Final Push Study Flashcards
1
Q
phase out range for a Roth IRA for a couple who files married filing separately?
A
$0 - $10,000
2
Q
What is a Roth re-characterization? and how can it be used?
Hint: starting in 2018 they changed the rules.
A
A re-characterization is is when the Roth contribution is re-characterized to a prior or current year and a conversion is sent back to the traditional. In 2018 they eliminated the option for conversion re-characterizations.
3
Q
What is a strategic allocation versus tactical allocation?
A
Strategic allocation models are based on the client. The models are regularly rebalanced back into alignment.
Tactical allocation models are more tailored to the market or economy.
4
Q
What is and what does the black-scholes option valuation method do?
A
Determines the value of a European call option based on certain factors. Assume the option can only be exercised at expiration.
5
Q
What is the correlation coefficient and what are the measurement units?
A
Measures the extent to which returns on two securities are related.
R = +1 (movement is identical) R = -1 (movement is opposite)
6
Q
The bigger the standard deviation, the bigger the?
A
Risk
7
Q
Standard Qualified Plan Eligibility Rules
21 & 1 Rule
A
must be 21 years old and have 1 year of service
Employer can make this 2 years but if they do they cannot implement vesting and must make a minimum match.
8
Q
Contributory vs non-contributory
A
Contributory plans are when employee’s are able to contribute to it.
Non-contributory plans are employer plans only.
9
Q
Real Estate Valuation Formula
A
Net Operating Income / Discount Rate
Net operating Income = income - vacancy - expenses
10
Q
Constant Growth Dividend Discount Model
A
Vo = Di / r-g
Price for a security where dividends are growing at a constant rate.
r = required return g = growth rate D = dividend V = Value
11
Q
Whats the typical qualified plan loan amount? (% and $)
Payback period on qualified plan loans?
A
The maximum typical loan amount available is 50% or $50,000.
Payback period can be no longer than 5 years unless used for a home purchase.
12
Q
Is participation in a 457 plan considered active participation for determining Traditional IRA deductible contirbutions?
A
No, participation in a 457 plan is not considered active participation for IRA deductibility rules.
13
Q
457 plan
Limit
Special Catch up Contribution Rules
A
Limit = $19,500
Special Catch up Contribution Rules = If permitted by the plan, allow a participant for 3 years prior to the normal retirement age (as specified in the plan) to contribute the lesser of:
Twice the annual limit
the basic annual limit plus any amount of the basic limit not used in prior years
14
Q
An employee must have worked for their employer for how many years out of the last 5 years to qualify for SEP IRA contributions?
A
3 out of the last 5 years.
15
Q
What is the beta of a portfolio and what does a beta of 1.25 mean?
A
Beta is a measure of systematic risk (volatility).
A portfolio with a beta of 1.25 means the portfolio is 25% more volatile than the market.
16
Q
Profit sharing plans do not have mandatory funding, however they must be…….
A
Substantial & Recurring
17
Q
Standard Deviation percentages
return falls within:
1 standard deviation …% of the time
2 standard deviations …% of the time
3 standard deviations …% of the time
A
1 standard deviation 68% of the time
2 standard deviations 95% of the time
3 standard deviations 99% of the time
18
Q
Davis company stock has a average return of 11% and a standard deviation of 4%. What is the probability that the stock will return above 15%?
A
16% chance
19
Q
What is the Treynor Ratio? How is it calculated? and what are the measurements?
A
a measurement of the returns earned in excess of that which could have been earned on an investment that has no diversifiable risk, per each unit of market risk assumed.
Portfolio Return - Risk Free Return / Beta
Bigger number the better
20
Q
What is Jensen’s Alpa and what does a positive alpha indicate?
A
How did the portfolio return compared to the capital asset pricing model.
(the capital asset pricing model is a model used to determine a theoretically appropriate required rate of return of an asset).
A positive alpha indicates the portfolio outperformed the market.
21
Q
SIMPLE IRA Characteristics
Maximum number of employee's? Contribution limit? matching options? Can a employer reduce the match? Penalty for distributions in the first 2 years?
A
Can have no more than 100 employee’s earning greater than $5,000.
