Crunch Time : Chapter 10 Flashcards
What does the ‘reasonableness’ standard under FINRA’s suitability guidelines require?
A recommendation must be suitable for at least some investors.
What must new customers of a broker-dealer provide according to the Customer Identification Program (CIP)?
A physical (street) address.
What does Section 404(c) of ERISA require regarding investment options?
At least three core investment options must be offered.
Is it required for employers to offer their own stock as an investment option in retirement accounts under Section 404(c) of ERISA?
No, it is not required.
What are the elements of a trust?
- Settlor’s intention
- Subject matter
- Trustee as fiduciary
- Beneficiary
How is the trust of a decedent distributed if each branch of the family is to receive an equal share?
By branch.
How is the trust of a decedent distributed if each beneficiary receives an equal percentage?
Per capita.
In a Per Capita Trust, how do beneficiaries receive their share?
An equal percentage of the trust.
In a Branching Trust, how do beneficiaries receive their share?
An equal share.
How is income from a revocable trust taxed?
At the grantor’s tax rate.
How is income from an irrevocable trust taxed?
At the trust’s tax rate.
Do both revocable and irrevocable trusts avoid probate?
Yes.
What do Health Savings Accounts (HSAs) provide for qualified medical expenses?
Tax-free withdrawals.
What is the minimum work history required to collect full Social Security benefits?
40 calendar quarters.
What is the full retirement age for Social Security dependent on?
The year of the person’s birth.
If a person has reached full retirement age and continues to work while collecting Social Security benefits, what happens to their benefit amount?
It will not be reduced by their earnings.
If a person has NOT reached full retirement age and continues to work while collecting benefits, how is their benefit affected?
$1.00 is deducted for every $2.00 of earnings above an earnings limit.
What percentage of an ex-spouse’s full retirement amount can a divorced individual receive if the marriage lasted 10 years or longer?
50%.
Will spousal collection of Social Security benefits continue if the main spouse remarries?
Yes.
Will the benefits collection cease if the collecting spouse remarries?
Yes.
What is the gift tax threshold per person, per year (currently adjusted for inflation)?
$10,000 (maximum is $19,000).
How do gifts given over a person’s lifetime affect the value of their estate for estate tax purposes?
They reduce the value.
What happens to the cost basis of community property assets if one spouse dies?
It steps up to the market value at the time of death.
What is the purpose of a Transfer on Death (TOD) account designation?
To avoid probate.
What types of investments are qualified for an IRA?
- Fixed or variable annuities
- REITs
- Common stocks
- Corporate or government debt
- U.S. gold minted coins
- Real estate
What must be considered when evaluating IRA holdings that include municipal securities?
Immediate suitability consideration.
What is the first step for an IAR upon the death of an advisory client?
Identify the beneficiaries.
Does a joint tenants in common (JTIC) account ease the probate process?
No.
What type of interest does JTIC ownership give each owner?
An undivided interest in property.
How are 100% of withdrawals from a qualified retirement plan taxed?
As ordinary income.
What is a Qualified Domestic Relations Order (QDRO) used for?
To divide a person’s retirement account during a divorce.
Are spouses benefitting from a QDRO subject to early withdrawal penalties?
No.
In a non-qualified retirement plan, what is taxed as ordinary income at the time of withdrawal?
Only the earnings.
What is the tax exclusion amount on gains from the sale of a primary residence?
$250,000 for single filers; $500,000 for joint filers.
What are the characteristics of a SIMPLE 401(k)?
- For businesses with no more than 100 employees
- Employer cannot offer any other retirement plan
- Not subject to non-discrimination rules
What incentive might a company offer to retain employees?
A deferred compensation plan.
Who provides the ultimate credit in deferred compensation plans?
Employers.
How much can two individuals from the same household contribute to their IRAs together?
$14,000 total ($7,000 each).
What may create a deductible loss in a Roth IRA?
Closing all Roth accounts and receiving less than the investment, minus distributions.
Can an individual purchase real estate in an IRA?
Yes, as long as it is not the primary residence, vacation home, or business location.
Why is owning municipal bonds in an IRA often considered unsuitable?
IRAs offer tax advantages better held in a taxable account.
Are beneficiaries taxed on income distributed by a trust?
Yes, but not on the principal that remains.
Who are primary beneficiaries?
The first to receive payments if an annuity owner dies or from a trust account.
Who are contingent beneficiaries?
They will be paid only after the primary beneficiary dies.
Can IRAs be funded by cash only?
Yes.
What types of investments are prohibited in IRAs?
- Collectibles
- Gold
- Commodities (except U.S. minted gold coins)
What benefit does investing in gold provide for a portfolio?
A hedge against inflation.
Can distributions from a 529 plan be used for tuition at a foreign university?
Yes.
What is another name for a 529 plan?
Qualified Tuition Plan (QTP).
Which is more effective in saving for college: a 529 plan or a trust?
A 529 plan.
Who owns 529 plan assets?
Not the beneficiary.
How much can individuals withdraw annually from their 529 plans for private school tuition?
$10,000.
How much can individuals withdraw tax-free from their 529 plan to repay a qualified student loan?
Up to $10,000.
What is the maximum initial gift amount to front-load a 529 plan per beneficiary?
$95,000 (or $190,000 for a married couple).
What is the maximum contribution limit for a Coverdell Education Savings Account (CESA)?
$2,000.
What is the basis of inherited assets?
The market value at the time of the donor’s death.
What does the custodian have under the UGMA?
Custody of the assets, not the minor.
To avoid taxation when distributing an estate, what should be done with amounts exceeding the estate tax exclusion?
Donate to charities.
What does a person’s attitude toward money influence?
Interest in investing or making personal purchases.
What advantage do limited liability companies (LLCs) provide to their owners?
Pass through of both income and losses.
What are the owners of an LLC referred to as?
Members.
On what form do LLC members report income?
Form K-1.
