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CFP Study > General Principals/Conduct/ Psychology > Flashcards

General Principals/Conduct/ Psychology Flashcards

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1
Q

What is the golden benchmark percentage for inflation of a health economy?

A

2%

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2
Q

What is called when people seek pride and avoid regret? (Behavioral finance)

A

The disposition effect (sell winners too quickly and hold losers too long)

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3
Q

What 3 things does fiscal policy refer to?

A

taxation, expenditures, and debt management

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4
Q

Who controls the taxation and spending of the Government in the U.S.

A

Congress

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5
Q

What is the only means of revenue generation for the government?

A

Taxation

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6
Q

How does increases and decreases in tax rates affect disposable income?

A

Increase tax rates reduces disposable income
Decrease tax rate increases disposable income

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7
Q

What does government spending do to the economy?

A

Stimulates economic growth

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8
Q

What does the government do when they have a deficit spending? (expenditures exceed revenue)

A

They sell treasury securities
(This drives values lower of debt secruities)

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9
Q

Under Fiscal Policy, what 2 tools are available to congress?

A

Government spending and taxation

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10
Q

What government policy controls the money supply, influences lending rates, and slows down or stimulates the economy?

A

Monetary policy

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11
Q

Who controls Monetary policy?

A

The Federal Reserve Bank (The FED)

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12
Q

What 3 tools does the Fed have for Monetary policy?

A

Discount rate - rate member banks borrow from the government
Reserve Requirement - % Deposits that must be held on reserve
Open market activities - Fed buys and sells securities

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13
Q

What 3 things does monetary policy do to tighten/slow pace of growth? (Contractionary)

A

Increase discount rate
Increase Reserve requirement
Sell Securities

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14
Q

What 3 things does monetary policy take for expansion or easing?

A

Decrease discount rate
decrease reserve requirement
buy securities

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15
Q

What is the Study of how emotional factors affect financial decision making?

A

Behavioral finance

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16
Q

What is an approach to problem solving that employs a practical method that is not guaranteed to be optimal or rational, but sufficient for short term goals?

A

Heuristic
Examples; Rules of thumb, educated guess)

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17
Q

What is setting a value at the initial point of information?

A

Anchoring

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18
Q

What is the theory that people suffer more greatly from losses than they benefit from gains?

A

Prospect theory

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19
Q

What is it called when investors focus on most current events, predicting that it will always be this way?

A

Recency Bias

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20
Q

What leads people to overestimate their knowledge, underestimate risks, and exaggerate ability to control events?

A

Overconfidence

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21
Q

What are 3 effects investors suffer from when considering the past?

A

House money (take more risk, use profits)
Snake-Bite (less risk)
Breakevenitis ( take more risk)

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22
Q

What is the assumption that investing in enough unrelated assets reduce risk to make a profit?

A

Mental accounting

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23
Q

What bias does familiarity lead to?

A

Home-Bias

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24
Q

What behavior does social interactions lead to?

A

herd mentality

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25
Q

What can lead to exuberance and market bubbles?

A

Optimism

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26
Q

What happens to supply and demand to cause prices to rise?

A

Supply constricts, demand increases

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27
Q

What 2 government tools are used to manipulate the business cycle?

A

Monetary and Fiscal policy

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28
Q

On average, how long does the business cycle take?

A

7 years

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29
Q

When an increase in price of one good causes an increase in demand for another, what type of good is it?

A

A substitute

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30
Q

What 5 things happen in a contraction?

A

1.Falling activity
2. Credit dries up
3. Profits decline
4. Policy eases
5. Inventory, sales fall

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31
Q

What is it called when marginal utility from consuming additional units declines?

A

Diminishing marginal utility

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32
Q

What policy is used to influence demand side?

A

Monetary policy

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33
Q

What is the additional benefit received from consumption of an additional unit of good?

A

Marginal utility

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34
Q

What is the name for products that usually are consumed jointly? When price decrease of one, demand for the other increases

A

Compliments

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35
Q

What is a good called when quantity demanded responds greatly to price change?