$13,500 contribution limit + $3,000 catch up
Employer must choose between a 3% match or a 2% non-elective contribution.
25% penalty for withdrawal in the first 2 years.
22
Q
Efficient Market Hypothesis
Can or cannot outperform the market consistently?
Stock price reflects?
Day to Day prices follow a …………… Pattern?
A
Cannot consistetly outperform the market
Stock prices reflect all available information
Day to Day prices follow a random walk pattern
23
Q
Weak form market hypothesis?
Semi-strong market hypothesis?
Strong market hypothesis?
A
Weak - Technical Analysis doesn’t work. Its already reflected in the price.
Semi-Strong - Technical & fundamental analysis don’t work. They are already reflected in the price.
Strong - Technical, fundamental & insider information don’t make a difference. They are already reflected in the price.
24
Q
How to determine a highly compensated employee?
A
- Greater than 5% owner in current or preceding year
- Compensation greater than $130,000 in preceding year
- Family ownership attribution rules apply
- Top 20% election (employee is in the top 20% of earners)
25
How to identify a Key Employee?
* Greater than 5% owner in current or preceding year
* 1% owner with greater than $150,000
* An officer of the company sponsoring the plan and receives actual compensation for the year of $185,000 or more (2020)
26
Federal Lifetime Gift Tax Exemption
$11,580,000 per person
27
Crummy Provision & the 5 by 5 power rule
Allows gifts of a future interest to qualify for annual exclusion.
A 5 by 5 Power in Trust is a clause that lets the beneficiary make withdrawals from the trust on a yearly basis. The beneficiary can cash out $5,000 or 5% of the trust's fair market value each year, whichever is a higher amount.
28
403b plan characteristics
Limited to which employers?
Contribution Limit?
Special Catch up contribution rules?
For education or non-profit entities only
$19,500 contribution limit
```
Employee must have 15 years of service
Can contribute the lesser of:
$3,000 extra
$15,000 less previous catch ups
$5,000 x yrs of service less all prior salary deferalls
```
29
What is fundamental analysis vs technical analysis?
Bonus: What is top down and bottom up?
Fundamental analysis is the analysis of a business's financial statements; health; and competitors and markets. Top down analysis starts by analyzing the broader economy and working down to more specifics. Bottom up is the reverse of this.
Technical analysis is use of stock prices and volume to determine demand.
30
What is Bond Duration?
The longer a bonds duration, the (greater or weaker) sensitivity to the interest rate changes?
Duration is a measure of the sensitivity of the price of a bond or other debt instrument to a change in interest rates. Weighted number of years until an investment is recovered.
The longer the duration the greater the sensitivity to interest rate changes.
31
A high coupe rate means what for a bonds duration?
The higher the coupon rate the lower the duration.
The duration of a bond is the weighted number of years until an investment is recovered.
32
Coupon rate and duration have what type of relationship?
The coupon rate and duration have an inverted relationship. The higher the coupon rate the lower the duration.
33
Current Yield
Annal Interest payment / current market price
34
What is a QDOT Trust?
A qualified domestic trust (QDOT) is a special kind of trust that allows taxpayers who survive a deceased spouse to take the marital deduction on estate taxes, even if the surviving spouse is not a U.S. citizen.
Executor makes the irrevocable election
35
Why is the generational skipping transfer tax important?
It stops families from skipping the estate tax between 1 or more generations. I.e. a person can give their estate to their daughter who may die one year later and be taxed again almost immediately.
36
Simple vs complex trust
Simple - Must distribute income annually
| Complex - Not required to distribute income annually
37
Intervivos trust vs testamentary
Intervivos = living trust
| Testamentary Trust = created at death
38
Difference between a section 2503 B trust and 2503 C trust?
2503B trust has to have income paid annually but assets may be held in the trust past the beneficiaries age of majority. Assets are removed from the grantors gross estate.
2503C trust does not require income to be paid annually but does require the trust assets to be distributed at the beneficiaries age of majority. 21 years old.
39
```
Child tax credit
Amount?
Phaseout?
Qualifications?
Refundable or not?
```
Amount: $2,000
Phaseout: >$400,000 (married)
Qualifications: Tax payer is providing the majority of the support to the child.
