General Review - Questions Flashcards
Under the double basis rule, no ______ is recognized if the donee sells the property at a price that is _____
no gain/loss is recognized if the donee sells the property at a price that is between the donor’s adjusted basis and the FMV on the date of the gift
Are proceeds from an installment sale considered earned income for Social security purposes?
NO
Social security benefits may be reduced for individuals ______ with _____
under full retirement age with earned income above certain levels
If you reach full retirement age and have earned income, can your social security be reduced?
NO
Individuals can deduct up to ______ of rental real estate losses against active and portfolio income, provided they are ______ and own more than ______ of all interests in the activity
$25k, provided they are active in the management and own more than 10% of all interests in the activity - reduced by 50% of AGI in excess of $100k up to $150k
Defined contribution plans must vest at LEAST as rapidly as ____- or _____
3 year cliff or 2-6 year graded vesting
The ratio percentage test for nondiscrimination =
(% of NHC employees covered) / (% of HCE covered) > 70%
The average benefits test for nondiscrimination =
NHC % benefit / HCE % benefit
Fluctuating cash flows can make a _____ a good plan type
profit-sharing plan
Imputed interest on an interest-free loan is considered a gift if the loan is over ______ or if the recipient has _____ in excess of ______
loan over $100k or net investment income over $1k
A CRUT pays a particular _____ of the trust assets each year
particular %
Gift loans of ____ or less are not subject to gift tax unless the donee uses the proceeds to ______
gift loans less than $10k not subject, unless used to buy income-producing property
Premiums for excess group life insurance over ______ have to be included in gross income
over $50k - use the IRC group term premium per $1,000
SMAs offer _______ portfolios and ______
customized and asset-based fee structures
Employee elective deferrals into section 401(k) plans are subject to _____ but not to _____
subject to FICA but not to federal income tax
To qualify as a CRAT, CRUT, or CLAT, the trust has to be _____
irrevocable
If you expect to die within 3-5 years and have a big life insurance policy, what is the most pressing estate consideration?
transfer the life insurance policy to someone else
If you supplied all the consideration for an account, will changing it to JTWROS help your estate plan?
NO - because 100% of the account will be included in your estate
What is the maximum LTCL you can take in one year against income?
$3k
Is child support excluded from gross income?
YES
Is alimony excluded from gross income?
NO
Are gifts included in gross income?
NO
Under the at-risk rules, you cannot deduct more than your ______
invested capital “at risk”
For involuntary conversion of real property due to natural events, the reinvestment period is _____; for acts of government/eminent domain, it is _____; if into cash, nonrecgonition is ______
nature = 2 years govt = 3 years cash = norecognition is elective
To get to net capital gain/loss, can you net ST and LT against each other?
YES
For the related party rule, if you sell something to a related party (e.g. son) for a gain or loss, you cannot _______
recognize it
For the related party rule, if you were the recipient of the property and then subsequently sell it, you can reduce your gain up to the amount of the gain by the original seller’s ______
loss
Is the grant date of an NQSO or ISO the date that W-2 income is created?
NO for either
Once vested, can NQSOs and ISOs be exercised and the stock sold immediately?
YES
Only defined benefit pension plans (including ______ ) are _____
including cash balance pension plans are covered by the PBGC
Because SEPs are funded with IRAs, it cannot have a ____-
loan provision
Do SEPs require a specific employer contribution each year?
NO
Age-based profit sharing plans favor _____
older employees
All pension plans must provide a qualified ______ annuity and ______annuity
preretirement survivor annuity and a joint and survivor annuity
If you defer your RMD until April 1 following reaching 70.5, you must then take _____
another RMD in that same year (can’t wait till April 1 for subsequent RMDs)
Tenants by entirety can only be owned by ____
spouses
Each owner for tenants by entirety have an _____ interest
equal ownership interest
For tenants by entirety, transfer of property requires _____
consent from both owners
Probate does not include any property that passes by ____, ____, or ______
by law, by contract, or under the terms of a trust
If a stock is not traded on a gift date, then the stock price is the value before and after the gift date multiplied and divided by the number of ____-
TRADING days
For gifts where the FMV is less than the donor’s adj basis, the donee’s basis for determining a loss is the ____, the donee’s basis for a gain is the donor’s ______
for a loss, it is the FMV, for a gain it is the donor’s adjusted basis
In determining adj basis for the donee of loss property, are gift taxes paid included in the basis?
NO
If someone has diminished capacity, is referring them to medical providers part of your fiduciary responsibility?
YES
A transfer to a spouse or ex-spouse, regardless of age, is or is not subject to GSTT?
IS NOT
A spouse or former spouse of the transferor’s lineal descendant is assigned to the same ______
generation as the lineal descendant
If a grandchild’s parents die, can you give them a gift and avoid GSTT?
YES
Would adjusted basis in a property be listed on a statement of financial position?
NO - only FMV
If you’re thinking of moving in 3-5 years, what kind of mortgage should you consider?
ARM
Are contributions to a CESA tax deductible?
