I Kinda Know It Flashcards
What will medicare pay for in terms of LTCi? What are the timelines and general co-pays for a patient?
Skilled nursing care that leads to recovery
0-20 days: $0 patient co-pay
21-100 days: some patient co-pay
101+ days: patient pays all
Which of the following is NOT one of the three basic components that establish the premium and define the payment of benefits under a disability income insurance policy?
The cause of the disability (sickness or injury)
The elimination period
The benefit period
The amount of the monthly indemnity
The cause of the disability (sickness or injury)
The purpose of a ________________ benefit in a disability income insurance policy is to encourage insureds to participate in a program to help them recover or retrain to be able to return to work without fear of having benefits reduced.
recovery
development
residual
rehabilitation
rehabilitation
When does the Social Security Supplement (SIS) benefit kick in?
When disability is not being paid
Choose the basic components that establish the premium and define the payment of benefits under LTCi policies.
I. The elimination period
II. The benefit period
III. The amount of daily benefit
IV. The face value amount
I, II, III
I, II, III, and IV
I and III
II and IV
I, II, III
I. The elimination period
II. The benefit period
III. The amount of daily benefit
Identify the level of LTC service that has the following characteristics:
Periodic care with activities of daily living (ADLs)
As-needed basis
Provided by non-licensed caregivers
Skilled Nursing Care
Intermediate Care
Custodial Care
Adult Day Health Care
Custodial care
What retirement account can fund an HSA?
A direct transfer from an IRA to HSA, once
What is the level of market efficiency, in which only previous security prices and volume data are reflected in current security prices, called?
A strong form efficient market
A semi-strong form efficient market
A weak form efficient market
A perfectly efficient market
A weak form efficient market
What are the three general levels of LTC insurance?
Skilled nursing care: highest level of care - usually access to a RN or Dr 24-7
Intermediate care: less intensive nursing or rehabilitative care
Custodial care: care that is not medical in nature, i.e. assistance with activities of daily living
What is assisted living care?
Pay a monthly fee to live in a facility with a private room/apartment, access to meals and assistance with daily living
What is a hybrid life/LTC policy?
This combines whole life with LTC so that if LTC is required, it draws from the death benefits of the life policy. If not, then the entire death benefit is given tax free. The downside is if LTC exahusts the death benefit and it is still needed. Also, if insurance isn’t needed and neither is LTC, it could be too much insurance.
What is an annuity/LTC hybrid policy?
An annuity, typically funded by rollover or 1035 exchange, pays for LTC for a specified number of years.
What is the Program of All-Inclusive Care for the Elderly (PACE)?
a Medicare and Medicaid alternative to nursing homes which sends nursing assistance to the home. Must be in an area that provides that service
What are Partnership Qualified LTC Policies?
These are policies that allow the insured to exhaust the LTC insurance benefits and qualify for Medicaid without spending down their assets to Medicaid requirements. The partnership gives the insured credit (read “protects” ) for the face value of the LTC policy.
What is the social insurance supplement (SIS) rider?
This rider works with disability to reduce the benefit by the social insurance amount for a total of what the policy would have provided which also reduces the premium
What are the various renewal levels of long term disability insurance?
Noncancellable: best - company cannot raise premiums or cancel policy
Guaranteed renewable - company cannot cancel policy, but can raise premiums as a class
Conditionally renewable - allows company to cancel policy if insured does not meet certain conditions. They can also raise premiums
Non-guaranteed continuation - worst. Company and cancel policy at any time and/or raise premiums
Name the general topics of the following acts:
Securities Act 1933
Securities Act 1934
Investment Advisors Act 1940
McCarran Ferguson Act 1945
Security Protection Act 1970
Gramm-Leach Bliley 1999
Sarbanes-Oxley 2002
Dodd Frank 2010
Securities Act 1933 - est primary market
Securities Act 1934 - est secondary market & SEC
Investment Advisors Act 1940 - requires investor registration
McCarran Ferguson Act 1945 - insurance regulated by state
Security Protection Act 1970 - est securities investor protection corp
Gramm-Leach Bliley 1999 - repealed glass-steagal; bank could combine services
Sarbanes-Oxley 2002 - toughens accountability of financial institutions, recast powers of SEC
Dodd Frank 2010 - created consumer financial protection bureau
For an Original Issue Discount (OID) to be zero on a $250,000, 15-year, zero-coupon corporate bond, the purchase price must be greater than _____________.
$240,625
$62,500
$187,500
$231,250
$240,625
To find the purchase price at which an OID would be zero, the following formula is used to determine the amount of the maximum discount:
(0.0025 x face value of the bond x bond term
Which of the following statements is NOT correct regarding governmental Section 457(b) plans?
-A Section 457(b) rollover distribution that is not a direct transfer is subject to mandatory 20% federal income tax withholding.
-A Section 457(b) rollover distribution may be rolled over to an IRA.
-A Section 457(b) rollover distribution may only be rolled over to another governmental Section 457(b) plan.
-A Section 457(b) rollover distribution may be rolled over to a qualified plan.
-A Section 457(b) rollover distribution may only be rolled over to another governmental Section 457(b) plan.