A

Elastic
Example: Consumer discretionary

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36
Q

What measures quantity demanded of a good given a response to change in its price?

A

Price Elasticity

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37
Q

What is the formula for GDP?

A

Y= C+I+G+(X-M)

C= Consumer spending
I = investments made by industry
G= Government spending
X-M = Exports over imports (this can also be know as NE Net exports)

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38
Q

What 5 things does real GDP exclude?

A

1.Imports
2. Inflation
3. Money changes hands but no new good
4. Income of U.S. Working abroad
5. Profits of U.S. Companies in Foreign Countries

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39
Q

What 3 things does Real GDP include?

A
  1. Market value of all goods and services
  2. Income of foreigners working in the U.S.
  3. Profits that foreign companies earn in the U.S.
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40
Q

What does GDP measure?

A

The economy on a quarterly basis

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41
Q

What 5 things happen in the late stage of expansion?

A
  1. Growth Moderates
  2. Credit Tightens
  3. Earnings under pressure
  4. policy contractionary
  5. Inventories grow, sales growth falls
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42
Q

What is it called when Quantity demand has little response to Price change?

A

Inelastic
Example: Gas

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43
Q

What 5 things happen in the Mid stage of expansion?

A
  1. Growth peaking
  2. Credit growth strong
  3. Profit growth peak
  4. Policy neutral
  5. Inventory and sales growth reached equilibrium
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44
Q

What 5 things happen in the early stage of expansion?

A
  1. GDP rebounds
  2. Credit begins to grow
    3.Profits grow rapidly
  3. Policy still simulative
  4. Inventories low, sales improve
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45
Q

What are the 3 time frames of an expansion?

A

Early, Middle, late

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46
Q

What organization determines a recession in the U.S.

A

NBER (National Bureau of Economic Research)

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47
Q

What is a recession defined by?

A

2 consecutive quarters of negative GDP growth

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48
Q

What is the market value of goods and services produced by labor and property in the U.S.?

A

Gross Domestic Product (GDP)

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49
Q

What are the 2 points in the business cycle?

A

Peak - High GDP, Peak employment
Trough - Low GDP (Negative), high unemployement

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50
Q

What 2 things is a contraction characterized by?

A

Decreasing GDP
Increasing unemployment

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51
Q

What 2 things is an expansion characterized by?

A

Increasing GDP
Decreasing Unemployment

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52
Q

What are the 2 general phases of the business cycle?

A

Expansion and Contraction

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53
Q

What are swings in total national output, income, and employment marked by widespread expansion or contraction known as?

A

Business cycles

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54
Q

What are the 3 Fitness standards of adverse conduct for the CFP Certification?

A

1.Unacceptable
2. Presumed Unacceptable
3. Other Adverse Conduct

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55
Q

For the CFP Fitness standards, what are the 5 other adverse conducts?

A
  1. Customer complaints
  2. Arbitrations and other civil proceedings
  3. Felony convictions for non-violent crimes that occurred >5 years ago
    4.Misdemeanor conviction
  4. Employer investigations and terminations
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56
Q

What are the 9 steps in the CFP board hearing process?

A
  1. CFP Counsel delivers complaint
    2.You can pay the settlement or answer within 30 days, and pay hearing/settlement review fee or request a wavier within 30 days.
  2. Hearing documents, written statements, stipulations required within 45 days. Witness list within 30 days.
  3. Notice of hearing from CFP BC - 30 days prior to hearing.
  4. Hearing
  5. Hearing recommendations
  6. DEC review
  7. DEC final order
  8. Appeal within 30 days
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57
Q

What is the punishment for failing to answer a complaint or pay a fee for settlement?

A

Revoke permanently or suspended for 1 year and 1 day

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58
Q

What are the 4 forms of Discipline from the Discipline and ethics commity?

A
  1. Private censure - unpublished
  2. Public letter of admonition - published in press release
  3. Suspension - Min 90 days, max of 5 years
  4. Revocation - permanent barred
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59
Q

What steps of the financial planning process should all relationships go through?

