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BIF Review > General principles > Flashcards

General principles Flashcards

1
Q

What does FDIC cover?

A

250k per person, per ownership, per institution

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2
Q

What type of accounts do FDIC not cover?

A

Mutual funds, brokerage accounts

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3
Q

Chapter 7 Bankrupcty

A

liquidation, income must be below a certain amount

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4
Q

What obligations must still be repaid if a chapter 7 bankruptcy is filed?

A

child support, alimony, income taxes less than 3 years ago, student loans, secured debt

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5
Q

What is the main reason to file a chapter 7 bankruptcy?

A

medical debt

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6
Q

Chapter 13 bankruptcy

A

repayment plan. Will pay more every month to make payments on their overdue debt along with their current monthly payments

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7
Q

Eligibilty requred for chapter 13 bankruptcy

A

debt must be under a certain amount

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8
Q

How long does a chapter 13 stay on credit score

A

7 years

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9
Q

chapter 11 bankrupty

A

intended for business but also accomodates those who exceed chapter 13 debt limitations or lack regular income

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10
Q

Primary purpose of chapter 11 bankruptcy

A

reorganization

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11
Q

Consumer Credit Protection Act

A

right to know costs and terms of credit

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12
Q

Equal Credit Opportunity Act

A

right to fair opportunity to obtain creditq

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13
Q

Fair credit reporting act

A

right to know whats in your crdit file

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14
Q

Fair credit billing act

A

right to havebilling mistakes resolved

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15
Q

fair debt collection practices act

A

right to be protected from collection agencies

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16
Q

who oversees all things debt

A

consumer financial protection bureau

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17
Q

How much is payment history factored into a credit score

A

35%

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18
Q

how much is amounts owed factored into a credit score

A

30%

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19
Q

how much is length of histyr factored into a credit score

A

15%

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20
Q

how much is new credit factored into a credit score

A

10%

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21
Q

how much is credit mix factored into a credit score

A

10%

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22
Q

poor credit score

A

<580

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23
Q

fair credit score

A

580-669

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24
Q

good credit score

A

670-739

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25
Q

very good credit score

A

740-799

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26
Q

exceptional credit score

A

800+

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27
Q

balloon mortgage

A

a mortgage in which a large portion of the borrowed principle is repaid in a single payment at the end of the loan period

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28
Q

what are origination points

A

points are a percentage of the amount borrowed and can be added into the mortgage

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29
Q

conventional loan terms

A

3-20% down payment, down payment <20%=PMI insurance, fixed/variable rate, no funding fees

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30
Q

PMI(private mortgage) insurance

A

required if a borrower puts down less than 20% of value of home

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31
Q

VA loan tersm

A

0% down payment, no pmi insurance, fixed/variable fee, funding fees unless diabled veteran

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32
Q

FHA loan terms

A

3.5-20% down payment, pmi insurance always for 11 years or life of loan, fixed/variable fee, no funding fees

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33
Q

USDA loan terms

A

0% down, no pmi insurance, fixed only rate, funding fees

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34
Q

Goal of mortgage type to be considered

A

always look to minimize fees and interest. Ultimately looking to reduce years and rates when possible

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35
Q

What is an advantage and caveat of taking the lower monthly payment through a longer variable rated mortgage to invest the difference

A

investor must be disciplined and the return of the investment must be higher

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36
Q

Housing cost ratio (aka front end ratio or mortgage debt service ratio)

A

Pass if <or= 28%

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37
Q

Total debt ratio (aka back end ratio or debt repayment ratio) and

A

pass if = or <36%

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38
Q

total debt ratio formula

A

(PITI + monthly consumer debt) / monthly net household income

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39
Q

housing cost ratio formula

A

PITI/gross household income.