NO
Elementary school and secondary school tuition up to ____ per year is considered qualified expense under section 529 plans
up to $10k
Can Series EE bonds be used for high school expenses?
NO
Debts that are not dischargeable under chapter 7 are:
international tort claims, alimony obligations, child support, student loans, govt loans, and recent federal income taxes due
Does FDIC insure an IRA in addition to a joint or individual account?
YES, separate account category
Option A for UL policies is the ____
level death benefit option (only includes face amount)
Option B for UL policies the ______
increasing death benefit (death benefit equals the face plus cash value)
Are perkins loans needs-based?
YES
Medicare Part A pays for skilled nursing for the first ____ days
20
Does Medicare part A provide coverage for custodial care provided in a nursing home?
NO
Voluntary or involuntary termination qualifies an individual for _____ months of COBRA
18 months
Whenever a position created from an ISO is sold, it will have a ____ AMT adjustment
negative
Is selecting a random set of stocks for a portfolio indicative of a belief in EMH?
YES - for the test
A coupon rate and duration have a direct or inverse relationship?
inverse
AMTI calculation includes:
- excess depletion deduction over the adjusted basis
- excess of FMV above the exercise price for freely transferable ISOs
Can you claim a dependent for yourself and your spouse?
YES - you would get 2 dependents
For charitable contributions you can deduct the FMV up to ____ of AGI, or the adjusted basis up to ____ of AGI
FMV up to 30% of AGI, or adjusted basis up to 50% of AGI
Under the kiddie tax rules, unearned income in excess of ______ will be taxed at estates and trusts tax rate
in excess of $2,100
Section 1202 stock must be held for ____ years in order to exclude the gain from taxable income
5 years
The section 121 gain exclusion for a primary residence (gains up to $250k are not taxable) does NOT apply to ______
vacation or other use properties
If you reinvest the dividends in a mutual fund, then the dividends are _____ to your cost basis
added to
The shortcut for calculated alimony recapture in year 3 =
P1 + P2 - 2xP3 - $37,500
Can you make a one time trustee-to-trustee transfer from an IRA to an HSA?
YES - but subject to the max HSA contribution ($3,450 for 2018)
HCE is anyone who owns more than _____ of had comp greater than _____
5% or comp greater than $120k
The max benefit under a traditional def bene plan is the lesser of _______ for 2018 or the average of the highest consecutive three years of comp
$220k
For trad IRA, you can contribute the lesser of your _______ or the IRS limit
earned income
Can you collterize a SCIN?
YES
Private annuities cannot be secured by collateral T/F
TRUE
Qualified disclaimers must be made within ____ months of creation of the interest
9 months
The only two exceptions to the alternate valuation date for estates are _____ assets and assets _____ before the AVD
wasting assets (patents, annuities, installment notes) and assets disposed of before the AVD
Traditionally, a financial planner does NOT owe contractual duties to a third person, however an exception exists when the third party ______
relies on statements prepared by the financial planner
If you withdraw funds from a Roth IRA (after 5 year holding period) for college tuition, will you get hit with the 10% penalty?
NO - but you will have to pay income tax on earnings after all contribution and conversion amounts are withdrawn
For an employer-employee loan, the corporation will accrue ______ and additional _____, but their taxable income will _____
accrue interest income and additional comp expense, but their taxable income will not be affected
If you use a corporate loan to go on vacation, do you incur imputed interest as an addition to your net income?
YES
If a loan is classified as a corporation-shareholder loan, will the corporations taxable income increase due to imputed interest?
YES
Can you reduce your basis in a property by construction costs?
NO
A private placement is limited to ______ unaccredited investors but is available to an unlimited number of accredited investors
35
Are defined benefit plans more costly than defined contribution plans?
YES
Insurance proceeds payable to a divorced spouse because of death of the former spouse are taxable income or not?
NOT
LIFO recapture applies only to _____
S CORPS
A C corp could be subject to the following three taxes:
- personal service corporation tax
- accumulated earnings tax
- personal holding company tax
Is a niece considered a skip person for GSTT?
NO
A non-related person more than _____ years younger than the transferor is considered a skip person for GSTT
37.5 years
Employers with more than ____ cannot offer a SIMPLE
100 employees
Are money purchase pension plan contributions flexible?
NO - fixed percentage of compensation
IF you are an older business owner, would you benefit more from a money purchase pension plan or a traditional defined benefit plan?
traditional defined benefit because you have fewer years till retirement
Standard deviation is a measure of ______ risk
TOTAL (systematic and unsystematic)
If you think a meeting will not be productive because the client is not focused, what should yo do?
RESCHEDULE
Do ESOPs and stock bonus plans INCREASE or DECREASE cash flow for the company?
INCREASE because contributions are made in stock
When can a professional corporation NOT establish an ESOP or stock bonus plan?
when state law requires all shareholders of a prof corp to be licensed professionals
If a business owners annual retirement funding goal exceeds allowable contributions for other plans, what should they adopt?
defined benefit pension plan (part-time employees need not be covered)
Personal casualty losses are only deductible if they are caused by a ______ disaster
federally declared
Are alimony payments deductible for AGI?