Each of the following statements is correct regarding a SIMPLE IRA EXCEPT:
-An eligible employer may have no more than 100 employees.
-Employee deferrals into a SIMPLE IRA are aggregated with qualified plan deferrals in applying maximum annual limits.
-An employer may exclude from SIMPLE IRA participation employees who have not earned at least $5,000 from the employer in any two preceding years, and are reasonably expected to earn at least $5,000 in the current year.
-A distribution from a SIMPLE IRA within the first two years of participation may be subject to a 10% penalty.
-A distribution from a SIMPLE IRA within the first two years of participation may be subject to a 10% penalty.
_____________ deals with management of the ward’s property and personal affairs.
Plenary guardianship
Guardianship
Conservatorship
A ward
Plenary guardianship - assumes the person is incapacitated
In addition to all DC plan characteristics, what are Traditional PS plan characteristics?
Flexible contributions (3 of last 5)
ER profit not required for contributions
Typically allows hardship withdrawals
May invest 100% stock
Not subject to QJSA
Age-weighted plans can skew contributions
In addition to all DC plan characteristics, what are 401(k) plan characteristics?
401(k) is a provision added to PS, SBP or ESOPs
ER not required to contribute
Often offers loans or hardship withdrawals
Can be 100% invested in company stock
EE must be given 3 alternative investments
EE subject to ADP test
ER subject to ACP test
In addition to all DC plan characteristics, what are Money Purchase plan characteristics?
Mandatory ER contributions (pension)
May invest in no more than 10% company stock
No in-service withdrawals
Subject to QJSA
In addition to all DC plan characteristics, what are Target Benefit pension plan characteristics?
Mandatory ER funding - 100% ER funded
First year only actuary design for “target”
Can skew contributions to older
May invest no more than 10% company stock
What is a credit shelter trust?
A “B” trust
What is the diffence between cyclical and non-cyclical stocks?
Cyclical stocks are tied to the overall economic cycle - they ebb and flow. Non cyclical stocks generally remain stable throughout the economic cycle
How often must all debts be paid under the debt resolution rule?
1 year
2 years
3 years
4 years
4 Years
What are the exceptions for the debt resolution rule?
Home and education financing
What is the time period associated with debt when calculating a current (or liquid) ratio?
1 year
5 years
10 years
No time period - all debt
1 year
______________________ is the result of subtracting operating expenses from the gross margin amount.
Income from operations
Gross sales
Net income
Dividend and interest income
Income from operations
Which of the following would be subject to an automatic stay under Chapter 7 or Chapter 13 bankruptcy?
Alimony
Child support payments
Criminal suits
Foreclosures
Foreclosures
Each of the following statements regarding the law of large numbers and insurance is correct EXCEPT:
-The greater the number of observations of an event based on chance, the more likely the actual result will approximate the expected result.
-The insurance company must have a large enough number of exposures from which to gather their loss experience.
-The law of large numbers allows accurate predictions of individual events.
-The insurance company must have enough insured units so that the actual number of losses will be closer to the predicted number.
The law of large numbers allows accurate predictions of individual events.
What are losses not resulting from chance called?
Depreciation losses
Use the formula for Holding Period Return to determine the following:
Initial value: 100 shares @ $10 EA on 50% margin
Ending value: 100 shares @ 13 EA
Dividends paid: $.5 per share
8% on margin
HPR = (1300 - 1000) + 10 / 500 = .62 or 62%
Initial value: $1000
Ending value: $1300
Positive: $50 dividends
Negative: 8% x 50% x $1000 = $40
Initial value x 50% = $500
Which of the following is an attribute of HPR?
Assumes dividends are not reinvested.
Strongest measure of return.
Assumes reinvestment of dividends.
Indexed for time.
Assumes dividends are not reinvested.
What is the 10bii calculation for dollar weighted returns?
Year 1 investment = +/- $amount, CFj
Year 2 investment = +/- $amount, CFj
Year 3….
Year X portfolio worth = $amount, CFj
[Shft] IRR/YR
What are 8 common characteristics amongst all DC plans?
Annual additions: $61k
Contributions: $20.5K
Max Comp: $305k
EE bears investment risk
No guaranteed final benefit
Vesting: 3 year cliff or 2-6 graded
Maximum ER deduction: 25%
No PBGC insurance
What are 10 common characteristics of all defined benefit plans?
They guarantee the final benefit
Maximum annual pension $245k
Maximum comp considered $305k
Covered by PBGC
Vesting (at least): 5 yr cliff or 3-7 yr graded
Must have QJSA unless waived
ER bears investment risk
No maximum deductible ER contribution
Annual actuarial work req
Must satisfy 50/40 rule
What are the characteristics of JTWROS?
Can be spouse or non-spouse
Will does nothing; passes by law. Auto-survivorship
Can transfer without spouse approval
Partner(s) get %of FMV at death
What are the characteristics of Tenants in Common?
Percentage of ownership
Basis is percent paid
Included in probate
Percentage freely transferred
What are the characteristics of Tenants of the Entirety?
50% ownership spouses only
Cannot transfer with partner consent
Not included in probate
Basis is 50% of spouse
What are the characteristics of community property?