A

Step 1-5

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60
Q

What are the 3 groups involved the CFP board hearing process?

A
  1. CFP Board Counsel - investigate and file a complaint
  2. Disciplinary and ethics committee (DEC) - authority to issue final order and impose disciplines
  3. hearing panel - conducts hearing. Must have at least 3 people, lead by member of DEC and mostly CFP members
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61
Q

Under CFP Fitness standards, what are the 5 conducts deemed a presumptive bar?

A
  1. 2 or more personal or business bankruptcies
  2. Revocation or suspension of a non-financial professional licenses (unless admin related)
  3. Suspension of financial licenses ( Unless admin related)
  4. Felony conviction of a non violent crime in the last 5 years
  5. Felony conviction of a violent crime greater than 5 years ago.
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62
Q

For the CFP fitness standards what are the 5 conducts deemed unacceptable?

A
  1. Felony conviction for financial crimes
  2. Felony conviction for tax crimes
  3. Revocation of a financial professional licenses (unless administrative)
  4. Felony conviction for murder or rape
  5. Felony conviction other violent crimes that occurred with the last 5 years.
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63
Q

What 2 steps of the financial planning process do you obtain quantitative and qualitative info?

A

Step 1 and Step 7

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64
Q

What are the 7 practice standards of the financial planning process?

A
  1. Understand clients personal and financial circumstances
  2. Identify and select goals
  3. Analyze current and potential courses of action
  4. Develop financial planning recommendations
  5. Present recommendations
  6. Implementing
  7. Monitoring and updating
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65
Q

What 3 standards of conduct are owed to clients when doing financial planning?

A
  1. Duties that apply when providing advice
  2. Practice standards for financial planning process
  3. Information to a client in writing
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66
Q

What are the 6 code of ethics?

A
  1. Act with honesty, integrity, competence, and diligence
  2. Act in clients best interest
  3. Exercise due care
  4. Avoid or disclose and manage conflicts of interest
    5.Maintain confidentiality and protect the privacy of clients
  5. Act in manner that reflects positively on profession
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67
Q

What are the 6 standards of conduct?

A

A. Duties owed to clients
B. Financial planning and applications of the practice standards
C. Practice standards for the Financial planning process. 7 steps
D. Duties owed to firms and subordinates
E. Duties owed to CFP Board
F. Prohibition on circumvention

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68
Q

What are the 3 parts of Fiduciary Duty?

A
  1. Duty of Loyalty
    2.Duty of Care
    3.Duty to follow clients instructions
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69
Q

What 2 things would be considered financial advice?

A
  1. A communication that would be reasonably viewed as recommendation to a client to take or refrain from an action.

and

2.Exercise of discretionary authority over clients financial assets

Fiduciary duty applies to both

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70
Q

What is the collaborative process that maximizes clients potential for meeting life goals?

A

Financial Planning

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71
Q

What are the 15 duties owed to a client?

A
  1. Fiduciary duty
  2. Integrity
  3. Competence
  4. Diligence
  5. Disclose and managed of Conflicts of interest
  6. Professional judgement
  7. Professionalism
  8. Comply with the law
  9. Confidentiality and privacy
  10. Provide information
  11. Communication with clients
  12. Compensation
  13. Recommending others
  14. Recommending technology
  15. Borrowing and commingling / lending
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72
Q

What 5 standards of conduct are owed to client when giving financial advice?

A
  1. Duties that apply at all times
  2. Fiduciary duty
  3. Conflicts of interest
  4. Provide information to clients
  5. Duties when recommending others
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73
Q

What 10 standards of conduct are owed to the client at all times?

A
  1. Integrity
  2. Competence
  3. Diligence
  4. Professional judgement
  5. Professionalism
  6. Comply with law
  7. Confidentiality and privacy
  8. Communicating with clients
  9. Recommending technology
  10. Refrain from borrowing/lending and commingly
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74
Q

In step 4 of the planning process, what are the 4 things to consider when making recommendations?