YES
Can you deduct union dues?
NO
In a community property state, spouses own an ______ in all community property accumulated during their marriage
equal and undivided interest
Only the portion of property owned by the decedent can be transferred by ____
will
What is the maximum % premium for COBRA?
102%
Does a market average or a market index reflect the average price behavior or a group of stocks at any given point in time?
market AVERAGE
Gift taxes paid out of pocket are ONLY excluded from the gross estate if the donor’s date of death is not within _____ of the gift
3 years
The current value of a gift for a GRAT or GRUT is equal to the FMV of the assets transferred less the PV of the _____ retained by the grantor
PV of the income interest retained by the grantor
A retirement plan can cover any portion of the workforce, as long as it satisfies ______ under section 410(b)
1 out of 3
The three tests under section 410(b) are ______
percentage test, ratio test, the average benefit percentage test
Pretax retirement plan contributions can be converted to a Roth IRA by any of 4 methods:
- An amount distributed from a traditional IRA can be rolled over to a Roth IRA within 60 days after the distribution.
- An amount in a traditional IRA can be transferred in a trustee-to-trustee transfer from the trustee of the traditional IRA to the trustee of the Roth IRA.
- An amount in a traditional IRA can be transferred to a Roth IRA maintained by the same trustee.
- Amounts in a qualified plan described in IRC Section 401(a) can be converted directly to a Roth IRA.
If you retain a life estate in a gifted property and then die, is the FMV at death included in your gross estate?
YES
Is the sharpe ratio useful for measuring non-diversified as well as diversified portfolios?
YES - because it uses TOTAL risk
Even if you use a credit card to pay for tuition, does that get discharged in bankruptcy?
YES - all credit card debt, no matter the use of the funds
What form does an INDIVIDUAL use to register with FINRA?
U-4 (firms use ADV)
Do phantom stock plans have an exercise date controlled by the employer?
YES
How to phantom stock plans pay benefits?
in CASH
Are phantom stock plans funded or unfunded?
UNFUNDED
Does ERISA or the DOL monitor fiduciaries for retirement plans?
DOL
Does a SEP plan allow employee contributions or loans?
NO, neither
Does a cash balance pension plan require mandatory funding?
YES
does a SIMPLE allow loans?
NO
The collateral source rule states that a person who commits a tort is liable for _____
full damages
The collateral source rule states that a person who commits a tort is liable for full damages, even if the plaintiff has ____
other sources available for recovery
The collateral source rule prevents a person who commits a tort from benefiting from _____
fortuitous circumstances
Under the Employer Educational Assistance Program, an employer can reimburse an employee’s tuition, enrollment fees, books, supplies, and equipment up to _____ per year
$5,250
Would you disclose your compensation arrangement prior to having a client fill out a risk management questionnaire?
YES
Can you ever be reinstated if your CFP marks have to revoked?
NO - permanent
The Principle of Diligence includes properly ______ subordinates or other who provide professional advice in the engagement
supervising
If someone has no savings, would you have them start a savings account or defer into a 401(k) as a first step?
start savings account
Are the CFP Principles legally binding?
NO
Are the Rules of Conduct legally binding on all certificants, regardless of a title, position, type of employment, or method of comp?
YES
Any act that violates state criminal law constitutes ground for CFP discipline, even if the act did not occur in the course of a ______ or if they are acquitted of criminal charges
in the course of a client relationship
Bait and switch advertising is prohibited by the _____
FTC
Consumer debts should be no more than ______ of net income
20%
Are UGMA assets considered for financial aid?
YES - they are in the child’s name
If you have a written contract and fail to provide the services contained within, you may be liable for _____
breach of contract
Changing a client’s beliefs and attitudes towards financial decision making is using the _____ approach to financial counseling
cognitive-behavioral
Land can never be depreciated for income tax purposes T/F
TRUE
The IRS limit for audits on a tax return with a demand to pay additional taxes is ______
3 years after the taxpayer filed the return in question
Under the transfer-for-value rules, when the transfer is to a transferee whose basis in the policy is determined by reference to the transferor’s basis (tax-free exchange or gift), the resulting death benefit is _____
not taxable to the transferee
Regular C corps with gross income greater than _____ for their most recent 3 years are prohibited from using the _____ method
cash
Stepped-up basis is not available when a donor gives property to a donee in anticipation of their death, and their will has the property going back to the donor. T/F
TRUE - no stepped up basis
If a child of a taxpayer is under the age of ____ or if the child is full-time student under the age of ____, then the _____ is waived
if they are under the age of 19 or full-time student under the age of 24, then the income test is waived
What is the max deduction for student loan interest?
$2,500
Life insurance policy dividends are not _____ unless the aggregate dividends received exceed the _______
are not taxable unless the agg dividends exceed the basis int the contract
Section 1231 defines property used in a trade or business as ______ or _____
depreciable or real property
Section 1231 property must be held for more than _____ and excludes:
more than 12 months and excludes
- inventory
- property primarily for sale
- copyrights
- certain publications of the US gov’t
The capital gains rate on section 1202 stock is _____
28%
S corp elections must be made no later than the _____ of the ____ month of the current tax year
15th day of the 3rd month of the current tax year
Do all S corp shareholders have to be US citizens or residents?
