Individuals / Investment

Question 1

what investment is considered the lowest risk

Answer 1

municipal bonds issued by states and local municipalities

Question 1

Max amount can contribute to an IRA

Answer 1

lesser of earned income or 7,000 (over 50, can add extra 1,000)

Question 2

distributions from a traditional 401K plan are…

Answer 2

fully taxable as ordinary income

Question 3

roth 401K are …

Answer 3

not taxable, only taxable it is a nonqualified roth dist.

Question 4

requirements for qualified roth distribution

Answer 4

59.5 years old or older, must have been in this 401 for five years

Question 5

nonsystematic risk

Answer 5

unique to a certain industry or company also known as business risk - investors can protect against this by just diversifying investments … examples include default risk and management risk

Question 6

systematic risk

Answer 6

affects the entire system - currency risk, inflation risk, and sociopolitical risk

Question 7

educational savings plan (section 529)

Answer 7

has no guarenteed benefits because it is invested in the stock market

Question 8

section 529 QTP is funded by…

Answer 8

gifts and limited to annual gift tax exclusion

Question 9

coverdell education savings account

Answer 9

separate edu savings account set up - contributions are nondeductible and only $2,000 per beneficiary (any level of education)

Question 10

US series EE savings bonds

Answer 10

interest income from these savings bonds is tax exempt to use for college related fees (higher education)

Question 11

student loans

Answer 11

another option that must be repaid over time

Question 12

subsidized stafford loans

Answer 12

need based - loan is made by the dept of education and offers flexible repayment options - loan pays while they are in school

Question 13

unsubsidized stafford loans

Answer 13

not need based, student is responsible for all interest that accumulates (student can have both type of loans)

Question 14

federal pell grants

Answer 14

do not have to be paid back because it is a grant not a loan

Question 15

federal supplemental educational opportunity grants

Answer 15

grants given to low income undergrad students to cover college costs

Question 16

scholarships and fellowships and tuition reducations are…

Answer 16

tax exempt if student is pursuing degree, funds are not payment for services provided, and funds are spent solely on college education

Question 17

control risk: avoidance

Answer 17

taken to remove the risk.

Question 18

control risk: reduction

Answer 18

taken to reduce the severity of the risk to an acceptable amount

Question 19

control risk: retention

Answer 19

taken to absorb all risk internally and not transfer any risk to an insurance company

Question 20

control risk: transfer

Answer 20

taken to reduce the severity of the risk by transferring or sharing risk (usually with an insurance company)

Question 21

low severity and low frequency

Answer 21

risk retention

Question 22

high severity and low frequency

Answer 22

risk transfer

Question 23

low severity and high frequency

Answer 23

risk reduction

Question 24

high severity and high frequency

Answer 24

risk avoidance

Question 25

return of investment

Answer 25

sales price - cost / cost

Question 26

after tax rate of return (ATRR)

Answer 26

ROI x (1-tax rate given)

Question 27

living trust

Answer 27

legal document used in estate planning that designates a trustee and provides instructions for the distribution of assets after the death of the person - it bypasses the probate process and makes transfer of assets smoother

Question 28

automatic transfer of assets

Answer 28

assets that are designated payable on death or transfer on death, automatically to person named beneficiary

Question 29

beneficiary designations

Answer 29

designed to ensure someone is in charge of saying who gets what assets following the death

Question 30

estimated tax payment rule

Answer 30

if you owe over $1000 must pay 90% of current year or 100% of prior year tax liability

Question 31

allowed in calculating AMTI

Question 32

if dependent has earned income over 1300, then standard deduction =

Answer 32

earned income + $450 ***ignore unearned income