Refundable up to $1,400
40
What is the correlation coefficiency and what does -1 and +1 mean?
Correlation coefficiency is a statistical measure of the strength of the relationship between the relative movements of two variables.
-1 is perfectly negatively correlated (opposite)
+1 is perfectly positively correlated (the same)
41
A real estate investor or a portfolio that contains real estate is concerned with which:
Heterogeneity
Homogeneity
Heterogeneity because a real estate investor is concerned that every property is unique and different such as with design and location.
42
Which below option can be secured with collateral?
Private Annuity
Scin
Scin
A private annuity cannot be secured by collateral. The “self-cancelling” feature means that if you die during the term of the note (which cannot be longer than your actuarial life expectancy at the time of the sale), then the “buyers” (your children, or other loved ones) are relieved of any future payment obligations, and receive the entire asset free of any transfer taxes.
43
```
The following are expenses due to a car accident:
$100,000 medical bill
$15,000 damage to a vehicle
$20,000 rehab bill
$1,000,000 pain & suffering
```
What amount represents special damages?
$135,000
Special damages represent measurable loss
44
What is the difference between a GRIT, GRAT & GRUT?
GRIT - Grantor retained income trust.
Payment of income annually. Income created by the asset.
GRAT - Grantor retained annuity trust.
Fixed dollar payment based on a % of the FMV at the beginning of the trust.
GRUT - Grantor retained uni-trust.
Fixed dollar payment based on the FMV annually.
45
What is recapitalization of a corporation and what type of corporation must it be?
Recapitalization is when you convert the current common stock to new common stock and non-voting preferred stock. It must be done as a C corp.
This allows the owner to keep control of the business but gift the shares of common stock to children and have the appreciated common stock value be treated under the child. reducing any future gifting.
The amount of any preferred stock is the only portion valued under the owners gross estate. The preferred stock has a fixed value.
46
What is the contributory negligence rule?
The insured party cannot recover damages if his own negligence contributed to his injuries, even if his negligence was slight.
This is more of a concept that a practical application. Most states have some sort of comparative negligence rule.
47
On a group health insurance plan a divorced spouse who is no longer eligible must elect coverage within how many days? pay the premium in how many days? and will be covered for how many months?
A divorced spouse must elect coverage within 60 days.
| They have 45 days to pay the first premium and they are covered for 36 months.
48
How is a non-mec life insurance contract taxed for distributions and loans?
How is MEC contract taxed for withdrawals and loans?
Non-mec - Distributions are taxed on a FIFO basis. Gain comes out last and taxed as income. Loans are non taxable.
MEC - Distributions and loans coming from cash value are taxed at ordinary income on a LIFO basis. Gain comes out first and taxed as income. MEC's can also incur a 10% penalty for early withdrawals.
49
```
Can a person complete a 1035 exchange of:
Annuity into a life policy?
Life policy to annuity?
Life policy to long term care?
Endowment policy to LTC?
Annuity to LTC?
Endowment to life policy?
```
Can be exchanged for:
Life Insurance - LI, endowment policy, annuity, LTC
Endowment Policy - endowment policy, annuity, LTC
Annuity - Annuity, LTC
LTC - LTC
50
A trust in which funds cannot be reached by the employers creditors is called a .....?
Secular trust
A secular trust is an irrevocable trust that you establish with a third party to hold assets for the exclusive purpose of funding your employees’ nonqualified deferred compensation (NQDC) plan benefits. A significant feature of the secular trust is that participants generally have a nonforfeitable and exclusive right to the contributions made to the trust and to the earnings on those contributions. This stands in contrast to the rabbi trust, where trust assets remain subject to the claims of your general creditors.
51
If Debbie qualifies for social security disability will she also be eligible for medicare benefits at the same time?
Debbie would not be eligible for medicare until she has been receiving social security disability for 24 months (2 years).
52
Are workers compensation benefits taxed?
Workers compensation benefits are received free of federal tax.
53
What is a casualty loss? Can you deduct a casualty loss and if so how much can be deducted?
A casualty loss can result from the damage, destruction, or loss of your property from any sudden, unexpected, or unusual event such as a flood, hurricane, tornado, fire, earthquake, or volcanic eruption.
