Investment Suitability

Question 1

General Partnership

Answer 1

Partners have unlimited liability, not a seperate entity from the partners, no double tax on business/partners so each partner must report profit/loss.

Question 2

Limited Partnership.

Answer 2

Has one GP and LP’s, General Partner run the business, Limited Partners are passive/ investors,

Question 3

C Corporation

Answer 3

Seperate legal entity, highly regulated, high admin costs, double taxation (entity and Shareholders), pay Corp taxes,

Question 4

S Corporation

Answer 4

Not taxable entity because it passes income/ losses to the 100 shareholders/participants. Participants have to report the income and get taxed at their income levels. Similar to LLC

Question 5

Per Stripes

Answer 5

Equally distributed.

Question 6

Per Capita

Answer 6

Distributed to remaining children

Question 7

Defined Benefit retirement plan

Answer 7

Employer sets the amount of benefit to the employee. These are being phased out.

Question 8

Defined Contribution plan

Answer 8

Less expensive for employer. Set contributions IF the employee contributes. More common than Defined Benefit plans.

Question 9

SEP

Answer 9

Simplified Employee Pension plans. Simpler than IRA’s, used lots for self employed people, or employers contributing directly into the IRA (SEP-IRA). Available for the employer (obviously cuz it’s for self employed, and their employees.

Question 10

SEP-IRA eligibility

Answer 10

Employer must contribute the same % to each employee in the year but it can change year to year cuz it’s flexible.
Age 21. Worked for the employer 3 out of 5 recent years. Has received wages from the employer.

Question 11

SEP. contribution limits

Answer 11

The Lesser of. 25% of employee’s income or 69k for 2024. Employer can contribute, NOT Employee.

Question 12

SEP advantages

Answer 12

Contributions are tax deductible and earnings are not taxed till withdrawal (like an IRA), employer not locked in at a rate or to even do it, sole proprietors & partnerships can set up SEPs, low admin costs

Question 13

SIMPLE

Question 14

401(k)

Question 15

403(b)

Question 16

457(b)

Question 17

Coverdell Accounts

Answer 17

(Remember Cover-Dell the computer company for college kids)

Question 18

529 Education Savings Plan

Answer 18

Tax deferred on growth, withdrawals are tax free if used for qualified education expense (tuition, fees, room and board, computers, books/supplies and up to 10k in k12 expenses). 10% penalty and income tax on anything not a qualified expense.
Contributions have to follow gifting rules like can’t exceed annual 18k limit of tax free gifting.
Advantages. No income limits, no age limit for using the funds for beneficiary, no contribution limits.

Question 19

UGMA

Question 20

UTMA

Question 21

HSA

Answer 21

If not used for qualified health expense. 20% penalty and tax.
If it has both Aggregate deductible (family deduct able) and embedded (individual) then the contribution limit is as follows.
Lesser of- max annual contribution limit, the aggregate deductible, or embedded deductible * the # of covered family members.

Question 22

QDRO

Answer 22

Joint Tenants with Rights of Survivorship
Both own the acct, each has 50% undivided interest, but if one dies the other inherits it all.
This avoids probate.
Does not avoid estate taxes.

Question 23

JTWROS

Answer 23

Joint Tenants with Rights of Survivorship
Both own the acct, each has 50% undivided interest, but if one dies the other inherits it all.
This avoids probate.
Does not avoid estate taxes.

Question 24

Tenants in Common

Answer 24

Unequal ownership is permitted. But their chunk of interest gets passed to the estate/will/ beneficiaries.

Question 25

When an account owner dies

Answer 25

Accts are frozen
Open orders are canceled.
Acct is marked deceased.
Paperwork. Death Certificate, affidavit, inheritance tax waiver form, letters of testamentary.