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40
Q

consumer debt ratio formula

A

=monthly consumer debt (non-housing) / monthly next household income

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41
Q

consumer debt ratio pass

A

= or < 20%

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42
Q

how to calculate for remanining balance on mortgage on calculator

A

xxxxx

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43
Q

how to calculate remianing balance on calculator

A

xxxxx

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44
Q

how to calculate total interest paid in any given timeframe on calculator

A

xxxxxxx

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45
Q

how to calculate total principal paid in any given timeframe on calculator

A

xxxxxxx

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46
Q

how to calculate a refinance in the calculator

A

xxxxx

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47
Q

Education Funding Required Information (6)

A

Child Age
Anticipated College Start Date (commonly 18)
Anticipated Length of College Enrollment (Assume 4 Years, if not provided)
Current Tuition
Education Rate of Inflation
Expected Investment Rate of Return

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48
Q

Education Funding 3 steps

A

INFLATING the current tuition to its value on Day 1 of College
ADJUSTING the amount to solve for the Present Value of TOTAL funding needed on DAY 1 of College
INVESTING the funds to hit the education savings need solve for in STEP 2

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49
Q

What % do you use when calculating total cost of college attendance on day one?

A

inflation adjusted (step 2)

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50
Q

What % do you use when calculating total college cost from today to day 1 of college?

A

education rate of inflation, not CPI

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51
Q

What step when calculating college funding does ‘begin mode’ get put in?

A

step two

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52
Q

What % do you use when INVESTING the funds to hit the education savings need solve for in STEP 2

A

investment % (step 3)

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53
Q

What is a Section 529 Plan?

A

A program that allows taxpayers to either prepay or contribute to an account that will pay a student’s qualified education expenses at an eligible educational institution

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54
Q

Who can have a Section 529 Plan?

A

Anyone can participate in a 529 plan regardless of the age of the beneficiary.

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55
Q

Who can contribute to a Section 529 Plan?

A

There are no income restrictions on the individual contributors. Contributions to both a 529 and a Coverdell Education Savings Account (ESA) in the same year for the same designated beneficiary are permitted.

56
Q

Are distributions tax-free?

A

Yes, if they are made towards qualified education expenses.

57
Q

What is a Coverdell ESA?

A

A savings account is set up to pay the qualified education expenses of a designated beneficiary.

58
Q

Who can have a Coverdell ESA?

A

Any beneficiary who is under age 18 or is a special needs beneficiary.

59
Q

Who can contribute to a Coverdell ESA?

A

Generally, any individual (including the beneficiary) whose modified adjusted gross income for the year is less than $110,000 ($220,000 in the case of a joint return).

60
Q

Are distributions tax-free?

A

Yes, if the distributions are not more than the beneficiary’s adjusted qualified education expenses for the year.

61
Q

How are 529 plans federal income tax?

A

non deductible contributions; withdrawn earnings excluded from income to the extent of qualified education expenses

62
Q

Federal gift tax treatment of 529

A

contributions treated as complete gifts; apply 17k annual exclusions or up to 85k with 5 year election

63
Q

federal estate tax treatment of 529s

A

value removed from donors gross estate; partial inclusion for death during a 5 year election

64
Q

Max investment in 529 plans

A

established by the program; many excess of 400k per bene

65
Q

qualified expenses for a 529 plan

A

college tuition, fees, books, computers, and related equipment, supplies, special needs; room and board for min part time students. Up to 10k in tuition expenses k-12 schools. Up to 10k in student loan payments

66
Q

Are there time/age restrictions for a 529 plan?

A

no unless imposed by the program

67
Q

income restrictions for 529 plan?

A

none

68
Q

federal financial aid impacts of a 529

A

counted as an asset of parent if owner is parent or dependent student

69
Q

tax consequence in a 529 plan if used for a nonqualfied expenses

A

withdrawn earnings subject to federal tax and 10% penalty

70
Q

federal income tax of a coverdell esa

A

non deductible contributions; withdrawn earnings excluded from income to extent of qualified higher education expenses and qualfied k-12 expenses also excluded

71
Q

federal gift tax treatment of coverdell esa

A

contributions treataed as completed gifts; apply 17k annual exclusion

72
Q

federal estate tax treatment

A

value removed from donors gross estate

73
Q

maximum investment in a coverdell esa

A

2k per beneficiary per year combined from all sources

74
Q

qualfied expenses

A

tuition, fees, supplies, equipment, special needs; room and board for min hald time students; additional types of k-12 expenses

75
Q

time/age resitrictions of coverdell esa

A

contributions before beneficiary reaches 18; use accocunt or change beneficiary by age 30

76
Q

income restriictions for cvoerdell esa

A

phase out for incomes between 190k-220k (jt filers) or 95k-11k (single filers)

77
Q

federal financial aid for a coverdell esa

A

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

78
Q

what is the best way to fund education?