A casualty loss can be deducted if its declared a federal disaster. The amount that can be deducted is the amount in excess of 10% of your AGI.
54
How much can Debbie deduct for a charitable donation of:
cash to a public charity?
Short term capital gain property to a public charity?
Property to a public charity?
Cash to a public charity?
up to 60% of her AGI
Short term capital gain property to a public charity?
up to 50% of her AGI
Property to a public charity?
up to 30% of her AGI for FMV and 50% of her AGI for a basis election
55
How much tax will Joe a minor child have to pay if he has $700 of unearned income in the year 2020?
What if Joe also had $10,000 of earned income? What tax bracket would Joe have to utilize for any taxable income?
Joe would not have to pay any tax on the $700 of unearned income because he would only be taxed if his unearned income were above $1,100 for 2020.
Joe would also not owe any tax on the earned income because he also gets to utilize the standard deduction of $12,400. If he were to earn more than $12,400 in 2020 the income would be taxed at his parents tax rate.
56
What makes a company a personal holding company and what are the penalties for becoming a personal holding company?
A corporation will be considered a personal holding company if 50% fo the stock is owned by 5 or fewer people and at least 60% of the corporations income is passive income.
A 20% tax is applied to personal holding company income that is not distributed.
57
Which of the following are correct about limited liability companies?
1) LLC's can be taxed as a corporation or an s-corp.
2) LLC's can be taxed as a partnership or the owner can file a schedule C.
3) Owners of an LLC do not pay self employment tax.
1 & 2 are correct.
A multi-owner LLC is automatically taxed as a partnership by default, while LLCs with one owner are taxed like sole proprietorships (one-owner businesses). However, LLCs may choose to be taxed as a C corporation or S corporation. Partnerships are taxed as pass through entities to the various owners.
58
What is the transfer for value rule and what are the exceptions to this rule?
If an existing policy is transferred for value (sold), insurance proceeds are includable in the gross income of the buyer.
Exceptions:
1) Transfers to the insured (or insured’s spouse or ex-spouse, if incident to a divorce)
2) Transfers to the partner of an insured
3) Transfers to the business partnership
4) To a corporation which the insured is an officer or executive
5) Tax free gift or exchange
59
1231 assets
Depreciable personal or real property used in business for the production of income. Section 1231 specifically includes:
1) Timber, coal, iron or ore
2) Livestock
3) unharvested crops
4) Goodwill & intangibles
60
Rabbi Trust
Holds property for funding deferred compensation plans. Funds are subject to creditors, unlike the secular trust. No current taxation to the employee. Currently used widely for corporate owned life insurance. Corporation deals with taxation.
61
what is an ISO and how is it taxed?
An incentive stock option (ISO) is a corporate benefit that gives an employee the right to buy shares of company stock at a discounted price with the added benefit of possible tax breaks on the profit. The profit on qualified ISOs is usually taxed at the capital gains rate, not the higher rate for ordinary income. Non-qualified stock options (NSOs) are taxed as ordinary income.
The offering period for ISOs is always 10 years, after which time the options expire.
62
NSO (non-qualified stock options)
Non-qualified stock options give employees the right, within a designated timeframe, to buy a set number of shares of their company’s shares at a preset price.
A non-qualified stock option (NSO) is a type of employee stock option wherein you pay ordinary income tax on the difference between the grant price and the price at which you exercise the option. NSOs are simpler and more common than incentive stock options (ISOs). They are called non-qualified stock options because they do not meet all of the requirements of the Internal Revenue Code to be qualified as ISOs.
63
RSU (Restricted Stock Units)
A restricted stock unit (RSU) is a form of compensation issued by an employer to an employee in the form of company shares.
RSUs give an employee interest in company stock but they have no tangible value until vesting is complete.
Upon vesting, they are considered income, and a portion of the shares is withheld to pay income taxes.
64
What does indemnity mean?
The insured may recover from the insurance company only to the extent of the financial loss.
65
Can an employer deduct the premium for a group term life policy?
Employers can debut the premiums for group term. Employees are not taxed income on the premiums (paid by an employer) for the first $50k of group term.
