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Learned In Practice > Deck 2 > Flashcards

Deck 2 Flashcards

1
Q

What are the easiest plans to set up?

A

SEP’s and SIMPLEs

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2
Q

Do Simple’s have a mandatory match? What is it?

A

Yes!

2% non-elective or 3% match.

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3
Q

Can Simple IRA’s vary their match target? Can a Simple 401k?

A

Simple IRA’s can, 2 out of the last 5 years. Simple 401k’s cannot.

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4
Q

Both Cash Balance and Money Purchase plans base contributions on a % of salary. How are they different?

A

Cash balance plans guarantee a certain return. This makes them DB while money purchase are DC. ER bears the investment risk in CB plans.

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5
Q

When are SEP’s the best option?

A

When you have a high income earner who wants to maximize their savings—they’re simpler to set up and the contribution limit is the same.

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6
Q

When are 401k’s better than SEP’s for high income earners who want to maximize contributions?

A

When the earner is over 50 and can use the 401k catch up feature.

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7
Q

Can profit sharing plans favor older employees?

A

Yes, there is such a thing as an age-based profit sharing plan.

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8
Q

Can SIMPLEs integrate with SS?

A

No.

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9
Q

Which is the only type of pension plan that can use the offset method to integrate with SS?

A

DB plans!

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10
Q

Which DC plans benefit older employees?

A

Target benefit plans. They base their contribution on NPV of benefit at retirement.

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11
Q

Who sets initial margin requirements?

A

The Federal Reserve

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12
Q

How do you calculate the amount of a margin call?

A

Required equity = stock price x MM

Actual equity = stock price - loan per share

Margin contribution = required equity - actual equity.

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13
Q

How do you calculate a reduction in IRA contribution?

A

Contribution limit (6k) x (AGI - lower limit of phase out range) ÷ limit range (20k for MFJ)

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14
Q

What is the maximum student loan interest deduction that can be taken in a year?

A

$2,500.

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15
Q

Are moving reimbursements from employer includable in W-2 income?

A

yes

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16
Q

Are rental income expenses deductible for AGI?

Is a capital loss on investment?

A

Yes and yes.

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17
Q

Can child support be made deductible?

A

Yes—by folding it into the alimony amount.

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18
Q

What is the limit of the capital loss deduction?

Is it for or from AGI?

A
  • $3,000

- For AGI

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19
Q

Are earnings on EE bonds includable in AGI?

Are earnings on OID bond?

A

EE bond interest need not be declared until they’re redeemed.

OID bonds give phantom income and must be included.

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20
Q

What is the maximum education expense deduction?

A

$2,500

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21
Q

When calculating retirement needs for a self-employed person, what % should be subtracted from income due to SS and Medicare tax?

A

15.3%

22
Q

If you don’t participate in your employer’s qualified plan, but they make a QNEC that you receive, can you still deduct your full IRA contribution?

What if it’s just an additional matching contribution?

A

No and yes.

If you receive a contribution it impacts your IRA deduction. Even if you don’t defer, you receive a contribution under a QNEC, but not under a matching contribution.

23
Q

Can you opt out of a defined benefit plan?

A

No, everyone is an active participant in DB plans.

24
Q

Are participants in 457 plans considered “active participants” for IRA contribution purposes?

A

No. That’s why you can max out a 457 and an IRA in the same year.

25
Q

If you withdraw from a Roth after you turn 59.5, but before you’ve had the account for five years, how is your withdrawal taxed and penalized?

A

No penalty because you’re over 59.5.

Withdrawal is FIFO, but any earnings that come out are subject to tax.

26
Q

How old do you have to be to withdraw penalty free from a 401k Roth?

How do distributions come out?

A

55 and separated from service

Pro rata

27
Q

What is required for a 6166 (closely held stock) election?

A

The stock must comprise more than 35% of the adjusted gross estate.

28
Q

What is the difference between a 303 and a 6166 election?

What do they have in common?

A

303 is designed to provide liquidity for funeral expenses and estate taxes.

