Ch 10 Investment Advisory Clients Part II Flashcards
What business structure does not provide for flow-through tax treatment?
C Corporations
Identify the acronym: UGMA/UTMA
Uniform Gifts to Minors Act / Uniform Transfers to Minors Act (governs custodial / minor’s accounts)
True or False: A gift made to an UGMA/UTMA account is the preferred method of funding a child’s college education.
False. The assets in an UGMA/UTMA account are owned by the child, which may reduce the eligibility for student aid.
True or False: Tax refunds are found on a customer’s cash flow statement.
True. Tax refunds are cash inflows (i.e. money coming into a customer’s account).
To become a limited partner, the _______ ________’s signature is required on the Subscription Agreement.
general partner’s
List some important considerations when determining the suitability of recommendations made to customers.
Investment objectives, financial situation, risk tolerance, tax status
A revocable trust will eliminate __________, but will not reduce _________ tax.
probate, but will not reduce estate tax.
True or False: Employers are required to contribute a specific amount to their employees’ SEP-IRAs.
False
What are the general characteristics of a Joint Tenants in Common (JTIC) account?
It has multiple owners and each has trading rights. If one owner dies, his account value passes to his estate.
List some retirement accounts that have required minimum disributions.
traditional IRAs, 401(k), 457, and 403(b) plans.
In a 529 Plan, what happens if the funds are withdrawn, but not used for qualified education expenses?
The earnings would be subject to ordinary income tax plus a 10% penalty.
The maximum contribution to an IRA is ____% of earned income up to $_______.
100% of earned income up to $6,000.
What happens to a general partnership when a general partner dies?
Typically, general partnerships dissolve upon the death of a general partner.
Give two examples of non-qualified retirement plans.
Payroll deduction plans and deferred compensation plans
True or False: The income of a C Corporation is subject to double taxation.
True. The corporation pays tax on its earnings, with any distributions being taxed to the owners (shareholders).
What would an IAR consider when performing a capital needs assessment for a client?
The client’s future earnings potential, expenses, and life expectancy, but also inflation expectations
List some of the common financial goals.
Income, growth, preservation of capital, liquidity, tax relief, and speculation
In which type of trust could the grantor not also be the trustee?
A testamentary trust, since it is established by the estate of the grantor
True or False: Mortgage payments are found on a customer’s cash flow statement.
True. Mortgage payments are also found on the income statement.
______________ retirement plans need not meet IRS requirements for employee coverage, contribution limits, and vesting.
Non-qualified
If a client is reluctant to disclose information, what must an IAR do?
Use the information given and create a plan based on that information. An IAR may not make assumptions.
An investor buys stock for $100 and receives a $10 dividend. If she sells for $95, what is her capital gain or loss?
Her loss is $5 ($100-$95). The $10 dividend is taxed separately and is not treated as a capital event.
If a person receives a collectible (e.g. jewelry) as a gift, what is the cost basis for tax purposes?
The cost basis is usually the donor’s original cost (purchase price).
What are the differences between a simple and a complex trust?
A simple trust must distribute earnings, but not principal. Complex trusts may retain earnings or distribute principal.