YES
To determine the loss on the sale of a gift, the donee’s basis is the lower of the ____ or the _____
lower of the donor’s basis or the FMV at the time of the gift
Is a GP considered a distinct separate entity for tax purposes?
NO
Can S corps deduct salaries, group health insurance, entertainment reimbursements, or premiums for group term insurance?
NO - S corps are pass-through entities
MLPs trade on an _____ or ____
organized exchange or OTC
Can you deduct passive rental real estate losses against other non-passive income?
YES, but up to phase outs
When is a C corp subject to the accumulated earnings tax?
when they unreasonably accumulate earnings and don’t pay a dividend
Non-business bad debts are deductible only as ______
short-term capital losses and must be taken in the year the debt becomes completely worthless
When determining gain of property acquired by gift, the general rule is that when a person has property given to him as a gift, the recipient’s basis is _________ who did not acquire the property by gift. The recipient, however, is entitled to adjust the basis for any _______ he or the donor is required to pay on the net appreciation in the value of the gift.
same as the donor’s or last preceding owners basis who did not acquire the property by gift - can adjust for any gift taxes
For additional taxes owed due to negligence, the penalty is _____ on the amount due to negligence
20%
Is your state tax deduction on your federal returns reduced by any state tax refund?
NO
The amortization period for intangibles is generally ______
180 months
The day or disposition is included in the holding period for LT/ST gains T/F
TRUE - the day of acquisition is NOT
S corp income on a K-1 is or is not considered self-employment income?
IS NOT
Can you establish a Keogh plan as an S corp?
NO because Keogh plans require self-employment income and S corp income is NOT self-employment income
A defaulted loan is only deductible as a bad debt if the loan consists of a ______ for repayment and isn’t based on some other _____
legal obligation for repayment, not based on some other event
Is a business computer a capital asset or section 1231 property?
section 1231 property
A ______ is any asset that is not a copyright or creative work, accounts or notes receivable, depreciable property used in a trade or business or for production of income (such as a computer), or inventory.
capital asset
Are built-in gains for S corps that were formerly C corps paid by the shareholders or the S corp?
the S corp itself, not its shareholders
Why might a corporation elect S corp status?
when losses are anticipated at the start up of the business (can use to offset individual tax returns)
Is gain/loss from section 1231 property considered ordinary or capital?
ordinary
Are losses from oil and gas working interests for which taxpayers are personally liable deductible from active or portfolio losses without limit?
YES
The standard deduction for a dependent is limited to the greater of ______ or _______
$1,050 or earned income plus $350
Dividends are taxable to the recipient as dividend income to the extent of _______ and ____
accumulated earnings and profits
Suspended passive losses are allowed as a reduction of AGI if it is a ______ of the property
disposition
Is municipal bond interest included in AGI?
NO - although could be in AMT
All inherited property is considered ______ upon disposition
long term
Are US savings bond subject to state income tax?
NO - but they are subject to federal income tax
If the premiums for life insurance are NOT tax deductible, are the proceeds considered income?
NO
Material participation criteria:
- more than 500 hours
- material participant for 5 of last 10 years
- participates more than 100 hours and more than number of hours by partners
- if your participation constitutes substantially all of the participation
A C corp that is not a personal service corporation may offset active income (but not portfolio income) with _____
passive losses
If a security becomes worthless, the loss is treated as if it occurred on the ____ and the holding period is _____
occurred on last day of the year and the holding period is long term
For a limited partnership, can you use passive losses from the partnership to offset interest or dividend income?
NO - has to be other passive income
If your car gets damaged can you deduct the property/casualty loss?
NO - only if it is because of a federally declared disaster
If you accelerate items into income in this tax year are your more or less likely to incur AMT?
LESS - because it is more likely that your regular taxable income will be greater than your AMTI
When would you capitalize expenses related to investigating business opportunities?
ONLY when you aren’t currently in that business - if you’re in the business already, you just expense them
The loss on the sale of a personal-use asset is _____ for income tax purposes
non-deductible
If you trade property and the newly acquired property is used for the same thing, the tax code does not require you to ______ any gain
recognize
If you have a casualty loss from a federally declared disaster, what amount can you deduct?
The amount that exceeds 10% of AGI
Should you sell or gift loss property for your own tax purposes?
SELL IT
Can you contribute to an IRA if you don’t have earned income?
NO
Constraints for an IP statement are time horizon, liquidity, _____, laws and regulation, and unique circumstances/preferences
taxes - market conditions are NOT a constraint
Are STRIPS subject to reinvestment risk?
NO - they do not have coupon payments
Do high duration bonds have high or low convexity?
HIGH
Is semiweak an actual form of EMH?
NO - doesn’t exist
Fundamental analysis is useful under the ____ form of EMH
weak
Is a portfolio above the efficient frontier attainable?
NO
Does a higher indifference curve indicate more or less satisfaction?