A
  1. Assumptions and estimates used to develop the recommendation
  2. Basis for making recommendation
  3. Timing and priority of the recommendation
  4. Whether independent or implement with another recommendation
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75
Q

What are the 5 standards of conduct owed to the CFP Board?

A
  1. Refrain from adverse conduct
  2. Reporting
  3. Provide narrative statement
  4. Cooperation
    5, Compliance with terms and conditions
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76
Q

What are the 3 standards of conduct owed to firms and subordinates at all times?

A
  1. Use reasonable care when supervising
  2. comply with lawful objectives of firm
  3. provide notice of public discipline
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77
Q

What is the balance sheet also known as?

A

Statement of financial position

78
Q

What side of the balance sheet are assets listed on and how are they ordered?

A

Left side, Top to bottom from most liquid to least

79
Q

What side of the balance sheet are liabilities and net worth listed on and how are they ordered?

A

Right side, Top to bottom : ST liabilities, LT liabilities, Net worth

80
Q

What is the balance sheet equation?

A

Assets= Net worth + liabilities

81
Q

What does time, purpose, measure, and the starting and ending point of the balance sheet?

A

Time: Point in time
Purpose: Financial position
Measure: Assets, Liabilities, Shareholder equity
Starting point: cash balance
Ending point: Retained earnings

82
Q

What is the time, purpose, measure, and the starting and ending points of the statement of cash flow?

A

Time: Period of time
Purpose: Cash movements
Measure: increases and decreases in cash
Starting point: Net income
Ending point: Cash Balance

83
Q

What is used to determine overall financial health?

A

Financial ratios

84
Q

What are the 4 basic types of financial ratios?

A
  1. Liquidity Ratio
  2. Activity ratio
  3. Profitability ratio
  4. Debt ratio
85
Q

What are the 2 types of personal financial ratios?

A

Debt and liquidity ratios

86
Q

What are the 3 liquidity ratios and what to do they measure?

A
  1. Current ratio - CA/CL - Ability to meet ST Debt obligations

2.Quick Ratio - (CA-INV)/CL - Ability to pay ST Debt obligations using most liquid items

  1. Working capital - CA-CL - Cash and cash equivalent to meet day to day operations.
87
Q

What are the 4 activity ratios and what do they measure?

A
  1. Inventory turnover: COGS/ AVG INV - How many times over a company has sold it’s inventory in a given period and replaced
  2. Days to sell inventory: 365/ Inv turnover - Efficiency of sales
  3. Accnts rec turnover: Sales/ AVG accounts rec -How quickly converting rec to cash. Managing credit
  4. Rec collection period: 365/ Accnts rec turnover
88
Q

What are the 4 profitability ratios and what are they used for?

A
  1. Gross profit margin: GP/Sales - profit for every dollar of revenue it is making using direct costs
  2. Operating profit margin: Operating income/ Revenue - profit for every dollar after measuring variable costs

3.Return on Assets (ROA): EAT/ TA - efficiency of converting assets into capital

  1. Return on equity (ROE): EAT/ Equity - efficiency of using equity provided by shareholder
89
Q

What are the 3 debt ratios and what are they used for?

A
  1. Debt to equity: Long term Debt/Equity - ability to raise cash from new debt. how much debt you have compared to equity

2.Times interest earned: EBIT/Interest expense - earning enough to pay for debt

  1. Debt ratio: Total debt/Total assets -no more than 36% for people
90
Q

What is used in planning to assist clients through an unexpected loss of income, unforeseen expense, or combination of both?

A

Emergency fund

91
Q

What is an emergency fund used for in retirement?

A

Income bridge to avert taking income from down market investments

92
Q

What is the emergnecy fund ratio and target?

A

Ratio: Monetary assets/Monthly expenses
Target: 3 to 6 months

Two earners - 3 months
Single - 6 months

93
Q

What takes precedence over an emergency fund for a client with a child and another who is single?