A

529 & esa accounts

79
Q

What is a UGMA & UTMA account?

A

A custodial account for the benefit of a minor within which a minor may own securities.

80
Q

Who can have a UGMA/UTMA account?

A

The minor named as beneficiary on the account.

81
Q

Who can contribute to a UGMA/UTMA account?

A

Anyone can contribute to a UGMA or UTMA. They are taxable investment accounts with no contribution limits. Kiddie tax rules may apply to unearned income generated by the investments.

82
Q

Are UGMA/UTMA distributions tax-free?

A

No, the investments within the account are taxable

83
Q

What is a Series EE/Series I bond?

A

Special savings bonds through which an exclusion from taxation on interest is available when used for qualifying educational expenses.

84
Q

Who can have a Series EE/Series I bond?

A

The bond must be issued either in one parent’s name (as the sole owner) or in the name of both parent and spouse (as co-owners).

85
Q

Who can purchase a Series EE/Series I bond?

A

The purchaser/owner must be at least 24 years old before the bond’s issue date

86
Q

Are distributions tax-free in a Series EE/Series I bond?

A

When used for qualifying educational expenses and the owner’s MAGI is below certain limits, interest from bonds is tax-free.

87
Q

Federal financial aid for UGMA/UTMA

A

counted as asset of student (more punitive for child)

88
Q

maximum investment in qualifying us savings bons

A

series EE: 10k per year, per owner. Series I 10k (digital); 5k (paper) per year, per owner

89
Q

federal income tax for qualfiying us savings bond

A

tax deferred for federal; tax free for state

90
Q

federal income tax for utma/ugma

A

earnings and gains taxed to minor; for 1250 of unearned income is tax free, unearned income over 2500 for certain children under age 24 is taxed at parentsl highest marginal rate

91
Q

financial aid alternatives

A

home equity loan, life insurance cash values, qualfied plans (via borrowing), defer admissions, community college

92
Q

by when do coverdell esa’s need to be funded by?

A

age 18

93
Q

federal income tax for Roth IRA as a education funding option

A

non-deductible contributions; withdrawn earnings excluded from income after age 59.5 and five years; 10% penalty on early withdrawals waived if used for qualified higher education expenses

94
Q

federal income tax for a traditional IRA as a education funding option

A

deductible or non-deductible contributions; withdrawals in excsess of basis subject to tax; 10% penalty on early withdrawals waived if used for qualfied higher education expenses

95
Q

Roth IRA federal financial aid

A

not counted as asset; withdrawals of principal and interest counted as financial aid income

96
Q

traditional IRA federal financial aid

A

not counted as asset; withdrawals of principal and interest counted as fianncial aid income

97
Q

When may a 529 ABLE Plan be be established?

A

if blindness or disability occurred before age 26

98
Q

529 ABLE accounts Qualified disability expenses

A

any expenses incurred at a time when the designated beneficiary is an eligible individual. The expenses must relate to blindness or disability, including expenses for maintaining or improving health, independence, or quality of life.

99
Q

What is the total annual contributions to an ABLE account

A

17k including amounts rolled over from a 529 account

100
Q

Federal tax consequences for an ABLE account

A

non-deductible contributions;
withdrawn earnings excluded from income to the extent of qualified disability expenses

101
Q

What is the threshold for federal fianncial aid for a ABLE account?

A

balances of 100k or less are disregarded; would also not be reported as an asset on a siblings FAFSA

102
Q

ABLE accounts used for nonqualifying expenses

A

Will result in tax implications and penalties and could affect the bene’s eligibility for public benefits

103
Q

Where can contributions from an ABLE account be made from?

A

friends & family, special needs trust,529 college savings account rollover

104
Q

What 2 types of financial aid does not required to be paid back?

