherwise: Ord Inc on (Sale - Adj BV)

Question 22

Gain/Loss on Section 1250 (realty property)

Answer 22

Sale>Orig BV? Cap gains + 25% on dep
Sale < Adj BV? Ord loss
Otherwise: Ord Inc on Sale - Adj BV

Question 23

What items are added back to regular taxable income to get to AMT Income?

Answer 23

Tax preference items
Standard deduction
AMT adjustments

Question 24

What’s the NII tax formula?

Answer 24

3.8% X lesser of:
NII or (MAGI - 250)

Question 25

Foreign accounts. What’s the $ in foreign accounts for filing a FBAR?

Answer 25

If you have an interest in or signing authority for $10k+ combined accounts.

Question 26

FATCA accounts. What’s the $ in foreign accounts for filing?

Answer 26

US citizens: $100k on 12/31 for MFJ (half for single). Any other day add 50%.
Non-US citizens: $400k on 12/31 for MFJ

Question 27

Vesting in DC and DB?

Answer 27

DC: 2-6 or 3 year cliff
DB: 3-7 or 5 year cliff
CB: 3 year cliff

Question 28

Simple IRA: penalty for early w/d?

Answer 28

25% if under 59.5 and in 1st 2 years.

Question 29

Simple IRA deferral limits? and ER contribution?

Answer 29

EE: $16k + 3.5k catchup
ER: must match 100% up to 3% or give everyone 2%.

Question 30

Non Qualified Stock Options tax treatment

Answer 30

Ordinary income at exercise (exercise less grant). Company gets tax deduction
Cap gains when sold (FMV less exercise)

Question 31

Incentive Stock Options tax treatment

Answer 31

No tax until sold.
Cap gains if sold 1 year and 2 years
Ord income if not

Question 32

How much of your social security is withheld if still working before FRA?

Answer 32

50% on earnings from 22-59k
33% on earnings from 59k+

Question 33

IRMAA is based on what income?

Answer 33

AGI + tax exempt interest

Question 34

Which titles go to probate

Answer 34

TIC, CP

Question 35

Which titles have 50% included in gross estate and 50% of purchase price is their basis?

Answer 35

All married titles: Tenants In Entirety, Comm Prop, JT-Spouses

Question 36

What’s your basis if gift tax is paid on your gift?

Answer 36

Gift Tax X
App/(MV - $18k)

Question 37

Terminable interest property: marital deduction? Gets out of estate?

Answer 37

No. Yes.

Question 38

Which intra-family transfer techniques use secured property?

Answer 38

Installment Notes and SCINs.
Private annuities do not.

Question 39

Which intra-family transfer techniques have fixed durations?

Answer 39

Installment Notes and SCINs.
Private annuities do not.

Question 40

Which intra-family transfer techniques get the asset out of the seller’s estate?

Answer 40

SCINs do.
For installment notes, PV of unpaid installments are in estate
For private annuities, if payments are over joint lives, PV of payments are in estate

Question 41

Section 1031 Taxation: Amount Realized

Answer 41

FMV property received +/- net boot

Question 42

Section 1031 Taxation: Realized Gain

Answer 42

MV of stuff you got less basis of what you gave up