A

Client with the child: Will establishing guardianship
Client who is single: Disability income insurance

94
Q

What are the 2 financial ratios for home buying and %?

A

Front end = PITI / Gross income = 28%
Back end = (PITI _ other debt) / Gross income = 36%

95
Q

What are the two big financial ratios that are tested?

A

Current ratio and debt ratio

CA/CL
TD/TA

96
Q

What are the 2 type of mortgages based on the $ size of the mortgage?

A
  1. Conventional - under $726,200
  2. Jumbo - Over $726,200
97
Q

When are you required to pay private mortgage insurance (PMI) and how can it be eliminated?

A

Under 20% down payment. It is eliminated after 2 years if you build 20% in equity

98
Q

What type of mortgage has a large portion repaid in a single payment at the end of the loan period?

A

A balloon mortgage

99
Q

What is a balloon mortgage used for?

A

If people intend to stay in home for a short time

100
Q

What are the 4 mortgage financing programs? What down payment is required, insurance, fixed or adjusted, and are there fees?

A
  1. Conventional
    3-20% down payment required; under 20% down payment, PMI; can be fixed or adjusted; and no fees
  2. FHA - Federal Housing administration
    3.5-20%, insurance for 11 years or life of loan; can be fixed or adjusted, no fees
  3. VA -Veterans administration
    0% DP req, no insurance req; can be fixed or adjusted, fees + 2.3%-3.6%, these are waived for disabled veterans
  4. USDA - United states department of agriculture
    0% dp, no insurance req, only fixed, fees of 1% upfront, and annually of .35%

All have terms of 15-30 years

101
Q

Regardless of mortgage type, what is the main financial plannin goal?

A

minimize fees and interest

102
Q

What is used by lenders to figure out a borrowers repayment ability and approve a mortgage?

A

mortgage ratios

103
Q

What are the 2 mortgage ratios and the % required to pass each one?

A
  1. housing cost ratio (front end) = PITI/ Gross house hold income. less than or equal to 28%
  2. Total debt ratio (back end) = (PITI + monthly consumer debt)/ gross income household . Less than or equal to 36%
104
Q

What is the debt ratio for mortgages called and % to pass?

A

Consumer debt ratio = non housing consumer debt / monthly net income. less than or equal to 20%.

Consumer debts include
auto loans
student loans
credit cards
unsecured debt

105
Q

What are the 4 costs of mortgage payments?

A

PITI

Principal
Interest
Taxes
Insurance

106
Q

What is the FDIC dollar limit for coverage and what does it cover?

A

$250,000 per person, per ownership category

107
Q

What are the 8 different FDIC deposit insurance coverage categories and what are they covered by?

A
  1. Single accounts - per owner
    2.Joint accounts - per co-owner
  2. Certain retirement accounts - per owner
  3. Revocable trust - per owner and per bene
  4. Corporation, partnership, unicorp per each
  5. Irrevocable trust- per non-contingent interest of each bene
  6. Employee benefit plan - each participant or bene
  7. Government accounts per official - more coverage may be available
108
Q

What are the 3 common bankruptcy chapters?

A
  1. Chapter 7
  2. Chapter 13
  3. Chapter 11
109
Q

What is a liquidation type of bankruptcy that eliminates consumers debt by having a trustee sell some of the debtors personal property?

A

Chapter 7

110
Q

What type of bankruptcy known as the wage earner plan, allows debtors to keep their personal assets but obligated to repay debt over a period of time?

A

Chapter 13

111
Q

Under chapter 7 bankruptcy, what is the timeframe for most debts to be discharged and what 5 obligation must still be repaid?

A

115 days
1. Child support
2. Alimony
3. Income taxes less than 3 years past due
4. Student loans
5. Secured debt

112
Q

What are the dollar eligibility requirements under chapter 13 bankruptcy for unsecured and secured debt?

A

Unsecured - $419, 275
Secured - $1,257,850

113
Q

What type of bankruptcy is intended for businesses but also people who exceed chapter 13 debt limit or lack regular income?