50% ownership with spouse
50% basis of spouse
Transferable with spouse permission
No survivorship rights
Select the specialized form of property ownership existing between co-tenants who are married in which the spouses own the whole interest collectively, but no undivided individual share.
Tenancy in Common
Joint Tenants with Rights of Survivorship
Tenancy by the Entirety
Community Property
Tenancy by the Entirety
What are the additional DC PS characteristics of the traditional PS plans?
Flexible ER contributions; 3 of 5 years “substantial and reoccurring”
Allows hardship withdrawals
May invest 100% in ER stock
Not subject to QJSA
What are additional DC PS characteristics of 401(k) plans?
Cash or Deferred Arrangement (CODA): cash, SBP, ESOP
$6500 catch up does not count against annual additions limit
Allows hardship loans
Can be 100% ER stock, but must offer 3 diversification alternatives
EE contributions subject to ADP testing and ER contributions subject to ACP testing
What are additional DC characteristics of a Money Purchase pension plan?
100% ER funded (PENSION)
No effect on aggregating (PENSION)
Contributions usually a % of the EE compensation (PENSION)
May invest no more than 10% in ER stock (PENSION)
No in-service withdrawals (PENSION)
Subject to QJSA (PENSION)
What are additional DC characteristics of a Target Benefit pension plan?
100% ER funded (PENSION)
No effect on aggregating (PENSION)
Contributions based on 1-time actuary formula to reach “target”
Can skew higher for older participants
May invest no more than 10% in ER stock (PENSION)
What are additional DB characteristics of a traditional DB plan?
No individual accounts
“Active Participant” for IRA deduction purposes
QJSA (if married) unless waived
What are additional DB characteristics of a cash balance plan?
“Hypothetical” participant accounts
Can ONLY use 3-yr cliff vesting
Guaranteed cash benefit
Contributions are “pay credits” and “interest rate credits”
Uniform benefit for all EEs
Participant can convert cash into lifetime pension
Considered easier plan to understand than trad DB plan
What are key features of a 403(b) account that differs from a traditional 401(k) account?
Available to 501(c)(3) tax-exempt organizations (hospitals, schools)
Additional $3k catch-up w/15 years of service; can be combined with over 50 catch-up for total deferment of $30k (20,500+6,500+3,000
Limited investment choices; annuities or mutual funds
What are key features of a 457 plan that differs from a traditional 401(k) account?
Used by government and certain non-profit organizations
Additional catch-up in last 3 years of service = double the deferment (41,000), but cannot use 50+ and special catch-up together
Can roll into eligible IRA
No aggregation with qualified accounts
No “active status”
What are key characteristics of a Simplified Employee Pension (SEP)?
Easy to setup and maintain
ER contributions only of lesser of EE comp or $61k
Must be offered to 21y/o w comp of $650 or more
100% vested
What are key characteristics of a SIMPLE IRA?
Simple salary reduction plan
Any ER w/ 100 or fewer EEs
EE and ER contributions
Must be offered to EEs w/comp of $5k
What are the differences between traditional and direct rollovers?
Traditional: 1 every year, 20% withholding (except IRA to IRA), balance goes to participant
Direct: no limit on transfers, no withholding, participant does not receive balance
Of the retirement transfer from and to chart, where are the major differences?
SIMPLE IRA: after 2 years except to another SIMPLE IRA
ROTH IRA: no transfers except to another Roth IRA
Designated Roth accounts: no transfers except to another designated roth account
What are the general ROTs for inherited IRA distributions for EDBs, non-EDBs, and non-DBs?
EDBs: distributions can be taken over the life of the beneficiary, except minors (10-year rule)
Non-EDBs: 10 year rule
Non-DBs: 5 year rule
Who are EDBs for inherited IRAs?
SCAM’D
Spouse
Chronically ill
Age 10 years or less
Minor
Disabled
For qualified plans, what are the three circumstances where the 10% early withdrawal penalty applies?
Qualified higher education
Health insurance premiums paid while unemployed
First-time home buyer
For traditional IRA and IRA-funded ER plans, what is the circumstance where the 10% early withdrawal penalty applies?
Separation from service during or after the year the EE turns 55
What is a qualifying ISO sale?
ISO sold more than 2 years from grant date and more than 1 year from exercise date
What are the AMT consequences at exercise and sale (if result is gain)?
AMT (positive) at exercise - based on difference between exercise and strike price
AMT (negative) at sale - based on FMV at sale and FMV at exercise
What is the tax calculation on a qualifying ISO sale?
Difference between FMV at sale and strike price
How are SS credits earned?
1 per $1510 of income up to 4 credits per year, regardless of when that income was earned throughout the year
For SS benefit taxation, what are the $ amount thresholds for 50% and 85% for MFJ and single?
MFJ: $32k -> $44k
Sin: $25k -> $34k
What is the provisional income formula?
1/2 SS benefit + tax exempt income + earned income = provisional income
What are key facts around spousal SS benefits?
Earliest a spouse can take is 62
Spouse gets 50% (or less if early) of PIA
Worker must have filed already
What are key facts around divorced SS benefits?
