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CFP July 2023 > Important for Exam > Flashcards

Important for Exam Flashcards

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CFP® flashcards
1
Q

Like-kind Exchanges (Boot)

A
  • boot received = recognized (cash)
  • boot paid = 0 recognized, add to basis
  • basis carries over from last property

(Boot is not like-kind property)

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2
Q

AMT Payable

A
  • AMT tax - regular tax = AMT payable
  • if regular tax exceeds AMT payable amount of AMT due is 0
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3
Q

Phantom Income: Insurance

A
  • any type of lapse with a loan
  • section 162 life and disability
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4
Q

Phantom Income: Investments

A
  • zeros/strip income
  • TIPS
  • declared but not paid dividends and capital gains
  • EE bonds (if elected)
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5
Q

Phantom Income: Tax

A
  • k-1 income from LP/FLP
  • recaptures
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6
Q

Phantom Income: Retirement

A
  • ESOP distribution (basis’ only)
  • secular trust
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7
Q

Ordinary Income Property (charitable donations)

A
  • basis only, up to 50% AGI
  • inventory
  • work of art created by taxpayer
  • use-unrelated property (watch out for artwork and collectibles)
  • short term capital gains property
  • copy rights

*real estate and stocks are always LTCG property

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8
Q

Charitable Bargain Sale Calculation

A
  • (sale / fair market value) * basis = adjusted basis
  • sale - adjusted basis = taxable gain
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9
Q

PIA Calculation

A

PIA - [(# of months before FRA / 180) * PIA]

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10
Q

Taxation Management of Distributions Techniques

A
  • substantially equal payments
  • spread out distributions to take advantage of lower tax brackets
  • use after-tax investments for retirement needs
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11
Q

DB/DC Limits

A
  • DB/DC salary cap = $330,000
  • SIMPLE IRA cap = $516,667
  • DC max contribution = $66,000 (73,500 if 50+)
  • DB max contribution = stuff it like a pig
  • tandem plan is a wrong answer
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12
Q

When to adopt a Profit Sharing Plan

A
  • profits vary year to year
  • wants a qualified plan to motivate employees to help make profits
  • employees are young, well paid and have lots of time
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13
Q

Steps for Solving IRA Problems

A
  • look for plan (if none mentioned, assume both can deduct)
  • look at ages (highlight and make note if catch-up or not)
  • look at salary and AGI, if no salary or earned income mentioned cannot contribute to IRA. Be careful AGI is NOT earned income
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14
Q

Special Purposes for Roth IRA’s

A
  • 59.5+
  • death
  • disability
  • first home expense up to $10,000
  • medical expenses
  • medical insurance premiums while unemployed
  • substantially equal payments
  • higher education cost
  • federal declared disasters
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15
Q

Nonqualifed Plans Characteristics

A
  • may discriminate
  • exempt from most ERISA requirements
  • no tax deduction for contributions until employee is taxed
  • fund earnings are sometimes taxable to employer
  • distributions are taxable at ordinary tax rates
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16
Q

Qualified Plan Characteristics

A
  • may not discriminate
  • must satisfy ERISA requirements
  • immediate tax deduction for contribution
  • earnings accrue tax deferred until distributed
  • same as nonqualifed
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17
Q

High Loss Severity, Low Loss Frequency

A

Transfer (Insurance)

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18
Q

High Loss Severity, High Loss Frequency

A

Avoidance

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19
Q

Low Loss Severity, High Loss Frequency

A

Retention and Reduction

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20
Q

Low Loss Severity, Low Loss Frequency

A

Retention

21
Q

Owner of S-Corp

A
  • tax free benefits
22
Q

Homeowners Coverage C

A
  • boats and trailers up to $1,000
  • exclusions: property of roomers, boarders, and other tenants; property contained in an apartment regularly rented or held for rental
23
Q

Term Insurance (When to Recommend)

A
  • young with low cash flow
  • no cash value needed
  • temporary need
24
Q

Whole Life (When to Recommend)

A
  • forced savings
  • guaranteed amount
  • conservative
  • when don’t specify
25
Q

Universal Life (When to Recommend)

A
  • wants cash value in addition to death benefits
  • conservative
  • has cash value need
  • flexible
26
Q

Variable Life (When to Recommend)

A
  • worried about failure
  • various
  • risk tolerant
27
Q

Variable Universal (When to Recommend)

A
  • various and flexible
  • worried about failure
  • young, aggressive, good cash flow, separate funds
28
Q

Flexible Spending Accounts

A
  • no fica, futa, or income taxes
  • no LTC
  • not an HSA
  • use it or lose it 12/31 (dependent care only)

Dep - Dec
Med - Mar

29
Q

QBI Deduction Limit

A
  • 20% up to $464,200 can be deducted For conduit entities
  • cannot be service related
30
Q

When to Recommend: Defined Benefit

A

When an older controlling employee wants to maximize tax-deferred retirement savings for their benefit and when company has very stable cash flows with excess profits

31
Q

When to Recommend: Cash Balance

A

When company can no longer afford guaranteed benefits under a DB or small company with high earners

32
Q

When to Recommend: MPP

A
  • stable work force
  • simple to administer and explain
  • stable cash flows and fixed contributions to make annual fixed contributions
33
Q

When to Recommend: PSP

A
  • profits vary
  • want to adopt a qualified plan
34
Q

Deferral

A

$22,500 or $15,500 (SIMPLE)

35
Q

Employee Contribution

A

$22,500 or $15,500 (SIMPLE) + catch up

36
Q

Employer Contribution

A

$66,000

37
Q

Can hardship withdrawals come from Profit Sharing Plan

A

No, has to have 401k provisions

38
Q

Solo 401k vs SEP

A
  • over 50 = Solo 401k because of catch up
  • under 50 = SEP
39
Q

Keogh (Partnership’s and Sole Proprietors)

A
  • 25% = 18.59%
  • 15% = 12.12%
    ** used for sole proprietor SEPs as well
40
Q

SIMPLE first 2 year penalty

A

25% of distribution + income tax

41
Q

Integration with Social Security

A
  • DB, DC, MPP, TB, PSP, SB, SEP
  • NO ESOP, SIMPLE AND SIMPLE 401k
42
Q

21 and 2 rule

A
  • not allowed for 401k
43
Q

When to Recommend: SEP

A
  • alternative to qualified Profit Sharing Plan
  • contributions year to year; simple and less expensive to install
44
Q

Correlation of Investments SHORTCUT

A
  • if 0 choose number closest to 0
  • if less than 1; take average of standard deviation and pick next lowest number
  • perfectly positive think honda and toyota
  • perfectly negative think one up and down
45
Q

Dividend Discount SHORTCUT

A
  • calculate based on second number
  • choose number higher or lower based on first number (i.e., first number higher choose higher)
46
Q

Benchmarks

A

Dow Jones - Price Weighted
S&P - Float Weighted
Russell 2000 - popular capitalization weighted
Value Line - equally weighted
Wilshire 5000 - broadest; value weighted
NASDAQ - capitalization weighted
EAFE - international

47
Q

EPS Formula

A

ROE x Book Value or Net Worth

48
Q

Time Horizon

A

Should equal duration

CFP July 2023 (8 decks)

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