A

Chapter 11

114
Q

For each of the 3 bankruptcy filings, what is the primary purpose, who can file, how long does it take, and how long is it on credit reports?

A
  1. Chapter 7
    Liquidation
    Indiv and businesses
    4-6 months
    10 years

2.Chapter 13
repayment
indiv
3-5 years
7 years

  1. Chapter 11 - reorganization
    Business and rarely indiv
    6 mo- 2 years
    10 years
115
Q

What consumer credit protection law has the right to know costs and terms of credit?

A

Consumer credit protection act

116
Q

What consumer credit protection law has the right to fair opportunity to obtain credit?

A

Equal credit opportunity act

117
Q

What consumer credit protection law gives the right to know what is in your credit file?

A

Fair credit reporting act

118
Q

What consumer credit protection law gives the right to have billing mistakes resolved

A

Fair credit billing act

119
Q

What consumer credit protection law gives the right to be protected from collection agencies?

A

Fair debt collection practices act

120
Q

What does a credit score tell lenders about a person?

A

their creditworthiness

121
Q

What are the 5 categories a credit score is calculated on and weight of each in %?

A
  1. Payment history - 35%
  2. Amounts owed - 30%
  3. Length of credit history - 15%
  4. new credit 10%
  5. Credit mix 10%
122
Q

What are the 5 different credit scores and their ratings?

A
  1. <580 - poor
  2. 580 to 669 - average +90
  3. 670 to 739 - Good +70
  4. 740 - 799 - very good +60
  5. 800+ exceptional
123
Q

What type of mortgage would be advised when rates are low and homeowner is going to stay for a long time?

A

Fixed rate

124
Q

What type of mortgage is advisable when rates are high or the owner is not planning on keeping the home long term?

A

Variable rate

125
Q

What do borrowers pay to lower there rate or improve terms and how is it calculated?

A

origination points

points are a % of amount borrowed that can be added to the mortgage

126
Q

What is the ultimate goal of mortgage planning?

A

Reduce the years and rates when possible

127
Q

What organization is the ultimate overseer of all things debt?

A

CFPB - consumer financial protection bureau

128
Q

Is it common for planners to consult on bankruptcy filings?

A

No

129
Q

What is the 3 step calculation for education funding?

A
  1. Calculate the FV using education inflation for Day 1 of college. (College age- current age for N)
  2. FV becomes PMT, solve for PV (cost of 4 years of tuition) using inflation adjusted rate (1+r/ 1+education inflation rate)
  3. PV becomes FV, solve for PMTs or PV
130
Q

What are the 2 TIER 1 Edcuation funding options?

A
  1. 529
    2.Coverdell education savings account
131
Q

What is the max investment in a 529 and coverdell?

A

529 established by program, typically in excess of $400k. Coverdell - 2k per bene per year

132
Q

For 529’s and Coverdell’s, is the value removed from donor’s gross estate?

A

Yes, but 529 partial inclusion for death during 5 year election period

133
Q

What is the Dollar limit for K-12 tuition expenses and student loan payments? (Same amount, different limits)

A

$10,000

134
Q

What are the restrictions for time/age on a Coverdell account?

A

Must be funded prior to age 18 and used by age 30 or moved to another Beneficiary

135
Q

What are the income restrictions on a 529 and coverdell?

A

529 - none
Coverdell - 95-110 single 190-220k Married

136
Q

What is the affect on federal financial aid for 529 and Coverdell’s?

A

Counted as asset of parent if owner is parent or dependent student

137
Q

What are the 2 tier 2 education funding options?

A
  1. UGMA/UTMA accounts
  2. Series I and EE bonds
138
Q

What is the federal income tax treatment for TIER 2 education funding options?

A

UGMA/UTMA - Earnings and gains taxed to minor - first $1250 of unearned income is tax exempt, next $1250 at kiddie tax rate, over $2500 taxed at parents highest rate

SERIES I and EE - Tax deferred. Tax free for qualifying education

139
Q

What is the estate tax treatment for TIER 2 education funding options?