Must have been married 10 years
Must have been divorced two years and still divorced
Worker DOES NOT need to be receiving benefits
Does not count against max family rules
What percentage of tax is assessed on lottery winnings?
15%
20%
24%
25%
24%
For 1245 property, what is ordinary and what is capital gains / losses?
Sold basis and above = capital gains
Sold between depreciated value to basis = ordinary income
Sold below depreciated value = ordinary loss
For 1250 property, what is ordinary and what is capital gain / losses?
Sold basis and above = capital gains
Sold btwn depreciated value to basis = unrecaptured gain at 25%
Sold below depreciated value = ordinary loss
What are the key percentages for SE tax?
.1413 x any income below $147k tax wage base
.9235 x income above taxable wage base
^that amount - $147k = amount x .029
$147k x .153
For a public charity, what are the allowable deduction percentages for
Cash
LTCG w/ FMV
LTCG w/ Basis
Ordinary Income Property
Cash - 60%
LTCG w/ FMV - 30%
LTCG w/ Basis - 50%
Ordinary Income Property - 50%
For a private charity, what are the allowable deduction percentages for
Cash
LTCG w/ FMV
LTCG w/ Basis
Ordinary Income Property
Cash - 30%
LTCG w/ FMV - 20%
LTCG w/ Basis - 30%
Ordinary Income Property - 30%
For related use, what are the AGI deduction percentages for basis or FMV?
FMV: 30%
Basis: 50%
Donor chooses
For use unrelated, what is the AGI deduction?
Lesser of…
Cost basis
FMV
Dollar or Time Weighted: which one is affected by the timing of cash flows?
Dollar weighted cash flows
(Time weighted geometry)
Which two of three investment risk ratios measure risk-adjusted returns?
Treynor and Sharpes
Which two of three investment risk ratios use an R2 > 70%?
Treynor and Alpha
Which two of three investment risk ratios use Beta?
Treynor and Alpha
Formula for GDP
Consumption + Investments + Government Spending + [net exports or (x-ports - imports)]
What are the two business phases?
Expansion and contraction
In supply and demand, what is the difference between substitutes and compliments?
Substitutes: of two related items, when the demand of one goes up, the price of the other goes up (gas -> firewood)
Compliments: of two related items, when the price of one goes down, demand for the other goes up (PB discount, jelly demand goes up)
Form 5498
IRA Contribution
Form 8606
Nondeductible IRAs
Form 4868
Extension of time to file
Form 1098
Mortgage interest
What is the difference between comparative and contributory negligence?
Contributory negligence is all or nothing. If plaintiff is at fault at all, no damages can be recovered.
Comparative allows the plaintiff to recover damages, but at a commensurate level to the percentage fault was his
Which of the following variables is NOT typically used in the year-to-year actuarial assumptions in the funding requirements for a defined benefit plan?
The assumed rate of return on plan assets
The assumed employee turnover rate
The assumed mortality rate of plan participants
The consumer price index
The consumer price index
All qualified plans must pass one of the following tests EXCEPT:
Safe harbor test
Ratio percentage test
Average benefit test
50/40 test
50/40 test
Each of the following is considered a key employee EXCEPT:
-An officer of the employer having annual compensation greater than $200,000 (2022)
-A more-than-five-percent owner of the employer
-A more-than-one-percent owner of the employer having annual compensation from the employer of more than $150,000
-An employee with compensation greater than $135,000 (2022) and ranked in the top 20% based on compensation
An employee with compensation greater than $135,000 (2022) and ranked in the top 20% based on compensation
Because this is a highly comp EE, not key EE
Black-scholes formula calculates the fair value of an option on five factors. Which of the following are included among those factors?
-Taxes and transition costs
-Time remains before expiration
-Risk-free rate of return
-Stock volatility
Time remaining before expiration
Risk-free rate of return
Stock volatility
Strike price and current stock price are the other two
One limitation to the Black-Scholes-Merton model is that strictly speaking, it is only applicable to options that do not:
Have an expiration date
Pay dividends over the life of the option
Display implied volatility
Have an intrinsic value
Pay dividends over the life of the option
Which one of the following is not a key assumption underlying the CAPM?
-Investors prefer portfolios with lower standard deviations
-Assets are infinitely divisible
-Investors may borrow or lend at a single risk-free interest rate
-Taxes and transaction costs reduce market liquidity.
Taxes and transition costs reduce market liquidity. These have nothing to do with CAPM
Which model is predicated on the assumption that stock prices can move to only two values over a short period of time?
Binomial option pricing model
CAPM
APT
Black-Scholes-Merton
BOPM
For a widow(er) supporting a child, what do they file in the year of spouses death and the years after?
Year of death - MFJ
2 years after death - Widow(er) or Single
3+ years - single or married
What is a “participating” insurance policy?
Policy produces dividends
What are the two universal life policy options?
Option A: level death benefit
Option B: face value + cash value benefit
Reverse mortgages are expected to be repaid when
I. the house is sold.
II. the home has been vacated for more than 6 months.
III. the first homeowner dies.
IV. the home is substantially improved.
I only
I, II, and III
II and III
IV only
I only
The home should be vacated 1 year
When the LAST homeowner dies
What is actual cash value?
