General Flashcards
EFC Formula (Parents / Child)
“Expected Family Contribution”
Cost of Attendance (COA) - EFC = Financial Need
EFC Formula
Income: Parents 22% - 47% - Student 50%
Assets: Parents 5.64% - Student 20%
EFC Assets & Income Include
For Financial Aid (FAFSA)
Consists of: Income (Parent & Student) + Assets (Parent & Student)
Income
Parents = (AGI) minus an allowance for taxes + living expenses.
Students = Amount over ‘protected amount’ ($9,410 for 2024-25 academic year).
Assets that are counted towards the EFC include:
Cash, savings, checking accounts, money market funds, and CDs, Investments (e.g., mutual funds, stocks, stock options, bonds, commodities), Rental real estate equity, businesses, investment farms, and trust funds.
College savings plans, Coverdell ESAs and 529s
Retirement assets and home equity are not counted towards the EFC.
Accounts held/owned by:
Parents or in dependent child’s name: Parent Assets
Independent students/spouses: Student Assets
Others (e.g., aunts or grandparents): Excluded
Forms of Discipline (Ordered by the DEC; Listed from least severe to most severe):
Private Censure: An unpublished written reproach mailed by the DEC to a censured Respondent.
Public Letter of Admonition: A written reproach of the Respondent’s behavior published in a press release.
Suspension: Respondent is prohibited from using the CFP® certification marks, stating or suggesting that they are a CFP® professional, or holding out to the public as being certified by CFP Board. Minimum 90 days; Maximum 5 years.
Revocation: The termination of a Respondent’s right to use the CFP® marks. Respondents are permanently barred from applying for or obtaining CFP® certification.
American Opportunity Tax Credit (AOTC)
Up to $2,500 credit per eligible student for tuition, enrollment fees, and materials for the course of study
$2,000 First
Then 25% Up to Next $2000
Total = $2,500 Max
40% of Credit REFUNDABLE up to $1,000
Single MAGI Limit = $90,000
MFJ MAGI Limit = $180,000
Only available for First 4 Years of College
Student must be enrolled at least half time
Student must have no felony drug convictions
Lifetime Learning Credit (LLC)
Up to $2,000 credit per TAX RETURN for tuition and enrollment fees only (NOT MATERIALS)
NOT A REFUNDABLE CREDIT (LLCs = No Refunds)
Single MAGI Limit = $90,000
MFJ MAGI Limit = $180,000
Available all years after high school for education and courses to acquire or improve job skills.
Student does not need to be pursuing a degree or other recognized educational credential.
Section 1231 Property
1) Property that is used in trade or business.
2) Property held for the production of income.
Tax Advantages of 1231 Property
1) Gains are taxed as capital gains.
2) Losses are taxed as ordinary losses.
1232 Property has 2 subcategories
1) 1245 Property = Personal “Personalty” used in trade or business for production of income (furniture, computers, carpet, light fixtures).
2) 1250 Property = Realty used in trade or business for the production of income (commercial buildings, warehouses, barns, rental properties, etc.)
The CFP Board Code of Ethics is comprised of six principles that must be upheld by CFP® professionals…….When?
At all times!
The CFP Board Code of Ethics is comprised of six principles that must be upheld by CFP® professionals at all times.
According to the Code of Ethics and Standards of Conduct a CFP® professional must:
- Act with honesty, integrity, competence, and diligence.
- Act in the client’s best interests.
- Exercise due care.
- Avoid or disclose and manage conflicts of interest.
- Maintain the confidentiality and protect the privacy of client information.
- Act in a manner that reflects positively on the financial planning profession and CFP® certification
Duty to Follow Client Instructions. A CFP® professional must comply with all….
objectives, policies, restrictions, and other terms of the Engagement and all reasonable and lawful directions of the Client.
Three categories of adverse conduct are identified in the Fitness Standards:
- Conduct that is unacceptable; Individual is permanently barred from becoming certified.
- Conduct that is presumed to be unacceptable.
- Other conduct that may reflect adversely upon the individual’s integrity or fitness, the profession, or the CFP® certification marks.
Which 2 bars and individual from becoming certified unless the individual petitions the DEC and the DEC grants the petition or permits the individual to reaplly for certification later?
2 and 3
2. Conduct that is presumed to be unacceptable.
3. Other conduct that may reflect adversely upon the individual’s integrity or fitness, the profession, or the CFP® certification marks.
On September 15th, 2023, Tucker purchased a speedboat for $96,000. On October 1st, 2024, he gifted the speed boat to his cousin Pierre. The speedboat was valued at $151,000 at the time of the gift. After utilizing the annual exclusion amount, Tucker paid $4,250 in gift taxes.
Calculate Pierre’s basis in the speedboat.
$97,758
Step 1: Calculate the ‘Appreciation Factor’ [(FMV – Basis) ÷ (FMV – Annual Exclusion)]
[{$151,000 - $96,000) ÷ ($151,000 - $18,000)] = [$55,000 ÷ $133,000] = 0.4135
Step 2: Multiply the ‘Appreciation Factor’ by the Gift Tax Paid
0.4135 x $4,250 = $1,758
Next, add the gift tax adjustment to the original basis to find the adjusted basis.