A

EE and I bonds - value included in gross estate

UGMA/UTMA - value removed unless donor remains as custodian

140
Q

What is the max investment per year for TIER 2 education funding options?

A

1.UGMA/UTMA - unlimited

EE and I Bonds - 10k , 5k paper I bonds

141
Q

For series EE and I bonds, how old must the purchaser be?

A

24 (to qualify for higher education tax free use)

142
Q

What is the interest exclusion phase out for Series EE and I bonds?

A

$137,800 - $167800 mfj
91,850 -106850 single

143
Q

For tier 2 education funding options, what are the assets counted as for federal financial aid?

A

UGMA/UTMA - the students asset

EE and I - counted as asset of bond owner

144
Q

What are 3 tier 3 education funding options?

A

Roth IRA, Traditional IRA, Mutual funds

145
Q

For TIER 3 education funding options, what are the affects on federal financial aid?

A

Roth and Traditional IRA - not counted as asset- withdrawals of Principal and interest counted as financial aid income

Mutual fund - counted as asset of owner

146
Q

What are 5 financial aid alternatives?

A
  1. Home equity loan
  2. Life insurance cash value
  3. Qualified plans
  4. Defer admission
  5. Community college
147
Q

What are the 6 policy forms for homeowners insurance?

A

HO-O2 - Broad - Basic
HO-O3 - Special - Better
HO-O4 - Contents - Renters
HO-O5- Comprehensive - Best
HO-O6 - Unit owner - condo/co-op
HO-O8 - Modified coverage - older/historical

148
Q

What are the 6 parts of each policy form for homeowners insurance?

A

Property (part 1): Coverage A, B, C, D
Liability (Part 2) : Cover E, F

Address - house
Backyard - detached garage, storage
Crate-crop- (furniture, electronics, clothes, etc)
Damaged/destroyed- uninhabited natural disaster
Exposure to legal action - personal liability
Fractured femus - medical payments to others

149
Q

What is a tax favored savings account that can accept contributions for an eligible individual with a disability or who is blind?

A

529 ABLE account

150
Q

What age must a disability occur before to establish an ABLE account?

A

26

151
Q

Are distributions from an ABLE account taxed?

A

No, only if it exceeds the qualified disability expenses

152
Q

What must qualified disability expenses be related to?

A

Disability or blindess

153
Q

Can you rollover a 529 to a 529 able account without penalty?

A

yes

154
Q

How are ABLE accounts counted for financial AID?

A

excluded if less than $100k balance

155
Q

What are the restrictions to be eligible for an ABLE account?

A
  1. Diagnosed with disability prior to 26 years old
  2. Condition expected to last greater than 12 months
  3. must be receiving Supplemental security income or social security disability income or be able to obtain disability certification from Doctor.
156
Q

What is the max contributions to an ABLE account annually?

A

$17k - no additional for joint

157
Q

What are the 4 types of student aid?

A
  1. Grants - based on financial need
  2. Scholarships- based on accomplishments
  3. Loans - investment in future, repay with interest
  4. work study- earn money while in school
158
Q

What are the 2 types of student aid grants?

A
  1. Pell Grants -undergrad students - exceptional financial need, hasn’t earned bach degree, gradate, or professional degree
  2. Federal supplemental education opportunity grants (LOWEST EFTs- priority for students who receive pell grants
159
Q

What are the 2 loan categories for financial aid of a student?

A

federal Direct Loans/ Stafford loans

Direct plus loans

160
Q

What are the 2 types of federal direct/stafford loans?

A
  1. Direct subsidized - Needs based, undergrad only
    Slightly better terms
    US dept of education pay interest while in school, for 6 months after school, and during period of deferment
  2. Direct unsubsidized - Non-need based, undergrad, grad, professional defreee.
    Students pay interest during all periods
161
Q

What are direct plus loans also referred to and what are they used for?

A

Parent plus and Graduate plus loans

Non need based, undergrad, grad, and professional degrees

Cant have adverse credit history
Max plus loan = cost of attendance - any other financial aid received

162
Q

What is FAFSA and what is it used for?