Replacement cost - depreciation
For AVD, what assets get the AVD and what assets do not (even if it’s selected)?
AVD = house, investments, collectables
DoD = depreciable assets like cars, annuities, intellectual property
What is the current ratio?
Current assets / current liabilities
In the equilibrium world of the CAPM, a security that is not part of the market portfolio… (pick all that apply)
-Is not owned by investors
-Has an equilibrium price of zero
-is attractive to the very risk-averse investor
-has a market value of zero
-Is not owned by investors
-has a market value of zero
Which of the following is an important assumption of put-call parity?
-Both options may have different exercise prices, but the same expiration dates
-Both options have the same exercise prices and the same expiration dates
-Both options will produce the same payoff on the stick as well as a risky bond
-Both options will produce the same payoff on the stock as well as another risky asset
Both options have the same exercise prices and the same expiration dates. This is the only way to get parity between the put and the call.
Under IRC Section 731, basis of a partnership interest:
must be allocated.
cannot be negative.
does not include adjustments.
may not be reduced.
Cannot be negative
Which measure includes methods that are used when deposits or withdrawals occur sometime between the beginning and end of the investment interval?
Time-weighted returns
The geometric mean
The arithmetic mean
Dollar-weighted returns
Dollar Weighted
Differences between IRR and NPV?
Which is absolute sum and which is relative measure?
Which accounts for different cash flows (CFj) and which does not (PV/FV)?
NPV is absolute sum and accounts for changes in cash flow
IRR is relative, and less accurate and does not account for carrying cash flows (YTM, YTC are examples of IRR)
Which of the following is true about the arbitrage pricing theory? (Select all that apply)
Investors will take advantage of arbitrage opportunities thus eliminating them.
Investors will not act on arbitrage opportunities.
Arbitrage has fewer assumptions than the CAPM.
Arbitrage opportunities are expensive and risky.
Investors will take advantage of arbitrage opportunities thus eliminating them.
Arbitrage has fewer assumptions than the CAPM.
What do variable insurance policies have?
subaccounts for owners to choose investments
Ownership rights in life insurance policies include each of the EXCEPT:
Change ownership of the policy.
Change the insured.
Assign the policy as security for a loan.
Name beneficiaries.
Change the insured.
This is because the insured is the one who had a physical in order to get underwritten. Only the insurance company can change an insured.
Identify the distributions that are added back as income on the student’s financial aid application.
I. Parent Roth IRA
II. Parent-owned 529
III. Dependent student-owned 529
IV. Student-owned Coverdell ESA
I. Parent Roth IRA
IV. Student-owned Coverdell ESA
What is a NOW account?
A negotiable order of withdraw checking account - interest bearing
Which financial institution borrows money from depositors, who receive dividends, then lend it out in the form of home mortgages?
Mutual S&L
Corporate S&L
Savings Bank
Credit Union
Mutual S&L
A savings account may also be called:
I. a time deposit.
II. a passbook account.
III. a demand deposit.
IV. a money market deposit account.
I and II
I, III, and IV
II and III
IV only
I and II
a time deposit.
a passbook account.
Which type of margin call is issued when the current account value falls below the required minimum overall level?
Regulation T Call
Maintenance Margin
Minimum Equity Call
Initial Margin Call
Minimum Equity Call
What are the income and asset percentages for parents and students for EFC?
Assets
Parents: 5.64%
Students: 20%
Income
Parents: 20-47%
Students: 50%
Identify the distributions that are added back as income on the student’s financial aid application.
I. Parent Roth IRA
II. Parent-owned 529
III. Dependent student-owned 529
IV. Student-owned Coverdell ESA
I only
II, III, and IV
II and III
I and IV
I and IV
Distributions from student-owned Coverdell ESA accounts are counted as income.
Roth IRA distributions are considered income on the FAFSA, as well.
Withdrawals from parent-owned or dependent student-owned 529 plans and parent-owned or third-party owned Coverdell ESAs are not added back as income on the student’s financial aid application.
What is the student loan interest deduction limit?
$2500
A long-term debt coverage ratio below ____ is not financially desirable.
1.0
1.5
2.0
2.5
2.5
= liquid cash / monthly debt payments
Heuristic
any approach to problem solving that employs less technical, and more practical method
ROTs, approximations, educated guesses
Prospect theory
People suffer more greatly from losses than they benefit from gains.
What is the formula for CV?
Std dev / return
What is V/E vs P/E?
V/E = normal value
P/E = actual value
V/E > P/E = underpriced
V/E < P/E = overpriced
What are key characteristics of a SEP/SEP IRA?
Active participant
The “P” is for Pension which means 100% ER funded
Can fund either 25% of comp or $61k
For EE’s earning $650 or more annually
Plan can be established in the same year of contributions***
Flexible contributions
Withdrawals permitted w/tax and withdrawal penalties
Vested 100% immediately
What are key characteristics of a SIMPLE?
Active participants
$14k contribution / $3k catch-up
For EEs earning $5000 or more annually
Flexible ER contributions from 100% match to 3% comp down to 1% for 2 of 5 years
100% vested immediately
For companies with 100 or fewer EEs
25% withdraw penalty in first two years
What ER plans make someone an “active participant”?
