General principles Flashcards
Can a 529 or Coverdell ESA withdrawal be used to pay tuition if combined with a credit for the tuition paid i.e. lifetime learning credit or American opportunity tax credit?
No. 529 or Coverdale ESA with rocket could not be used to pay tuition if combined with a credit for tuition paid.
Is a pell Grant better for wealthy or lower income families?
A Pell grant is a needs based grant
What is another word for 529?
QTP. Qualified tuition plan.
What amount per year can qualify for distributions from a 529 or QTP for K through 12th grade, secondary school or religious school?
10,000 per year
Our 529/QTP gifts and UTA gifts considered present or future interest?
Present interest
By what age must a Coverdale ESA be distributed? Can it be used for graduate school?
And what is the annual contribution limit per beneficiary?
Account balance is from Coverdale ESA’s must be distributed by age 30, there is a 30 day grace period they can be used for graduate school, annual contributions on behalf of beneficiary cannot exceed $2000
Can EE bonds be used in a UTMA or UGMA account?
No. Well they can be, but Parents own EE Bonds must be 24 years old or older to own EE Bonds. Can’t be purchased by a student.
EE savings bonds can be held in a UTMA account but then they cannot qualify for the educational expense exclusion. If redeemed for college interest is taxable.
UTMA/UGMA ACCOUNTS ARE SUBJECT TO KIDDY TAX. What are the rules for the kiddy tax?
The child gets a $1300 2024 standard deduction (no tax supplies for the first $1300)
The next $1300 is tax taxed at the child’s income, tax rate of 10% ($130 of tax)
Amount greater than $2600 or tax at the parents marginal tax rate
How are EE bonds taxed?
Interest from EE bonds is fully exempt from federal income tax only. Subject to phase out limits
What are compensatory damages in? How are they taxed?
Compensatory damages received because of personal physical injuries or physical sickness are generally tax-free. However, interest paid on tax-free damage award is taxable.
Damages received in discrimination, i.e. age, sex, or race or other non-physical injuries are taxable with one exemption: damages up to the amount of actual medical care, expenses, attributable to emotional distress like psychiatric care are tax-free
Example: Fred forklift was injured at work. He is awarded compensatory damages of $1 million. He invest the money and makes 5% this year or $50,000 in dividends and capital gains. The amount tactical to Fred this year is $50,000 because this was not a part of the original compensatory damages.
THERE is an annuity exemption
When a single premium immediate annuity is purchased by the party obligated to make the damage payments, the entire amount of each periodic payment is excludable by the taxpayer receiving the payments
How are punitive damages taxed?
Punitive damages, generally are taxable, regardless of the nature of the claim. Punitive damages do not provide compensation for injuries, but rather are intended to punish wrongdoing by the highly negligent defendant who was sued.
Exemption: damage is paid to a beneficiary in conjunction with wrongful death. I received tax free.
Who controls fiscal policy? And what are some examples of fiscal policy activities?
The federal government controls fiscal policy. Fiscal policy, represents federal taxation and designed to level out the business cycle and achieve full employment, priced ability and sustained growth from the economy.
Some examples include expenditures, taxation, and debt management.
Fiscal policy is separate from monetary policy. The Fed controls the money supply, reflecting monetary policy.
Who controls monetary policy?
And what are the tools taken to influence the growth or control of the money supply?
The Federal Open Market Committee (FOMC) controls monetary policy.
The federal reserve board has the power to influence the supply of credit in the US economy, i.e. money supply (monetary policy)
The feds actions are :
Reserve requirements
Discount rate
Open market operations
Margin rates
The discount rate is the rate the federal reserve charges. It’s member Banks to borrow to meet reserve requirements. The discount rate should not be confused with the prime rate, which is the interest rate that commercial banks charge their most credit worthy corporate customers.
* the prime rate is often an option for exam questions about monetary policy and is always wrong*
- the federal funds rate is not set by the Fed. Fed funds are excess reserves maintained at the Fed by member banks. The federal funds rate is the charge for overnight loans from one bank to another.
Is the yield curve an economic indicator?
No, unless it is moving.
What does business activity aging mean?
Business activity ages means that the public top spin because they have enough of everything they need
Who sets the prime rate?
Commercial banks set the prime rate. Prime rate is often an option for exam questions about monetary policy (fed policies) and is always wrong.
Who sets the Fed funds rate?
Fed funds are excess reserved maintained at the fed by member banks. The federal funds rate is the charge for overnight loans from one bank to another bank set by auction. It is not set by the fed.
Remember, the Fed also does not set the prime rate. The prime rate is the interest rate that commercial banks charges their most credit worthy corporate customers.
Is there a minimum age to qualify for a reverse mortgage?
