Individuals / Investment Flashcards
what investment is considered the lowest risk
municipal bonds issued by states and local municipalities
Max amount can contribute to an IRA
lesser of earned income or 7,000 (over 50, can add extra 1,000)
distributions from a traditional 401K plan are…
fully taxable as ordinary income
roth 401K are …
not taxable, only taxable it is a nonqualified roth dist.
requirements for qualified roth distribution
59.5 years old or older, must have been in this 401 for five years
nonsystematic risk
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
systematic risk
affects the entire system - currency risk, inflation risk, and sociopolitical risk
educational savings plan (section 529)
has no guarenteed benefits because it is invested in the stock market
section 529 QTP is funded by…
gifts and limited to annual gift tax exclusion
coverdell education savings account
separate edu savings account set up - contributions are nondeductible and only $2,000 per beneficiary (any level of education)
US series EE savings bonds
interest income from these savings bonds is tax exempt to use for college related fees (higher education)
student loans
another option that must be repaid over time
subsidized stafford loans
need based - loan is made by the dept of education and offers flexible repayment options - loan pays while they are in school
unsubsidized stafford loans
not need based, student is responsible for all interest that accumulates (student can have both type of loans)
federal pell grants
do not have to be paid back because it is a grant not a loan
federal supplemental educational opportunity grants
grants given to low income undergrad students to cover college costs
scholarships and fellowships and tuition reducations are…
tax exempt if student is pursuing degree, funds are not payment for services provided, and funds are spent solely on college education
control risk: avoidance
taken to remove the risk.
control risk: reduction
taken to reduce the severity of the risk to an acceptable amount
control risk: retention
taken to absorb all risk internally and not transfer any risk to an insurance company
control risk: transfer
taken to reduce the severity of the risk by transferring or sharing risk (usually with an insurance company)
low severity and low frequency
risk retention
high severity and low frequency
risk transfer
low severity and high frequency
risk reduction
high severity and high frequency
risk avoidance
return of investment
sales price - cost / cost
after tax rate of return (ATRR)
ROI x (1-tax rate given)
living trust
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
automatic transfer of assets
assets that are designated payable on death or transfer on death, automatically to person named beneficiary
beneficiary designations
designed to ensure someone is in charge of saying who gets what assets following the death
estimated tax payment rule
if you owe over $1000 must pay 90% of current year or 100% of prior year tax liability
allowed in calculating AMTI
if dependent has earned income over 1300, then standard deduction =
earned income + $450 ***ignore unearned income - cannot go over the standard deduction of $14,600
what is always added back for AMT for individuals
interest income from bonds
annual exclusion for gifts only applies to
present value interest, not future
Rental Real estate rule for losses
Typically not deductible against nonpassive income, but if you materially participate then you get exemption up to $25,000 - phased out for AGI of 100k-150k for .5 per dollar. So subtract .50 cents x amount over 100,000 and subtract that from $25,000 exclusion amount.
Life insurance proceeds are often used for:
paying the estate tax upon death of the insured
passive activity losses can only offset
passive activity income
passive activity income
you dont materially participate
any losses in excess of at risk amount are:
suspended and carried forward without expiration and deductible against future income
Calculate after tax rate of return on potential investment
Return on Investment = Investment price - cost / cost : ATRR = ROI - (1-tax rate)
How much can you contribute to an IRA
lesser of earned income or $7000 - over 50 can do additional $1000
Max taxable estate to yield no tax liability
$13,610,000
How to calculate what is taxed at parents marginal rate
Gross unearned income - 1300 standard deduction = taxable income - $1300 income that is taxed at childs rate = remaining that is taxed at parents rate
which asset is most heavily weighted in determining eligibility for student financial aid
a custodial acount owned by the student
charitable contribution deduction equals
lesser of FMV at date you donated or the selling price for charity
subsidized stafford loans are based on
student financial need
unified transfer tax:
a merger of the estate tax and the federal gift tax
annuity contract - how much income is included in year 1
years x 12 months = total months ; purchased annuity / total months = amount per month that is not taxable … lastly multiply by months it applies to and subtract from total annuity payment in year one
incentive stock options rules
gives employee right to purchase stock at discount; cannot own more than 10%, exercise price cannot be less than FMV of stock at grant date, can exercise up to $100,000 ISOs in a year
employee stock purchase plans
allows employees to purchase company stock at discounted price - no more than 5% owner, exercise price cannot be less than 85% of FMV of stock when granted or exercised - no more than $25,000 per year
