Final 2 Flashcards
Financial planning is a process during which life goals may be met.
It should be viewed as a coordinated, integrated, ongoing, dynamic process of managing an individual’s financial concerns. Investment planning may be used as one aspect of financial planning, but it does not represent financial planning in its entirety. Both risk management and insurance planning are a part of the financial planning process.
Financial planning goal setting can help clients:
Building an investment portfolio
Managing one’s income tax burden
Risk management
Foundational savings
Auto $35,000
Auto loan balance $20,000
Checking account $2,500
Contributions to savings $5,500
Credit card balance $3,000
Dividend and interest income $500
Fixed outflows (annual) $42,000
Gross salary $65,000
Growth fund balance $27,500 IRA balance $32,000 Money market account $7,500 Mortgage note balance $209,000 Personal property $43,500 Primary residence (market value) $315,000 Savings account $5,000 Stock portfolio $61,500
Variable outflows (annual) $18,000
Vested portion of pension plan $13,000
What is the total value of Grant’s assets?
$542,500
Assets = $35,000 (auto) + $2,500 (checking) + $27,500 (growth fund) + $32,000 (IRA) +$7,500 (money market) + $43,500 (personal property) + $315,000 (primary residence) + $5,000 (savings) + $61,500 (stock portfolio) + $13,000 (vested pension) = $542,500.
When assuming a rate of return for a clients’ goals, a planner should use
a conservative rate of return.
Which of these statements regarding currency risk is CORRECT?
It is also known as exchange rate risk.
Itemized Deductions are:
generally personal expenses (e.g., home mortgage interest, property taxes, state and local income taxes, medical expenses) that are specifically allowed as a deduction from AGI, in arriving at taxable income.
During the current tax year, Joey sold several securities that resulted in the following types of gains and losses:
long-term capital gain: $6,700 short-term capital gain: $7,000 long-term capital loss: $1,900 short-term capital loss: $9,200 What is the net capital gain or loss on Joey's security sales?
The long-term items are netted, leaving a long-term capital gain of $4,800 ($6,700 – $1,900). The short-term items are netted, leaving a short-term capital loss of $2,200 ($7,000 – $9,200). The long-term capital gain is netted with the short-term capital loss to result in a net long-term capital gain of $2,600.
adjusted basis
The original cost of an asset plus or minus certain adjustments (such as improvements or depreciation, respectively) is its adjusted basis. Capital improvements generally do increase an asset’s basis. Depreciation taken on an asset decreases, not increases, its adjusted basis.
Vic has up to $2,500 to spend on his employee benefits and wants to know which one of the following would provide the greatest amount of tax savings. You should advise him to
contribute to a flexible spending account (FSA).
The FSA would be the best choice because not only is it pretax, but there are also no FICA (Social Security) taxes payable. The 401(k) deferral is pretax, but FICA taxes would apply. Purchasing additional life insurance would not reduce Vic’s taxable income.
Coverdell Education Savings Accounts (CESAs) advantages:
They can be used for education expenses as early as kindergarten.
There is no taxation on earnings used for qualified education expenses.
There is tax deferral on any earnings.
There is no tax deduction for CESAs—they are funded with after-tax dollars.
Claudio, age 55, has a deferred annuity with a $100,000 value and a current 5% surrender charge. Due to a downturn in his business, he wishes to withdraw all of the funds to support the business. After tax and surrender charges, what amount would Claudio receive in the payment check?
$85,000
Because Claudio is not yet age 59½, the amount he is withdrawing is subject to a 10% penalty, in addition to a 5% surrender charge: $100,000 × 0.85 = $85,000.
Is accomplished by a living will?
It states in advance what medical measures may be employed if the writer becomes incapable of consenting to treatment.
Roth IRA Characteristics:
Qualified distributions are tax-free
Must have earned income to contribute
Funded with after-tax dollars
Contributions are allowed at any age, as long as there is earned income. Traditional IRAs do not allow contributions past age 72 because that is when required minimum distributions begin.
Regarding the key differences between mutual funds and exchange-traded funds (ETFs) Which is more tax efficient?
ETFs are usually more tax efficient with lower expenses than mutual funds. Mutual funds, which are open-ended investment companies, do not trade on stock exchanges (ETFs do), which results in them being priced once a day at the end of the day.
Which of these retirement plans may offer participants the opportunity to make catch-up contributions?
401(k) plans
SIMPLE IRA plans
Both 401(k) accounts and SIMPLE IRA accounts allow employee deferrals, and they both offer catch-up provisions for those age 50 or older. The catch-up amount in 2021 is $6,500 for the 401(k) plan and $3,000 for the SIMPLE IRA. SEPs only allow employer contributions, and defined benefit plans are funded entirely by the employer based on the amount needed to provide the promised retirement benefit.
