Investment Companies - Test Questions Flashcards
Money market funds typically are _______
no load
Open end mutual funds are purchased at the offering price, so there is no _______
additional load - the sales charge is included in the offering price
The formula to compute a lower offering price for a mutual fund based on breakpoints =
= Bid (NAV) / (100% - Sales Charge %)
After the LOI is completed, any additional NAV is _____ to the balance and establishes a ______ base level
NAV is added to the balance and establishes a new, higher base level from which sales charge will be calculated
The LOI operates ______ from the ROA and takes _____
operates separately and takes precedence
The max 12b-1 fee is _____
.75%
Dividends and capital gains reinvested in a mutual fund are done so at what price basis, NAV or POP?
NAV
Can a corporate purchaser qualify for breakpoints?
Yes. Investment clubs and omnibus accounts cannot
Can you receive a breakpoint if you have funds in separate BDs?
Yes, it doesn’t matter where you purchase the funds - just the total amount you own
A “breakpoint” sale is a good thing. T/F
FALSE - this is when a rep sells a customer just under the breakpoint amount and is prohibited
Regulated muni mutual funds distribute income to investors and retain some in the fund. Both these actions are federally tax-free. T/F
True.
Whether or not an investor reinvests dividends or capital gains back into a fund, the monies are ______
taxable and must be included on that year’s tax returns
The redemption of mutual fund shares affects the NAV per share. T/F
False - it is redeemed proportionally so no change
Maximum sales charges for mutual fund purchases are set by ______
FINRA, NOT the Act of 1940
Mutual funds send their financial statements to shareholders ________
semi-annually
To adopt a 12b-1 fee, it requires a _______
majority vote of shareholders, the BOD, and the disinterested members of the BOD
To discontinue a 12b-1 fee, it requires _____
a majority vote of shareholders OR the disinterested members of the BOD
Breakpoints are available on both ____ and ____
mutual funds and fixed UITs
Variable annuities are sold without a prospectus. T/F
False - since the purchaser has the investment risk they are non-exempt and sold with a prospectus
The AIR for a variable annuity is the _______
assumed interest rate (not guaranteed)
Distributions from variable annuities are taxable at _______ above the customer’s cost basis
ordinary income (NOT capital gains)
If a customer surrenders a var annuity contract prematurely, the surrender fee imposed is _____ tax deductible
NOT
In a 1035 exchange (a “like-kind” exchange), a var annuity can be exchanged for ______ but not for _____ products
can be exchanged for other var/fixed annuities, but NOT for insurance products
The only exception to the 1035 exchange is when a _____ is exchanged for a _____
a life insurance contract is exchanged for a var annuity contract
The owner of a var annuity has the right to vote for:
- the board of trustees
- changing the investment objectives
- dissolving the trust
- CANNOT vote for distributing income and capital gains
- CANNOT vote for a sales charge
Dividends from REITs are taxed at ______, while dividends from common stock (including mutual funds) qualifies for taxation at _____
REIT dividends taxed at ordinary income, other dividends eligible for 15-20% rate
Funds paid into “tax qualified” retirement plans are _____ taxable upon distribution
100% - since they were tax qualified, they were never taxed going in
If a person is NOT covered by another retirement plan, contributions to an IRA are _____ without any _____
they are tax deductible without any income limit
If you are COVERED by another retirement plan and make more than ________, contributions to an IRA are ______ tax deductible. The deduction phases out beginning at _______.
@ $71,000 they are not tax deductible. deductions phase out at $61,000
Tax deductions begin to phase out for a joint account (covered by another retirement plan) beginning at _______ and completely gone by ______
Beginning at $98,000 and completely gone by $118,000
Do alimony and child support count as earned income according to the IRS?
Yes - can be used to contribute to an IRA
Contributions to an IRA can ONLY be made in ______
cash
Are gold coins minted by the US gov’t allowed as investments in IRAs?
Yes - because they were minted by the US govt
Rolling over an inherited IRA to either an existing IRA for the bene or a new IRA for the bene is only available to _______
surviving spouses
A person inheriting an IRA from a non-spouse can ______, ________
can either take all the proceeds immediately or elect to receive them over i) 5 years or ii) spread them over the beneficiary’s remaining life (if longer than 5 years) - on each annual distribution income tax must be paid (no 10% penalty tax if the recipient is under age 59.5)
Anyone with an earned income can open a ROTH IRA. T/F
False - they are not available for high-earning individuals. Individuals that earn over $132k and couples that earn over $194k cannot open Roth IRAs
If you contribute the max to a traditional IRA, can you contribute then to a Roth IRA in the same year?
NO
Is there a mandatory distribution for Roth IRAs?
NO
Can you count investment income towards a Keogh plan contribution?
NO - only for personal service income
IF you contribute the max ($53k) to a Keogh plan as the employer, you must contribute ______ of “after Keogh earnings” for employees
25%
Contributions to qualified retirement plans (other than IRAs) must be made no later than ______
the date the tax return is filed (even if this is with an extension)
Contributions to IRAs must be made no later than _____ of the tax year after the year for which the deduction is claimed
April 15th
Under a Keogh plan, distributions must commence on ______ of the ______ the individual reaches age 70.5
April 1st of the following year after they hit 70.5
A person with a 401(k) can contribute up to ____ of his salary or ______ in dollars
25% of his salary or $18,000 cap
Funds in a 529 plan can ONLY be used for ______
higher education expenses; whereas Coverdell ESA funds can be used for any qualifying education expense (much more liberal)