DC: Trad PS, 401(k), SBP, Money, Target - only if ER contributions were made
IRA-based: SEP, SARSEP - only if ER contributions were made
DB: any DB if even eligable
For NUA, what tax is paid and when?
Basis is ordinary income paid upon lump distribution
Basis to earnings is LTCG paid when stock is sold
What are plots below, above and on the capital market line?
Below: inefficient (more risk for less return)
Above: impossible (more return for less risk)
On: efficient (exp return for the amount of risk)
When is half-life convention depreciation applicable?
During straight-line method only - 1st and last year
What are the 5 general steps for arriving at the federal estate tax payable?
Determine gross estate (gifts + estate)
Arrive at the adjusted gross estate (deductions)
Determine the taxable estate
Calculate the federal estate tax before credits (brackets)
Apply credits (gift tax) to arrive at net federal estate tax
What is the trustee 65-day rule?
Allows the trustee to make distributions from the trust up to 65 days after the CY and still count towards last years’ taxes
What is the section 645 election for a trustee?
Allows the executor of an estate and the trustee of a revocable trust to treat the estate and trust as one for tax purposes
What is the difference between a personal and business balance sheet in the value of items listed?
Personal lists FMV
Business lists lesser of cost or FMV
What is the unique feature of wait-and-see agreements? (Wait and see, B.O.B)
Business gets first option to purchase stocks
Owner gets second option if business buys either none or less than half
Business must buy stocks if the owner does not
Insurers call claims filed many years after the alleged injury _____________ claims.
long-tail
subsequent
prolonged
postponed
Long-tail
Which of the following correctly describes a qualified plan that would be deemed top-heavy?
A plan in which more than 50% of the plan benefits or contributions are for key employees.
A plan in which more than 60% of plan benefits or contributions are for highly compensated employees.
A plan in which more than 60% of the plan benefits or contributions are for key employees.
A plan in which 50% or more of the plan benefits or contributions are for highly compensated employees.
A plan in which more than 60% of the plan benefits or contributions are for key employees.
Which of the following statements is NOT correct regarding governmental Section 457(b) plans?
A Section 457(b) rollover distribution that is not a direct transfer is subject to mandatory 20% federal income tax withholding.
A Section 457(b) rollover distribution may be rolled over to an IRA.
A Section 457(b) rollover distribution may only be rolled over to another governmental Section 457(b) plan.
A Section 457(b) rollover distribution may be rolled over to a qualified plan.
A Section 457(b) rollover distribution may only be rolled over to another governmental Section 457(b) plan.
Each of the following statements is correct regarding a SIMPLE IRA EXCEPT:
An eligible employer may have no more than 100 employees.
Employee deferrals into a SIMPLE IRA are aggregated with qualified plan deferrals in applying maximum annual limits.
An employer may exclude from SIMPLE IRA participation employees who have not earned at least $5,000 from the employer in any two preceding years, and are reasonably expected to earn at least $5,000 in the current year.
A distribution from a SIMPLE IRA within the first two years of participation may be subject to a 10% penalty.
A distribution from a SIMPLE IRA within the first two years of participation may be subject to a 10% penalty.
25% penalty
Which of the following non-qualified plans typically uses a non-elective defined benefit type of formula to calculate the benefit amount?
Excess benefit plan
Stock appreciation rights
Salary reduction plan
Salary continuation plan
Salary continuation plan
Regarding qualified retirement plans, which entity administers the taxation of contributions and benefits and enforces funding, participation, and vesting standards?
ERISA
IRS
DOL
PBGC
IRS
Elsa was born in 1961 and is fully insured under Social Security. She plans on retiring from full-time employment and claiming her Social Security retirement benefit at age 62. Her current full retirement primary insurance amount (PIA) is projected to be $2,000 per month. If Elsa works part-time until age 67 and earns $2,000 per month, what is the benefit withholding formula that would apply due to her earnings in the year she attains age 65?
100% of her benefit will be withheld.
$1 will be withheld for every $2 her earned income exceeds $19,560 (2022).
$1 will be withheld for every $3 her earned
income exceeds $51,960 (2022).
No reduction would apply.
$1 will be withheld for every $2 her earned income exceeds $19,560 (2022).
Limits on are the tax sheets
Under which method for split-dollar life insurance does the employee own the policy and is responsible for premium payments?
Endorsement method
Collateral assignment method
Collateral assignment method
What is the maximum percentage of qualified plan contributions that may be allocated to ordinary (whole life) life insurance on behalf of a participant in a defined contribution plan to comply with the “incidental” regulations for life insurance in a qualified plan?
25%
50%
10%
0%
50%
How are assets listed on the balance sheet?
left-hand side, most liquid to least liquid
Right hand side; short-term liabilities to long-term laiabilities
How do you calculate the marginal rate for capital gains?
Capital gains are stacked on top of taxable income
What are the capital loss rules?
No more than $3000 in losses per year - carried forward indefinitely
What are the requirements for qualified distributions from a roth?
Contributions can come out any time
Otherwise 5 years &
Death or
Home purpose to $10k or
Age 591/2 or
Disability
What are the basis rules for both entity and cross purchase agreements?