66
Brenda has an income of $100,000 and deductible medical expenses of $2,000. She also paid $2,000 in premiums (pretax). How much can Brenda deduct this year based on medical expenses?
$0
Medical expenses in 2020 are only deductible to the extent they exceed 7.5% of AGI in 2020.
Because premiums were paid pre-tax they're not deductible.
67
Failure to file penalty & failure to pay penalty
Failure to file penalty is 5% for each month or part of a month
Failure to pay penalty is 1/2% per month
If both penalties apply the maximum monthly penalty is 5% and the maximum total penalty is 25% of the balance due.
68
According to prospect theory, investors are generally more concerned with:
Avoiding losses, which suggests that risk of loss may be the best measure of risk.
69
Each owner can sell their portion of the property and upon death the their portion doesn't go automatically to the joint owner. Ownership portion usually goes through probate.
This is which type of account ownership?
Tenancy in common
70
Two or more people owning property with the same fractional interest. Property passes to the survivor free of probate. Last to die wins. To non-spouses a gift is said to have been made if one person contributes more. Gifts ar only completed when one owner takes out a portion above what they put in, not at deposit.
This is which type of account ownership?
Joint tenants WROS
71
One spouse cannot severe interest without the other spouses consent. This form of ownership is only recognized in certain states and has better protection against creditors. Unique to common law property.
This is which type of account ownership?
Joint tenants by entirety
72
Social Security taxable wage base (TWB) is?
$137,700 (2020).
73
```
Profit sharing plans:
Who contributes:
Maximum Contribution:
Participant loans:
Testing:
Employer or employee bears the investment risk?
```
Who contributes: Employer only
Maximum Contribution: The lesser of 25% of compensation or $57,000 (2020)
Participant loans: Yes, permitted
Testing: Need to test that benefits do not discriminate in favor of the highly compensated employees.
Employee bears the investment risk
74
The PBGC will insure up to what monthly benefit amount?
$5,812
75
What is the limit on what can be paid out of a defined benefit plan?
1) 3 highest consecutive years earnings (ave)
or
2) $230,000 annual benefit
76
Matching contributions are only based on up to what amount of income?
$285,000 for 2020.
77
Sharpe Ratio
Portfolio return - risk free return / standard deviation
Higher the better
The ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk.
78
What is the standard deviation?
```
Absolute measure of variability of returns
Bigger the standard deviation the bigger the risk
Normal distribution (bell shaped) curve
```
79
Coefficient of variation
Relative measure of total risk per unit of expected return
Standard deviation / expected return
Smaller is better
80
Beta
Relative measure of systematic risk. Systematic risk, also known as “undiversifiable risk,” “volatility” or “market risk,” affects the overall market, not just a particular stock or industry.
A beta of 1 indicates that the portfolio is as risky as the market. A beta of 1.2 means the portfolio is 20% more risky than the market.
81
Types of ownership
Fee simple
Life estate
Fee simple - complete ownership with all the rights. property will pass through probate.
Life estate - Holder of the life estate has an exclusive right to use of the property for the remainder of their or someone else life. a life tenant has the right to posses during a specified life.
82
Bankruptcy
Chapter 7 , 11 & 13
7 - Voluntary or involuntary liquidation of assets
11 - Re-orgniztion of a person, firm or corporation
13 - Adjustment of debts of individuals with regular income
83
Monetary vs Fiscal Policy
Monetary - is controlled but the federal reserve. Expansionary = supply of money increases
Restrictive = supply of money decreases
Fiscal - controlled by congress. i.e. tax rates and policy
84
Snowball method vs Avalanche method
Snowball - starts by paying off the small balances first
Avalanche - encourages paying off the highest interest rate first
85
Discount Rate
Prime Rate
Fed Funds Rate
Discount Rate - Rate that one federal reserve bak charges to others in its effort to control money supply. controlled by the FED.
Prime Rate - Rate commercial banks charge to their best customers.
Fed Funds Rate - Rate charged between banks on short-term loans.
86
1) Payments on housing should be no greater than ....% of gross income.
2) Total monthly payments on all debt should be no more than ...% of gross monthly income.