MORE - the higher the curve the higher the satisfaction
The relationships between bond prices (premium, par, discount) and YTM, CY, and CR are:
Premium bonds: CR > CY > YTM
Par bonds: CR = CY = YTM
Discount bonds: CR < CY < YTM
Are shares of a closed-end fund redeemable by the fund?
NO - they trade on the exchange
Can closed-end funds issue more shares to raise money?
NO - have fixed capitalization
Does the fed sell zero-coupon bonds?
NO - created by brokerage firms
Do TBills have semiannual interest payments?
NO - only t notes and bonds
The securities market line shows a security’s expected return as a function of its _____ risk
systematic
Does a weak view of EMH imply that technical analysis is useless?
YES - because says that all historical stock price info is already in the current stock price
If the bond price-yield relationship is linear, does that mean that over time the bond’s duration remains the same?
YES - remains constant
Are convertible bonds usually secured by assets of the issuing company?
NO - most are not
Do convertible bonds usually have a higher or lower YTM than non-convertible debt?
LOWER
Is unsystematic risk relevant to the CAPM?
NO - assumes you will diversify away all unsystematic risk (uses BETA, not STDEV for the calculation)
A limit order is an order to buy or sell at a _____ or _____ price
specified or better
a stop order is an order specifying a _____ at which a market order is to take effect
specifying a certain price
A market order has the _____ priority
HIGHEST
If you use a DRIP, can shareholders purchase stock with a substantial reduction in commissions?
YES
Seed financing is specifically for the purpose of ______
research and development of an idea
Investors would like to purchase securities that show high _______ skewness and a _____ distribution
high positive skewness and leptokurtic distributions
Should a portfolio manager ever adopt a STRICT buy and hold strategy regardless of client needs and changing circumstances?
NO
Along with market prices, what other technical data point is important for technical analysis?
VOLUME
For Series EE bonds to get tax advantaged income, the purchaser must be the _____ and must be at least _____ years old
must be the taxpayer and must be at least 24 years old
If small cap stocks tend to achieve higher returns than large cap, does this provide evidence against the semistrong form of EMH?
YES - because market cap is public information
Are diagnostic tests and x-rays covered under medicare part B?
YES - along with physicians services and outpatient hospital services
In calculating life insurance needs , human life value is the family’s share of the _______ of the breadwinner
earnings of the breadwinner
A spendthrift clause in a life insurance policy prevents a beneficiary from _______ in the policy proceeds to ______
from assigning their interest to someone else
Can LT disability policies include coverage for both sickness and accidents?
YES
Corporate owned life insurance (COLI) provides funds to pay the benefit in the event of an executive’s death before retirement, accumulate _____ to pay said benefit, and the employer may not ______ borrowed from COLI policies (except under limited circumstances)
accumulate CV to pay the benefit and the employer cannot deduct interest paid on loans borrowed from the COLI (exceptions apply)
A proportionate benefit is paid to an insured whose earned income is reduced because of a disability - this is called a ______ disability benefit
residual
S&P, AM Best, Fitch, and Moody’s all _______
rate insurance agencies
If you are disabled but still able to work, the disability benefit paid is at a reduced rate and is considered ______
partial
Can you exchange a variable annuity in exchange for a qualified LTC contract in a 1035 exchange?
YES
Can you exchange an annuity for a life insurance policy in a 1035 exchange?
NO
If you have a substantial cognitive impairment requiring substantial assistance, does that qualify you for LTC benefits?
YES
Is an own occupation LTC policy the least or most expensive?
MOST
What are four defenses against negligence?
- contributory negligence
- comparative negligence
- last clear chance rule
- assumption of risk
In determining COBRA coverage, if an employer has 18 full time employees and 8 part time employees, do they still have to provide COBRA coverage under the 20 employee rule?
YES - the part time employees count as 0.5 each ,putting them over the 20 person rule
Employer payments for group insurance premiums are ____ for the employer and _____ to the employee
deductible to the employer and not taxable income the employee
There are three nonforfeiture options available when surrendering or discontinuing premium payments on a whole life insurance policy:
- policyowner can surrender the policy in return for receiving the cash surrender value of the policy.
- policyholder leaves the cash value with the company and receives a smaller amount of fully paid-up insurance.
- policyholder leaves the cash value with the insurance company in exchange for retaining the full amount of the original policy’s death benefit, but as a term insurance policy for a guaranteed period.
Does an agent have to have contractual capacity to act as an agent of a principal?
NO - only the principal has to have that
For guaranteed renewable disability policies, can a company increase premiums for a single individual?
NO, but they can for a class of insureds
For life insurance, an insurable interest must exist at the ______ but not at death; for property insurance, an insurable interest must exist at both _____ and _____
- life insurance must exist at inception, but not at death
- property must exist at both inception and time of loss
Are installed sound systems, camper bodies/trailers not listed, radar detection devices, or mechanical/electrical breakdown exclusions under Part D of PAP?