A

Free application for Federal student aid

used to determine eligibility for federal financial aid

163
Q

What is the lookback period for FAFSA on income?

A

2 years

Best strategy is to use last 2 years of school for help funding

164
Q

What does the expected family contribution (EFC) consist of?

A

Parent/student assets and income

165
Q

What is the allowance for income in the EFC?

A

Student - $7,600
Parents = AGI - taxes and living expense allowance

166
Q

What assets are not counted towards EFC for Financial aid?

A

Others assets

Retirement accounts and Home equity

167
Q

What is the financial need formula?

A

Cost of attendance - EFC= financial need

168
Q

In the EFC formula what % of income for students and parent are included?

A

Students = 50%
Parents = range of 22% to 47%

169
Q

What % of parents and students assets are included in the EFC formula?

A

Parents 5.64%
students = 20%

170
Q

For the EFC, how do you determine parents vs students assets?

A

If owned by parent or dependent student = parents assets

If owned by independent student = students assets

others - aunts or grandparents - excluded

171
Q

What is the impact of distributions to financial aid for parents and others?

A

parents - none

others - up to 50% reduction

new law changes this for others - no reduction

172
Q

What is the max benefits for the American Opportunities tax credit and lifetime learning credit?

A

AOTC - $2500
40% of credit refundable ($1000)

LLC- $2000
Nonrefundable

173
Q

What is the MAGI limits for the AOTC and LLC?

A

$90k single
180k MFJ

174
Q

Can you claim the AOT or LLC if someone claims you as dependent?

A

No

175
Q

How many courses must a student take to get the AOTC and LLC?

A

AOTC - half for school period

LLC - 1 or more courses

176
Q

If you have a felony drug conviction can you receive the AOTC or LLC?

A

AOTC- no
LLC - yes

177
Q

What is the level of education/years restrictions for using the AOTC and LLC?

A

AOTC - Undergrad only, 4 years

LLC - any program, unlimited number of years

178
Q

What is the calculation for the AOTC and LLC?

A

AOTC = 100% of first $2000 and 25% of the next $2000

LLC = 20% of $10,000 expenses

179
Q

What law requires registration of initial public offerings?

A

Securities act of 1933

180
Q

What law prohibited financial institutions from consolidation and offering any combination of traditional commercial banking, investment banking (Brokerage firms), and insurance ?

A

Glass-Steagall act of 1933

181
Q

What law requires companies with previously issued securities to keep information current, created the SEC, and requires brokers and dealers to register with the SEC?

A

Securities exchange act of 1934

182
Q

What law brought the OTC marker under the regulation of the SEC and called for self regulation OT securities dealers

A

Maloney Act of 1938

183
Q

What law provides for the liquidation of hopelessly troubled firms and provides for the reorganizations of troubled firms that might be able to survive?

A

Federal bankruptcy act of 1938

184
Q

What law extended securities laws to investment companies(mutual funds)?

A

Investment company act of 1940

185
Q

What law requires registration for and regulates activities of investment advisers?

A

Investment advisers act of 1940

186
Q

What law made it clear the insurance was to be regulated at the state level, as long as the states implemented and executed this regulation adequately?

A

McCarren-Ferguson act of 1945

187
Q

What law established the securities investor protection corporation(SIPC) insures customers accounts up to $500k in securities and cash, with a limit of $250k of cash coverage?

A

Securities investor protection act of 1970

188
Q

What law specified what constitutes the insider trading of securities and stiffened the penalties for engaging in such trading?

A

Insider trading and securities fund enforcement act of 1988

189
Q

What law addresses the manners in which financial institutions manage the private information of individuals and repealed the Glass-Steagall act of 1933?

A

Gramm-leach-bliley act of 1999

190
Q

What law requires broker-dealers, among others, to have internal policies, procedures, and controls to meet the know your customer mandate as an effort against funding terrorism by money laudnering?

A

USA PATRIOT act of 2001

CFP Study (6 decks)

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