1) Payments on housing should be no greater than 28% of gross income.
2) Total monthly payments on all debt should be no more than 36% of gross monthly income.
87
Janelle is 65. She has been a stay at home parent and only has 10 qtrs of medicare covered employment. Her husband Kenny is also 65. Kenny has worked full time and has over 40 qtrs of medicare covered employment.
1) Janelle is eligible for medicare part A
2) Janelle must pay a monthly premium to enroll in part A
3) Janelle must pay a monthly premium to enroll in part B
1 & 3
Janelle is eligible for part A because she is 65. She does not have to pay a premium because her spouse has over 40 qtrs. Enrollment in part B always requires a premium.
Medicare and social security coverage require 40 qtrs of coverage.
88
Participating vs non participating life policy?
Participating enables the policy holder to share in the profits of the insurance company. Pays a dividend.
Non-participating policies do not pay a dividend.
89
Portfolio Immunization
Protects bond portfolios from interest rate risk and reinvestment rate risk. Immunization is adjusting the portfolio duration to match the investment time horizon.
90
Laddering, barbell and bullet bond strategies
Laddering - A bond is always expiring
Barbell - Split the asset between the highest risk and no risk strategies. Avoids the middle of the road strategies.
Bullet - All of your bonds mature in the same year.
91
Do you have to take an RMD from your Roth 401k?
Yes, RMD rules still apply to Roth 401ks
92
Which of the following 401k statements are correct?
1) Must satisfy both the ACP and ADP test
2) Can be funded entirely through elective deferrals
3) Must satisfy the safe harbor coverage test, the ratio test or average benefits test
4) Employer contributions are taxable to the participant when they are made
1,2,3
93
In a section 401k plan which of the following must be considered in a company with the maximum annual additions limit. Annual addition is another way of saying "total contribution."
1) Employee after tax contributions
2) Catch up contributions
3) Dividends paid on employer stock held in 401k
4) Qualified non elective contributions
5) Qualified matching contributions
1,4,5
94
```
Home owner coverages
A
B
C
D
Additional
```
```
A - Dwelling
B - Other structures
C - Personal property
D - Loss of use
Additional - Debris removal, damage to trees and credit card loss
```
95
8 basic home owner exclusions that waive coverage.
1) ordinance or law (building does not comply with law or is condemned)
2) Earth movement
3) Water damage
4) Power failure
5) Neglect
6) War
7) Nuclear Hazard
8) Intentional Loss
96
How much of a deception can someone claim in a year for losses due to an automobile accident.
None
| Only losses incurred from a federally declared disaster can be deducted
97
Standard Deduction
Single person
Married
Bonus for >65 or blind additional deduction for each above
Single person
$12,400 + $1,650 >65 or blind
Married
$24,800 + $1,300 per person >65 or blind
98
Cash basis tax payer
Bonus for a accrued tax payer
A cash basis tax payer is someone who reports income and deductions in the year they are actually paid or received.
Accrual tax payer is the opposite of above. Someone who claims the income as they bill for the service, regardless of receiving the income.
99
On September 19th, 2019, an investor purchased $5,000 of stock. On March 31st, 2020 the stock became worthless. What is the recognized loss or gain in 2020 and how is it classified.
$3,000 loss and the excess $2,000 loss is carried forward.
If a security becomes worthless it is treated as a long term period and as if the loss occurred on the last day of the tax year.
100
The net investment tax of 3.8% is applied to tax payers with a MAGI of how much?
```
Married = > $250,000
Single = > $200,000
```
101
Qualified vs Ordinary Dividends
Qualified dividends receive special tax treatment (capital gains)
Ordinary dividends are taxed as income
102
Section 1244 Small business stock
For reporting losses on 1244 stock is the loss capital or ordinary and why is it important?
How much of a loss can be taken by a single individual versus a married couple?
How much of the small business stock qualifies for 1244 stock treatment?
Refers to the tax treatment of qualified restricted small domestic business stock losses. Allows losses from the stock to be deducted as ordinary losses instead of capital losses on individual tax returns. Capital losses are limited to $3,000 a year. No limit on ordinary loss.
Maximum amount of 1244 loss that can be taken is $50,000 for individuals and $100k for married returns.