$1,758 + $96,000 = $97,758
Under SEC Rule 415, how long do companies have to issue shares from their IPO filing?
Rule 415 allows up to two years for shares to be issued in an IPO filing. This allows for better timing of the issues.
What are the 5 Credit Score Factors in Order of % Weighting?
- Payment History = 35%
- Amounts Owed = 30%
- Length of Credit History = 15%
- New Credit = 10%
- Credit Mix = 10%
Failure to answer a complaint will result in CFP Board Counsel will result in CFP Board Counsel delivering an?
- Administrative Order of Suspension or
- Administrative Order of Revocation
- The latter is the correct answer here (i.e., Order of Revocation) because there is a mandatory timeframe of 1 year and 1 day that is a part of the Administrative Order of Suspension, not 90 days.
College savings plans, Coverdell savings accounts, and 529 accounts held in the parent’s name are considered assets belonging to whom on the FAFSA?
College savings plans, Coverdell savings accounts and 529 accounts held in the parent’s or dependent child’s name are reported as parental assets on the financial aid application (FASFA).
Accounts owned by independent students/spouses are reported as assets of the student.
In the Code and Standards, “an oral or written agreement, arrangement, or understanding” is known as what?
In the Code and Standards, an engagement is defined as “an oral or written agreement, arrangement, or understanding.”
An ABLE account may be established if blindness or disability occurred before age (BLANK)?
An ABLE account may be established if blindness or disability occurred before age 26.
Qualified disability expenses for an ABLE account include any expenses incurred at a time when the designated beneficiary is an eligible individual.
The expenses must relate to?
The expenses must relate to blindness or disability, including expenses for maintaining or improving health, independence, or quality of life.
The total annual contributions to an ABLE account (including amounts rolled over from a 529 account) are limited to the?
The total annual contributions to an ABLE account (including amounts rolled over from a 529 account) are limited to the annual gift tax exclusion amount ($18,000 for 2024).
Contributions to an ABLE account are not tax deductible and must be in cash or cash equivalents.
For Federal Financial Aid calculation, ABLE account balances of how much or less are disregarded?
Also, is an ABLE account of one sibling reported as an asset on another sibling’s FAFSA?
$100,000 or less is disregarded, anything over that amount would be included.
No
Grants are usually based on financial need and don’t need to be repaid.
What are the two types of Federal Grants for education?
**Pell Grants: **Awarded to undergraduate students who have exceptional financial need and who have not earned a bachelor’s, graduate, or professional degree.
Federal Supplemental Educational Opportunity Grant (FSEOG): A FSEOG is for undergraduates with exceptional financial needs (i.e., students with the lowest EFCs) and gives priority to students who receive Federal Pell Grants. An FSEOG does not have to be paid back.
What are the two types of Federal Direct/Stafford Loans?
- Direct Subsidized Loans (need-based; undergrad ONLY)
- Direct Unsubsidized Loans (non-need-based; undergrad, grad, & professional student)
Scholarship money is typically awarded based on what?
Is it taxed and does it need to be paid back?
Scholarship money is typically awarded based on your accomplishments.
- It is tax-free as long as it used for school, and does not need to be paid back.
- If parents have a 529 plan and student gets scholarship, parents can take PENALTY FREE distribution from 529 in the same amount. Still will have to pay taxes on it.
What is a Direct Plus Loan?
**A Direct PLUS Loan (non-need-based; undergrad, grad, & professional student) **is commonly referred to as a parent PLUS loan when made to a parent, and as a grad PLUS loan when made to a graduate or professional student.
- The U.S. Department of Education is the lender.
- Cannot have an adverse credit history.
- The maximum PLUS loan: (cost of attendance - any other financial aid received)
FAFSA (Free Application for Federal Student Aid) is used to determine eligibility for Federal Financial Aid. What is the lookback period for reported parent/student income?
FAFSA (Free Application for Federal Student Aid)
Used to determine eligibility for Federal Financial Aid
2-Year lookback for reported income.
What EFC income amount is protected for students?
Students = Amount over ‘protected amount’ ($9,410 for 2024-25 academic year).
If a family has 3 people (parents and students) eligible for the Lifetime Learning Credit (LLC) of $2,000 in a current tax year, how much of that total credit can they use?
The Lifetime Learning Credit (LLC) is available PER TAX RETURN, so can only use up to $2,000 in one year.
It is calculated based on 20% of up to $10,000 of qualified expenses, so if all 3 people only total $10,000 in fees in that year, you can use full $2,000.
College savings plans, Coverdell savings accounts and 529 accounts held in the parent’s or dependent child’s name are reported as (BLANK) assets on the financial aid application (FASFA).
College savings plans, Coverdell savings accounts and 529 accounts held in the parent’s or dependent child’s name are reported as parental assets on the financial aid application (FASFA).
What is an Exceptional Credit Score?