Cross-entity: basis increases by the percentage of deceased owner
Entity: owners do not get step up in basis
What is duration for both income producing and zero coupon bonds?
Zero coupon: same as maturity
Income producing: always less than maturity
How do you immunize a bond portfolio?
Match duration with the known future time horizon
What chapter 7 obligations must still be paid? (ASICS)
Alimony
Student loans
Income taxes less than 3 years old
Child support
Secured debt
COBRA extends health insurance coverage for termination or reduction of hours by ______ months
18
COBRA extends health insurance coverage for the EE meeting SS definition of disability by ______ months
29
Which of the following is a life insurance policy non-forfeiture (termination) option that provides the largest death benefit?
Extended term
Reduced paid-up
Cash surrender
Annuitization
Extended term
What is a future’s short hedge?
Someone who is long a product that needs a short (someone to buy)
Horatio maintains a margin account currently valued at $100,000 and a cash account worth $450,000 with Midnight Blue Investments, an SIPC member broker-dealer.
Calculate the total SIPC coverage provided to Horatio.
$250,000
$500,000
$350,000
$450,000
$350,000
The Securities Investors Protection Corporation (SIPC) provides coverage for customers of its member broker-dealers up to $500,000. Of the $500,000, no more than $250,000 can be for cash losses.
Therefore, $250,000 of Horatio’s $450,000 cash account is eligible for SIPC coverage, as well as the entire $100,000 margin account.
What is the tax consequence for a viatical settlement company when they receive a policy?
The cash value of the policy is basis. Above that, they pay corporate tax rates on the gains
If a bond’s yield does not change over its life, then the size of its discount or premium will increase, as its life gets shorter.
False
True
False
If a bond’s yield does not change over its life, then the size of its discount or premium will DECREASE, as its life gets shorter.
In a voluntary employee’s benefit association (VEBA) plan, contributions to the plan can be redistributed amongst other EEs once an EE leaves (T/F)
False
Sue, age 40, is paid a salary of $120,000 per year. Her employer sponsors a group term life insurance plan providing coverage of three times salary. If the IRC Section 79 rate for Sue’s age is $0.10 per thousand, per month, what amount of Sue’s taxable benefit must be recognized for this year?
Sue must recognize an economic benefit of $372:
3 x 120,000 = 360,000
360,000 – 50,000 = 310,000
310,000/1,000 = 310
310 x 0.10 x 12 = 372
For Alpha, Sharpe, and Treynor, when should you use Beta and when should you use Standard Deviation?
Alpha: Standard deviation
Sharpe: Beta
Treynor: Standard deviation
What does Jenson’s measure?
Expected return
What is (Rm - Rf)B
Stock premium
TLC is probate free
T - trusts
L - Law (operation of…)
C - contracts (life, annuities)
Which performance index is an absolute value?
Sharpe
Treynor
Alpha
Beta
Alpha
SE Tax - break it down!
SE Income x .9235
147k and below x .153
147k and above x .029
Above add medicare tax to taxable amount x .009
What is taxed and not taxed in both non-grantor trust retained earnings and distributions?
Tax-free | tax-free
————————————DNI
Estate | Marginal
Tax | Tax
Tables | Tables
Calulate SE contributions to a retirement plan
SE Income x .9235
147k and below x .153
147k and above x .029 - add to above
SE income minus 50% SE tax (1/2 tax above)
x (EE max contribution /1+EE max contribution)
In a 1031 exchange, what are the two important timings to keep in mind?
45 days to identify potentail replacement property
180 to complete transfer
What is the formula for a section 121 tax when the full two years were not fulfilled?
Sold amt * (#days in the house / 730)
Total gain - ^this amt = taxable amount
Non-business bad debt losses are:
not deductible.
deductible as a short-term capital loss.
deductible as an ordinary loss.
a deduction for AGI.
deductible as a short-term capital loss.
Who are eligable designated beneficiaries?
Spouse
Chronically ill beneficiary
Age 10 years younger or less
Minor child (under
Disabled
What is the limit for the early withdrawal exception when buying a house?
$10,000
Which of the following is NOT correct regarding the tax treatment of a nonqualified plan?
-The earnings of plan assets set aside in currently taxable investments to informally fund a nonqualified deferred compensation plan are taxed currently to the employer.
The earnings of plan assets set aside in tax-deferred investments to informally fund a nonqualified deferred compensation plan are taxed currently to the employer.
There is no tax deduction to the employer currently.
The earnings of plan assets set aside in currently taxable investments to informally fund a nonqualified deferred compensation plan also provide the employer with an offsetting tax deduction.
The earnings of plan assets set aside in currently taxable investments to informally fund a nonqualified deferred compensation plan are not taxed currently to the employee.
The earnings of plan assets set aside in currently taxable investments to informally fund a nonqualified deferred compensation plan also provide the employer with an offsetting tax deduction.
Qualified plan fiduciaries typically include each of the following EXCEPT:
A plan trustee
A plan administrator
A member of a plan’s investment committee
An attorney who represents the employer
An attorney who represents the employer
What is the tax consequence of the death benefit paid under a key employee life insurance policy?