YES
For someone worried about forgetting a premium payment, what provision in a life insurance policy would be most appropriate?
automatic premium loan provision (takes the premium fro the cash value)
Under the endorsement method split-dollar life insurance, the _____ is the owner of the policy and is also the beneficiary to the extent of premiums paid
the EMPLOYER
Can both employers and employees establish HSAs?
YES
Can individuals between ages 55 and 65 with a high-deductible plan made additional catch-up contributions to an HSA?
YES
Particular risk is the risk of _____ and _____ risk
personal and individual
Fundamental risk is risk that affects ______ and only involves the possibility of ____ or _____
affects large groups of people, only involves prob of loss or no loss
A chronically ill person under HIPPA is unable to perform ____ ADLs for at least ____ days
2 ADLs for 90 days
When designing a life insurance program, is retirement for the surviving spouse a consideration?
YES
A term life insurance should contain both a renewal provision as well as a conversion provision, which allows the insured to exchange the policy for a _______ without evidence of insurability
permanent contract
In ratings for auto coverage, does farm use receive the most favorable rating?
YES - because usually off road and away from traffic
If an agent who is a minor (or some other disqualifying thing) gets you to sign a contract with a principal, can you then break the contract when you find out the issue with the agent?
NO - because you are really making the contract with the principal
When an agent lacks the capacity to act as an agent, can the principal void the contract?
NO - only the agent can
Coverage F for homeowner’s policies pay up to _____ for ______
pay up to $1k for medical expenses incurred by someone who is injured on the insured premises
Are volcanic eruptions one of the 12 basic perils?
YES
Coverage on a dwelling is on a ____ basis provided coverage is at least 80% of the replacement cost
on a replacement cost basis
AM best uses public information and _____ to rate insurance agencies
interviews
Coverage B for homeowners policy for detached structures = _____% of coverage A
10%
Investment in an insurance contract =
premiums paid - dividends received - outstanding loans/withdrawals
Gain at surrender for insurance contract =
CSV - investment in contract
Liability due to negligence has ______ liability
UNLIMITED
Option B death benefit for VUL is the ______ death benefit option and provides the bene with the cash value + the ______
increasing death benefit option, bene gets cash value and death benefit
Coverage F covers medical payments to ____ from incidents that occur _____ the premises
others for incidents that occur on or off the premises
Does coverage F (HO policies) exclude residence employees?
YES
Does coverage F (HO policies) apply to the insured or members of the insured’s household?
NO - has to be an injury to someone else
Under transfer-for-value rules, if a partner in a firm buys another partners life insurance, is that subject to the transfer-for-value rule?
NO - the death benefit would be excluded from the transferee’s gross income in that case
To receive workers comp, must work in a _____ occupation and have a ______ accident or disease
work in a covered occupation and have a work-related accident or disease
Medicare Part B is a ____ annual deductible and requires _____ coinsurance
$183 annual deductible and a 20% coinsurance
The cash and coin limit for HO policies is ______
$200
Special damages represent compensation for _____ losses
measurable
If your out-of-pocket for a health plan is over the $6,650 limit, is it a high deductible plan and can you open an HSA?
NO because it is over the limit
Does a health care plan have to be employer sponsored for you to be eligible for an HSA?
NO
Is there a penalty for drawing a loan on a MEC prior to age 59.5?
Yes 10% on the amount that is a taxable gain (CSV - investment in contract)
A section 162 plan is an executive bonus plan and the ____ is the policyowner
employee, employer contributes the premiums and gets a tax deduction (often will pay the taxes to cover the taxable income for the employee as a result)
COBRA benefits are for ___ months if the covered empliyee dies
36 months
Limited-pay whole life premiums are paid over a _____
specific time frame
For ISO proceeds upon sale to be considered LTCG, it has to be sold more than ____ after exercise and _____ from the grant date - otherwise it is W-2 comp
1 year from exercise, 2 years from grant date
If an agent issues conditional receipts, which form of authority is this under?
express authority because her agency agreement states she can do this
The max salary reduction for dependent care FSA is _____
$5k
The maximum amount for reimbursement of incurred medical expenses of an employee under the health FSA is _____ for 2018
$2,650
Can FSAs be used for self-employed persons or partners?
NO
When a non-natural person such as a corporation owns an annuity, gains on the contract are taxed as ____ and losses are treated as _____
gains taxed as ordinary income, losses treated as ordinary losses
Is a PLUP applicable during any of the life cycle phases?
YES
Did ERISA set up the PBGC?
YES - but remember only for defined benefit plans
LESOPs and ESOPs are the most commong types of ____ plans
stock bonus
A defined contribution plan can satisfy the permitted disparity (integration) rules only if it uses the _____ method integration formula
excess
Defined Contribution plans cannot use the ______ method formula because they have no promised ______
cannot use the offset method because there is no promised benefit
Defined benefit pension plans can use either the _____ or the _____ method for integration
offset or excess
If a qualified plan is terminated, the law provides that participants in the plan become _____ in account balances or ______
account balances (def contribution) or accrued benefits (defined bene)
The only plans that are exempt from the 10% limit on investing in employer securities are ______, stock bonus plans, ______, and any other kind of profit-sharing plan
profit sharing plans, stock bonus plans, and thrift/savings plans and any other kind of profit sharing plan
Do stock bonus plans provide the employer with a deduction for plan contributions?