Above 800
Demonstrates to lenders you’re an exceptional borrower
What is a Very Good Credit Score?
740 - 799
Demonstrates to lenders you’re a very dependable borrower
What is a Good Credit Score?
670 - 739
Near or slightly above average
Most lenders consider this a good score
What is a Fair Credit Score?
580 - 669
Below Average
Many lenders will approve loans
What is a Poo Credit Score?
Below 580
Well Below Average
Risky Borrower
A complaint was received by CFP Board and CFP Board Counsel delivered the complaint to Doug. Doug has not responded in 35 days to the complaint.
What action may CFP Board Counsel take in this instance?
Failure to answer a complaint will result in CFP Board Counsel delivering an Administrative Order of Suspension or an Administrative Order of Revocation. The latter is the correct answer here (i.e., Order of Revocation) because there is a mandatory timeframe of 1 year and 1 day that is a part of the Administrative Order of Suspension.
Choice, task familiarity, information, and active involvement all lead to what?
Investor overconfidence
To buy a qualifying U.S. savings bond, the bond purchaser must be at least ___ years old at the time of bond issue.
The purchaser/owner of qualifying U.S. savings bonds (i.e., Series EE & Series I bonds) must be at least 24 years old before the bond’s issue date.
A CFP® professional must provide written notice to CFP Board within ___________ after the CFP® professional engages in adverse conduct.
A CFP® professional must provide written notice to CFP Board within thirty (30) calendar days after the CFP® professional engages in adverse conduct or a variety of other circumstances.
A CFP® professional who has monitoring responsibilities must analyze the progress toward achieving the Client’s goals ______________.
A CFP® professional who has monitoring responsibilities must analyze, at appropriate intervals, the progress toward achieving the Client’s goals.
The CFP® professional must review with the Client the results of the CFP® professional’s analysis.
Taxpayers who paid higher education expenses during the year for an eligible student can generally claim both the American Opportunity Tax Credit and Lifetime Learning Credit if they meet the general requirements.
True or False
False
Taxpayers who paid tuition and related expenses during the year for an eligible student can generally claim either the American Opportunity Tax Credit or the Lifetime Learning Credit if they meet the general requirements. They cannot claim both credits for the same student.
Are taxpayers who use the filing status of Married Filing Separately eligible to claim either the American Opportunity Tax Credit or Lifetime Learning Credits?
No, taxpayers who use the filing status of Married Filing Separately are not eligible to claim either the American Opportunity Tax Credit or Lifetime Learning Credits.
All other filing statuses are eligible
An asset is anything owned by a business or an individual that has market value.
There are three main types of assets, what are they?
- Cash and Cash Equivalents
- Investment Assets
- Personal Use Assets
Anchoring is where an investor…
Anchoring is where an investor sets a value at the initial point of information (typically their buy price).
Prospect theory: People suffer more greatly from…
Prospect theory: People suffer more greatly from losses than they benefit from gains.
Recency bias can make investors focus…
Recency bias can make investors focus more on the most current events, leading to faulty predictions that this is always how it will always be.
Overconfidence leads people to…
Factors leading to overconfidence:
* Choice
* Task familiarity
* Information (confirmation bias)
* ??
* ??
Overconfidence leads people to overestimate their knowledge, underestimate risks and exaggerate their ability to control events and predict outcomes.
Factors leading to overconfidence:
* Choice
* Task familiarity
* Information (confirmation bias)
* Active involvement
* Past success
People seek pride and avoid regret
What effect is this?
People seek pride and avoid regret (the disposition effect):
- Sell winners too quickly (confirms correct choice)
- Hold losers too long (avoids confirming incorrect choice)
When investors consider the past, they tend to suffer from:
xxxx = (take more risk)
xxxx = (take less risk)
xxxx = (take more risk)
When investors consider the past, they tend to suffer from
* House money effect (take more risk)
* Snakebite effect (take less risk)
* Break-evenitis (take more risk)
(BLANK) can lead to naïve diversification (i.e., the assumption that simply investing in enough unrelated assets will reduce risk sufficiently to make a profit).
Mental accounting can lead to naïve diversification (i.e., the assumption that simply investing in enough unrelated assets will reduce risk sufficiently to make a profit).
Familiarity leads to (BLANK) and single stock concentration.
Familiarity leads to home bias and single stock concentration.
Social interactions lead to (BLANK).
We find comfort in groups/numbers.
Social interactions lead to herd mentality (or, herding).
We find comfort in groups/numbers.
(BLANK) can lead to (BLANK), which can lead to (BLANK).
Optimism can lead to exuberance, which can lead to market bubbles.
People can be convinced of (BLANK) or (BLANK) that are not actually there.
People can be convinced of trends or patterns that are not actually there.
Being aware of the (BLANK) and the impact they can have on financial decision making is imperative to ensure you are providing (BLANK) and (BLANK) you may get from clients.
Being aware of the biases and the impact they can have on financial decision making is imperative to ensure you are providing objective advice and understanding the resistance you may get from clients.