The death benefit is taxable income to the key employee’s estate.
The death benefit is includable in the key employee’s gross estate.
The death benefit is taxable for regular income tax purposes to the employer.
The death benefit is tax-free to the employer.
The death benefit is tax-free to the employer.
Pete died recently and held a profit-sharing account balance of $300,000. As part of Pete’s account allocation, he maintained a universal life insurance policy with a death benefit of $100,000. The cash value of the policy is $20,000 and Pete had paid total P.S. 58 costs of $3,000.
What is the current tax treatment of a lump-sum distribution of the profit-sharing account and life insurance proceeds?
$400,000 taxable ordinary income
$300,000 ordinary income and $100,000 tax-free
$317,000 ordinary income and $83,000 tax-free
$323,000 ordinary income and $77,000 tax-free
$317,000 ordinary income and $83,000 tax-free
When is the mid-month convention used?
For straight-line depreciation for business real estate
Who does coverage F, liability, extend to?
People other than family.
What risk strategy seems to be the default in America?
Risk retention - only because people really don’t think about it.
What is chpt 13 bankruptcy?
Reorganization. Keep assets and repay debts
How much is a point considered when applying them against a mortgage?
1 point = 1% of the loan
2 points = 2% of the loan, etc…
What is the housing cost ratio and ROT cap?
=monthly PITI / monthly gross income, not to exceed 28%
What is the total debt ratio and ROT cap?
=monthly PITI + consumer debt / monthly gross income, not to exceed 36%
What is the consumer debt ratio and ROT cap?
=monthly consumer debt / monthly NET income
Not to exceed 20%
What is a conditional receipt?
In life insurance, it is a promise to pay a benefit prior to conducting the underwriting as long as it is accompanied by a premium payment
Skilled Nursing Care involves which of the following?
I) Medically required care
II) 24-hour oversight
III) Support provided by nurses/nurse’s aides under supervision of a licensed physician
IV) Care on an as-needed basis
I only
IV only
I and II
II and III
I and II
Identify the correct type(s) of Commercial General Liability (CGL) format(s).
Occurrence-based
Claims-made
I only
II only
Both I and II
Neither I nor II
Both I and II
Under ____________, if several insurance policies were in force when a developing injury is in progress, all the insurers would be responsible for providing coverage.
triple-trigger theory
vicarious liability
comprehensive coverage
multi-line insurance coverage
triple-trigger theory
Each of the following may be covered under a general liability and property package policy EXCEPT:
Bodily Injury
False Advertising
Slander
Professional Liabilities
Professional Liabilities
Identify items that would be covered by Employment Practices Liability Insurance.
I. Invasion of Privacy
II. Products Liability
III. Negligent Discharge
IV. Completed Operations Negligence
I and III
II and IV
II and III
I, II, and IV
I. Invasion of Privacy
III. Negligent Discharge
Employment Practices Liability arises from hiring, terminating, and supervising personnel. The following are some of the reasons employers have been sued: negligent hiring, invasion of privacy, negligent supervision, negligent discharge, and negligent evaluation
What is the margin call calculations for both per share and per account?
= debt balance (per share) / 1 - mx margin
= debt balance (per account) / 1 - mx margin
Passive Activity: what is the at-risk amount?
The amount that someone has invested. Losses can only be taken up to the at-risk amount. The rest is suspended
What are the qualifies someone as an “active participant” for rental income to qualify as passive?
At least 10% ownership
Substancial involvment
What are the maximum charitable donation deductions?
Type Public Private
Cash 60% 30%
LTCG w/FMV 30% 20%
LTCG w/Basis 50% 30%
Ord income 50% 30%
Jackie, a math teacher, is single and will take a three-month sabbatical during the tax year. During the sabbatical, she will take several specialized courses in advanced mathematics. Her modified adjusted gross income is $30,000 and her tax liability is $4,000.
Assume that Jackie plans to deduct her tuition expenses as job education on her Form 1040, Schedule C, in addition to claiming the Lifetime Learning Credit. How much can she claim as a deduction?
$0
$500
$1,000
$1,500
$0
Because Jackie is claiming the Lifetime Learning Credit, she cannot also deduct her higher education expenses on Schedule C of her Form 1040. This is considered to be a double benefit, which is two or more education-related benefits.
Which of the following would be listed in the ‘Invested Assets’ category on the Statement of Financial Position?
I. common stocks
II. mutual funds
III. life insurance cash value
IV. deferred annuities
I and II
III and IV
I, II, III, and IV
I, II, and IV
I, II, III, and IV
What are the timing differences between NQSOs and ISOs? (Grant, exercise, sell)
NQSOs there are no timing requirements
ISOs must have a year between exercise and sale and two years between grant and sale
What are the the tax implications throughout the life of an ISO? (Grant, exercise, sale)
No taxes at grant
At exercise, there is no recognized taxes, but there is a positive AMT adjustment for the difference between grant and exercise.
At sale, there is a negative AMT adjustment for the difference between exercise and sale price. Income from sale to grant price is capital gains.
What is the maximum amount of ISOs that can be granted per year?
$100,000
What is the limit for a 529 to fund K-12 education?
$10k