YES
Do section 457 plans have early withdrawal penalties?
NO
Is tax destructibility of contributions a consideration when establishing a TSA or 457 plan?
NO because set up by already tax-exempt entities
Qualified nonelective and qualified matching contributions are two methods an employer may use if the _____/_____ tests are violated - both are 100% vested
ADP/ACP
Matching contributions that are designed to meet safe harbor rules are ______ vested
100%
Top-heavy employer contributions are full vested or subject to vesting rules?
subject to vesting rules (3 year cliff or 2-6 yr graded)
A top-heavy defined benefit pension plan must provide ______ vesting
accelerated
A top-heavy plan is one that provides more than _____ of its agg accrued benefits to key employees
60%
Can you avoid the 10% penalty if you remain with an employer and take systematic payments over the life of the participant and spouse?
NO
A roth IRA conversion becomes more appropriate the longer the period of ________
distributions
Is a profit sharing plan a defined contribution plan?
YES
Can a profit sharing plan permit in-service distributions?
YES
Permitted disparity is a method of integrating Social Security benefits and qualified plan benefits so that a permissively ___________ can be paid to the highly compensated workers in a qualified pension plan.
discriminatory benefit
All plans are allowed to integrate with social security except _____, _____, and _____
ESOPs, SIMPLEs and SARSEPs
The excess method for integration is allowed for all plans allowing integration except for _____
defined benefit pension plans
Can you have a 457 plan and SIMPLE at the same time?
YES because a 457 is a nonqual def comp plan
Which tests can you avoid by implementing a safe harbor 401(k) plan?
ADP/ACP/top-heavy
Are SIMPLE 401(k) plans subject to the ADP test?
NO
How are employer contributions to SIMPLE 401(k) plans vested?
100% immediately
Are small company retirement plans (50 employees or less) required to file a detailed annual report Form 5500 each year?
LIKELY NOT
Does a professional services corporation with less than 25 employees with a defined benefit plan have to be covered by PBGC?
NO
For a defined benefit plan, are employee contributions 100% at normal retirement age regardless of years employed?
YES
For an owner of the corporate sponsor to be considered a party-in-interest for a qualified plan, they must own ________ or more
50%
Are plan earnings for a defined contribution plan considered when considering the maximum annual additions limit?
NO
The top-heavy test requires answers to which employers will be treated as a single employer for purposes of top-heavy testing and who is a ______
key employee
Can a defined contribution plan have integration levels greater than the social security wage base?
NO
Can a trustee be forced to distribute assets from a plan by a QDRO even if the plan document does not allow it?
NO
For a SIMPLE IRA, an employer must satisfy one of the two contribution formulas: match dollar-for-dollar employee contributions up to _____ or contribute ____ nonelective contribution per employee
3% dollar for dollar, 2% nonelective
To deter employers segregating out their key employees, the IRS uses the following aggregation rules for _____ employees, controlled groups, and ______ groups
leased employees, controlled groups and affiliated service groups
The permitted disparity limit for a defined benefit pension plan is _______ above covered compensation level
26.25%
Does participation in a 457 plan count as active participation for contributing to an IRA?
NO
Can TSAs and 457 plans be entirely funded by participant contributions?
YES
Do TSA and 457 plans allow for NUA for lump sum distributions?
NO
The safe harbor test is that the employer must cover _____ of all eligible nonhighly compensated employees
70%
If there are eligible participants who DON’T participate in a plan, why might that be?
They belong to an excluded class (hourly, geographic location, union, etc.)
The 50/40 test is for defined ____ pension plans and states that the plan must benefit no fewer than the lesser of ______ employees or _____ or more of all eligible employees
defined benefit plans, must benefit no fewer than the lesser of 50 employees or 40% or more of all eligible employees
Actual deferred percentage test (ADP) applies to _____ plans
401(k)
The ADP test =
actual deferrals / eligible employee comp
The first ADP test is that ADP for eligible HCEs is not more than ______ ADP for NHCs
not more than 1.25x
The second test for ADP is that ADP for HCs cannot exceed ADP for NHCs by more than ____
2%
The actual contribution test (ACP) is for all qualified defined ______ plans
contribution plans
The ACP test =
actual contributions / eligible employee compensation
The ACP test applies to employer matching contributions, mandatory employee contributions, and _______contributions (excluding _______ deferrals)
and employee after tax contributions (excluding Roth 401(k) deferrals)
To avoid ADP and ACP testing, the safe harbor contributions can be made as either _____ match or a nonelective contribution of _____
match 100% up to 3%, 50% from 3-5% (max is 4% total); or nonelective 3% for all NHC
Tax deductible contribution limits for DC plans are ____ of aggregate covered compensation
25%
If you start SS at age 62, 50% of an earned income over ______ reduces your benefit
over $17,040
Only gifts of _____ within 3 years and gifts with a _____ are included in the gross estate at death
gifts of life insurance and incomplete gifts (with retained interests) are included
Will a SCIN result in a taxable gift?