6166 is designed to defer estate taxes.

Both require that closely held stock comprise greater than 35% of estate.

29
Q

What happens when you’re long in a futures contract and you don’t close it?

A

The commodity is delivered to you. Remember, futures contracts are not like options contracts, they do get executed.

30
Q

How does the credit for child and dependent care work?

A

You must have a child under 13 or a dependent or a disabled spouse who lives with you. The credit covers a part of your expenses in caring for them so you can go to work. Thus, you must have earned income. Expenses cannot exceed earned income (income of the lesser earning spouse for MFJ). If your AGI is above $43,000 your credit is 20% of your costs up to $3,000 for one child and $6,000 for more than one.

31
Q

How does the child tax credit work?

A

2k per child under 17. Phaseouts beginning at 200k single. Refundable up to 1,400.

32
Q

Does a child born in October qualify for the child tax credit?

A

Yes.

33
Q

How much of the child tax credit is refundable in 2021? When does the enhanced refund phase out? When does the normal refundable credit begin phasing out?

A

The child tax credit is fully refundable for 2021. The enhanced refund phases out beginning at 150k MFJ. Complete phase out at 190 MFJ. The normal credit begins phasing out at 200k.

34
Q

Explain how the 6,000 and 3,000 work in the child and dependent care tax credits.

A

$3,000 (for 1 child) and $6,000 (for 2) is the maximum amount of expense you can claim. Your credit is usually 20% of that.

35
Q

When do payments for dependent care not qualify for the credit?

A

When they’re made to a dependent of the taxpayer.

36
Q

If term is equal, which bond has the greatest interest rate risk?

A

The one with the lowest coupon. Probably the zero coupon bond.

37
Q

What is the duration of a zero coupon bond?

Why does that matter?

A

The duration of a zero is it’s time to maturity. It will always be greater than any coupon bond with the same term.

38
Q

What type of plans are required to have a joint and survivor annuity?

A

Pension plans! Not just defined benefit plans. To wit: DB, CB, MP, and TB plans all must have joint and survivor annuities.

39
Q

From whence must RMD’s be taken?

A

All qualified plans (not just IRA’s)

40
Q

What age and what balance do you use for calculating RMD’s?

A

Use the previous year’s 12/31 balance. Use the oldest age you’ll be during the year.

41
Q

What are the 72t (equal payments from a qualified plan) requirements?

A

It must continue for the longer of 5 years or age 59.5

42
Q

What is the tax penalty for an insufficient RMD?

A

50% of the undistributed amount.

43
Q

What is ancillary probate?

A

When you die as a resident of one state owner property in another state.

44
Q

What is the difference between letters of administration and letters testamentary?

A

LOA’s enable an administrator to administrate your estate.

LT’s enable someone you designate to administer your estate.

45
Q

What is a relevant misdemeanor for the CFP board?

A

Non-felony fraud, theft, misrepresentation, violence, or 2nd offense of ETOH or drug.

46
Q

Do Roth 401k’s have RMD’s?

A

Yes. SEP’s, SIMPLEs, have them too. The only thing that doesn’t is Roth IRA.

47
Q

What are the requirements for using NUA on a qualified stock plan?

A
  • Must take lump sum
  • 59.5
  • Death
  • Separation from service
  • Disability if self-employed
48
Q

How does NUA taxation work?

A
  • At grant, the employer takes a deduction = to the value of the stock.
  • At distribution, the EE takes OI = to the value of the stock.
  • At sale, the EE pays LTCG on any appreciation that occurred between grant and distribution + taxes as per holding period and price changes after distribution.
49
Q

What can you roll a SIMPLE into? What holding period do you have to have?

A

The only thing you can roll a SIMPLE into is an IRA. You must have a holding period of 2 years.

50
Q

How does a reverse QTIP work, and what does it accomplish?

A
  • Executor of first to die spouse must elect it.
  • Treats the first to die as transferor to the grandchildren for GSTT tax purposes.
  • Utilizes GSTT exemption of first to die.

Learned In Practice (8 decks)

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