Yes, the minimum age for a reverse mortgage is 62 years old. Must live in condominiums and single-family homes.
The home does not have to be owned free and clear to do a reverse mortgage.
What is a pro forma statement?
A pro forma statement projects, the expected results of the next year or longer
If a CFP professional decides to become an RIA, which agency should he notify first
The SEC
When being registered as an investment advisor by the SEC, the individual must file an update form ADV part 1 and Schedule 1 with the SEC each year
True
Describe the sequence of initial registration process to sell certain equity based products
1 associate with broker dealer firm
2 register with Finn through a B/D on form U –4
3 pass appropriate exams
4 central registration depository (CRD) system makes registration with FINRA uniform among states
If someone advises clients on buying and selling specific securities and also provides written financial plans, but does not sell any of these products to his clients, does he have to register as an investment advisor and or as a representative with FINRA?
He must register as an investment advisor only if he is not receiving commissions. Thus, he did not register registered with FINRA as a securities representative.
Can you sell mutual funds if you only have a series 6?
No. Mutual funds do not trade on a stock exchange, but closed and funds due to sell closed in funds you need a series 7 license
What is included on Part 1 of ADV?
What about Part 2 of ADV ?
Part 1 of ADV includes the business address and background.
Part 2 spells out the compensation arrangements .
If credit cards are stolen, what is the liability per credit card?
$50
What is express authority?
Expressed authority is manifest in writing. WRITTEN. In Insurnace means explicit direction from a principal (the insurance company) to the agent.
What is the purpose of the fair credit reporting act?
The fair credit reporting act provides individuals who have been denied credit the right to know the reason for the denial
What is implied authority?
Implied authority is that which the public believes the individual has and is based on such indicators as signage, rate books, etc. Implied authority is actual authority that the agent has to carry out the principal’s business in accordance with general business practices
What is apparent authority?
Apparent authority arises out of the negligence of the principal in allowing the agent to appear to have authority because of a certain past actions of the agent
Which types of IRAs are protected up to $1,000,000 under chapter 7 bankruptcy?
Traditional and Roth IRAs
What types of plans are generally protected assets under the 2005 bankruptcy law?
- SEPs
- SIMPLES
- ERISA plans
- Deferred compensation plans
How long before filing for bankruptcy must ESAs and 529s be opened to be considered exempt assets?
More than 2 years
What must everyone complete prior to filing Chapter 7?
A consumer credit counseling program within 6 months of filing
How are awards/lotteries taxed?
Under the principle of constructive receipt, the winner of a contest, generally a lottery, have the option of receiving either a lump sum or annuity has to include the full value of the award and gross income, even if he or she takes the annuity. However, if the winner has a choice of either cash or an annuityin a 60 day window and chooses the annuity payout over at least 10 years, then the payouts are taxable as received, called the qualified prize option.
Who sets the prime rate?
Commercial banks set the prime rate. Not the fed. Prime rate is often an option for exam questions about monetary policy and is always wrong.
Who determines the Fed funds rate?
Member banks determine the fed funds rate. Fed funds are banked to bank overnight borrowing by banks needing additional reserves.
What does a pro forma statement illustrate?
A pro forma statkent illustrate what the future financial statements are expected to show.
What are the qualifications to do a reverse mortgage?
Reverse mortgage is only available to homeowners 62 years and older living in condominiums and single-family homes
What is included in form ADV part 1 and form ADV part 2?
Form ADV part 1 is general information i.e. applicants business address, business background, disciplinary reaction
Form ADV part 2: brochures: must describe the nature of the RAA‘s business structure and relationships along with the information about fee services conflicts of interest, method of analysis and investment strategies. Risk of loss brokerage practice other significant matter such as disciplinary condition are now required to be presented in the brochure. A brochure will contain up to 18 separate disclosed items
If credit cards are stolen, how much is someone liable for per card?
$50
Describe chapter 7 bankruptcy
Chapter 7 permits a debtor to claim either the federal exemptions or the exemptions available under state law
A chapter 7 filer must satisfy a means test.
* if the debtors average monthly net income for 60 months is greater than $10,000, chapter 7 bankruptcy is not an option
- if the debtors average monthly net income for 60 months is less than $6000, filing for chapter 7 is allowed
- if monthly net income is between 6 to 10 K then the debtor can file chapter 7 if monthly net income is less than 25% of all non-priority unsecured debts
In addition, the filer must supply proof that he has completed consumer credit counseling within six months of filing. The filer must also provide tax returns and detailed earnings projections along with information on retirement accounts, particularly Roth and traditional IRAs over $1 million, education savings accounts opened within two years or non-child/grandchild beneficiary, and 529’s opened within two years. SEPs, SIMPLEs, ERISA plans and deferred compensation plans are generally exempt assets.