To qualify to corporation must receive less than $1,000,000 in capital for stock issue.
More than 50% of the corporations income has to come from non-passive sources.
Have to be the original owner to qualify for the section 1244 loss. Cannot use if you were gifted the stock.
103
Net Capital Loss vs Net Ordinary Loss
Bonus: A person cannot carry a capital loss backwards, but what type of corporation can?
A net capital loss (capital losses exceeding capital gains) is subject to an annual deduction limit of $3,000. If a capital loss exceeds $3,000 it must be carried forward to a future year.
An ordinary loss is fully (100%) deductible in the year the loss is incurred and is not subject to an annual deduction limit. Therefore, an ordinary loss that exceeds $3,000 provides a greater tax benefit in the tax year the loss is incurred.
Bonus: If in any year, a C corporation's capital loss exceeds capital gains of that year, the excess loss is carried back in a specific order then may be carried forward up to 5 years.
104
how many years can an individual carry forward a capital loss?
Net capital losses in excess of $3,000 can be carried forward indefinitely until the amount is exhausted.
105
how many years can a corporation carry back a loss?
3 years
106
James has a disability policy that pays $2k a month as well as a social insurance substitute of $1k/mo if he becomes disabled. If disability occurs and he receives $400 in social security disability benefits how much would James receive rom his individual policy?
$2,600
$2,000 basic benefit plus $1,000 (social offset) - (SS disability benefit) $400
107
Annuity sales recommendations?
Twisting
Churning
Twisting - Surrendering & purchasing a new contract.
Churning - Using the value of an existing contract to purchase a new one
108
What is the difference between universal life death benefit A & B?
A = Level death benefit that only equals face amount. Less expensive than B and less risk to the insurance company as more time goes on.
B = Death benefit is equal to the face value plus cash value. More expensive to an insurance company than A. Constant risk to the insurance company.
109
Coverage Tests:
1)
2)
3)
Bonus Formula?
```
General Test (Safe Harbor Test)
NHC Covered / NHC Eligible = > or equal to 70%is a pass
```
The Ratio Test
% NHC employees / % HC employees = > or equal to 70% is a pass
Average Benefits % test
Ave. benefits % NHC / Ave. benefits % HC = > or equal to 70% is a pass
110
The 50/40 test is a additional test for which type of plans only and what are rules?
The 50/40 test is a additional test for defined benefit plans only.
All defined benefit pension plans must benefit no fewer than the lesser of the following:
a. 50 employees
b. 40% or more of all non-excludable employee
note: For purposes of the 40% test, the plan does not have to consider employees who are not eligible for the plan.
111
Top heavy plans
In a defined benefit plan if 60% of the plan is key employees it must have.......?
If its a top heavy defined contribution plan it must have........?
Whats the magic percent contribution for non-key employees in a top heavy plan?
In a defined benefit plan if 60% of the plan is key employees it must have accelerated vesting.
If its a top heavy defined contribution plan it must have no vesting.
Whats the magic percent contribution for non-key employees in a top heavy plan? 3%
112
Traditional defined benefit pension plans must vest at least as rapidly as one of the following two schedules (assuming the plan is not top heavy)
Defined contribution plans must vest at least as rapidly as one of the following two schedules for all employer nonelective contributions and matching contributions
DB
a. Five-year cliff vesting
b. 3–7-year graduated (or graded) vesting
DC
a. Three-year cliff vesting
b. 2–6-year graduated (or graded) vesting
113
what is the maximum contribution for a HC employee if the average NHC employee contribution is:
< or equal to 2%
> 2% but < or equal to 8%
> 8%
< or equal to 2% = 2 x ADP/ACP
> 2% but < or equal to 8% = 2% + ADP/ACP
> 8% = 1.25% x ADP/ACP
```
ADP = actual deferral percent
ACP = Actual contribution percent
```
114
Mutual Life Insurance Company
Life company is owned by the policy holders, similar to shareholders.
115
Do options or futures contracts have longer lives on standard?
Futures
116
Social security survivor child benefits end when the child turns which age, unless disabled.
16
117
How many days of nonpayment will cause federal student loan go into default?
270