A

grants and scholarships

105
Q

Pell Grants

A

Awarded to undergraduate students who have exceptional financial need and who have not earned a bachelor’s, graduate, or professional degree.

106
Q

Scholarships

A

Generally, a scholarship is tax-free if you are a full- or part-time candidate for a degree at accredited post-secondary institutions.

107
Q

Federal Supplemental Educational Opportunity Grant (FSEOG)

A

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.

108
Q

Direct Subsidized Loan

A

(need-based; undergrad ONLY)
In short, Direct Subsidized Loans have slightly better terms to help students with financial needs.
The U.S. Department of Education pays the interest on a Direct Subsidized Loan
while you’re in school at least half-time
for the first six months after you leave school (referred to as a grace period)
during a period of deferment (a postponement of loan payments).

109
Q

Direct Unsubsidized Loans

A

(non-need-based; undergrad, grad, & professional student)
Direct Unsubsidized Loans are available to undergraduate and graduate students; there is no requirement to demonstrate financial need.
Students are responsible for paying the interest on a Direct Unsubsidized Loan during all periods.

110
Q

Who pays interest on a direct subsidized loan while the student is in school at least half time?

A

the US department of education

111
Q

Direct PLUS/PLUS Loans

A

(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.

112
Q

What is the MAX PLUS loan one could receive?

A

(cost of attendance - any other financial aid received)

113
Q

What loans are non-need based; undergrad, grad & professional student?

A

Direct unsubsidized laons, direct PLUS/PLUS loans

114
Q

529 account distributions when a child receives a scholarship?

A

the parent can take up to the scholarship amount of the 529 plan account without penalties. Will have taxation but NO penalties.

115
Q

How far does a FAFSA application look back for income?

A

2 years

116
Q

EFC (Expected Family Contribution)

A

Consists of: Income (Parent & Student) + Assets (Parent & Student)
Income
Parents = (AGI) minus an allowance for taxes + living expenses.
Students = Amount over ‘protected amount’ ($7,600 for 2023-24 academic year).

117
Q

Assets that are counted towards the EFC

A

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, CESAs and 529s

118
Q

What is not counted towrds the EFC?

A

home equity and retirement plans

119
Q

How does the EFC see assets listed as?

A

Parents or in dependent child’s name: Parent Assets
Independent students/spouses: Student Assets
Others (e.g., aunts or grandparents): Excluded

120
Q

Financial Need Formula:

A

Cost of Attendance (COA) – EFC = Financial Need

121
Q

Percentages of what EFC counts for childs and parents income and assets?

A

Income: parent 22-47% (will be given), child 50%
Assets: child 50%, parent 5.64%

122
Q

EFC assets and distrbutions

A

EFC assets included at: parent 5.64%, others 0

Distributions: parent none; others up to 50% reduction

123
Q

What type of relationship does Financial aid availability and the Expected Family Contribution (EFC) have?

A

inverse relationship

124
Q

What is more punitive in the EFC formula?

A

assets and income in the students name

125
Q

AOTC max benefit

A

up to 2500 per elgible student; 1st 2k= 100%inclusion, 2nd 2k= 25% inclsuion

126
Q

Lifetime learning credit max benefit

A

up to 2k per return

127
Q

are the AOTC and LLC refundable?

A

AOTC up to 40% (1k); LLC no

128
Q

Limit of MAGO for MFJ for AOTC and LLC?

A

90k

129
Q

Number of years of post-secondary education available for AOTC and LLC?

A

AOtC for 4 yerws of post secondary education; LLC all years of post secondary education and for courses to acquire or improve job skills

130
Q

Number of tax years benefit available for AOTC and LLC?

A

AOTC= 4 yers per eligible student; LLC= unlimited

131
Q

Minimum number of courses needed for ATOC and LLC credit?

A

AOTC= at least half time for at least one school year; LLC= availablke for one or more courses

132
Q

qualified expenses for AOTC

A

Tuition, required enrollment fees, and materials needed for the course of study

133
Q

qualified expenses for LLC

A

Tuition and fees required for enrollment or attendance only.

134
Q

Can you use both AOTC and LLC in the same tax year?

A

yes as long as ty are not pulling from the same overlapping expenses

135
Q
A

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