NO - sale of property
Overqualification occurs when there is an _____ of the decedent’s applicable credit amount
underutilization
Underqualification occurs when _____ property qualifies for the marital deduction than should have
less property
Will GRAT property be included in the gross estate if the grantor survives the trust term?
NO
If a majority owner of a small, closely-held business gifts a small amount of stock to their child, could that invoke the minority discount?
YES
Would a QTIP election for death proceeds qualify them for the marital deductions?
YES
IF insurance proceeds on death are payable to the surviving spouse in the form of an annuity with a 6 month survivorship provision and they live more than 6 months, are the proceeds eligible for the marital deduction?
YES
If you die after the ex-dividend date, would you include the dividend in your estate?
YES
A QDOT is used to establish the marital deduction for an _____ surviving spouse
alien
For a CRAT, the fixed income must be at least ____ of the original value but no more than _____
5% not greater than 50%
Adjusted taxable gifts are taxable gifts made after _____ that are not included in the gross estate
after 1976
Special-use valuation requires that either the decedent or a family member must have owned and used property as a farm or business for at least ____ of the last ____ years immediately before the decedent’s death
5 of the last 8 years
When spouses are joint tenants, _____ of the value of the property is included in the decedent’s gross estate regardless of _____
50% of value regardless of who paid for it
Will income payments vary with a CRAT or with a CRUT?
with a CRUT - CRATs pay a fixed amount
If you establish an irrevocable trust but retain the power to allocate income distributions, will those assets be included in the gross estate at death?
YES - because you retain the right to affect beneficial enjoyment or control the income
Can an executor elect QDOT treatment after death of the decendent?
YES
Would entity-redemption business buyout insurance proceeds paid to the deceased business owner be included in their gross estate
NO - because they had no incident of ownership in the policies
Is the gift that occurs with a GRAT eligible for the annual gift exclusion?
NO because it is not a present interest
Gift taxes paid within ____ years of death are included in the gross estate
within 3 years
Are target benefit pension plans subject to the annual additions limit of $55,000?
YES
Are traditional defined benefit plans subject to the annual additions limit of $55,000?
NO
Any divorced spouse age 62 and older and unmarried or remarried after age 60 and was married to person A for more than ____ years may receive retirement benefits if person A is ______
10 years, if they are retired
Can a current spouse collect social security benefits if their spouse is not retired?
NO - must be retired. Ex-spouses can if over age 62 and was married more than 10 years
The max salary that can be considered for retirement benefits is _____ but the max defined benefit is _____
max salary is $275k, max benefit is $220k
To cover full replacement, can you just buy 80% coverage of a home’s value?
NO - that is just to avoid the coinsurance requirement
Do IRAs permit loans?
NO NO NO
Is a money purchase pension plan more administratively easy than a 401(k)?
YES
If a retirement plan purchases stock on margin, how are the dividends and capital gains treated?
AS unrelated business taxable income (UBTI) and the plan has to pay
Are loans from a qualified plan ever subject to the 10% penalty?
NO
Can an ESOP or a stock bonus plan be integrated with social security?
ONLY a stock bonus plan - ESOPs cannot
The following disclosures must be made either VERBALLY or IN WRITING BEFORE ENTERING INTO AN AGREEMENT to provide financial planning services:
- obligations and responsibilities or each party
- compensation to be received
- terms under which the agreement permits proprietary products
- terms under which agreement will use other entities to meet obligations (outside help)
Does a written agreement for financial planning have to be just one document?
NO - can be multiple
The CFP board requires a written agreement to be in place _____ the scope of the engagement is defined and _____ material elements of the planning process have begun
AFTER the scope is defined and PRIOR TO engaging in the actual planning
The following information and disclosures MUST be in WRITING:
- parties to the agreement
- date and duration of the agreement
- how or on what terms agreement can be ended
- services to be provided
- precise compensation
- summary of conflicts of interest
- any material information about the CFP certificant or employer
- contact information for certificant and/or employer
What are the exceptions to borrowing or lending money to a client?
- member of your family
- certificant or client is in the business of lending money and is unrelated to services for financial planning
Must disclose to the CFP board within ___ days for contact info change, ___ days for crime (does not include misdemeanor traffic offenses unless involving drugs/alcohol), ____ days for professional suspension
45 days for contact info, 30 days and 30 days
How long can a suspension last from the CFP DEC?
5 years
If your CFP marks are revoked, is that permanent?
YES
PAP part A liability coverage of 100/300/50 means:
$100k for bodily injury to one person, $300k total for all persons injured in an accident, and $50k for property damage - all limited to one accident
Part B coverage for a PAP is _____ and typically ranges from $1k to $10k per person
medical payments coverage
Part C for a PAP is ______
uninsured motorists coverage
Part D coverage for a PAP is ______
coverage from damage to your automobile
Does tenancy in common avoid probate?
NO
If you want something to pass through your will at death, will JTWROS work as an ownership category?
NO - avoids probate but will pass by law, not will
