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CFP - Review Cards > Live Review Cards > Flashcards

Live Review Cards Flashcards

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1
Q

tax equivalent yield

A

tax exempt yield/(1-marginal tax rate)

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2
Q

bond duration

A

measures the weighted average maturity of the bond’s cash flow on a present value basis.

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3
Q

lower coupon = what duration

A

higher duration

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4
Q

duration is _________ related to the current yield on comparative bonds

A

inversely

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5
Q

when is a portfolio immunized?

A

if the average duration (not the maturity) of the bonds in the portfolio is equal to a pre selected time horizon for the financial goal

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6
Q

strong form

A

stock prices fully reflect all information, both public and private
Neither fundamental analysis nor technical analysis can produce superior results over time on risk-adjusted basis

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7
Q

semi-strong form

A

all PUBLICLY KNOWN INFO is fully reflected in stock prices
neither technical analysis nor fundamental analysis can produce superior results over time

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8
Q

weak from

A

historical price data is already reflected in current stock prices
technical analysis will not produce superior results
FUNDAMENTAL analysis may produce superior results
example: warrent buffet. he believes a random walk is real but that he can pick with fundamental analysis, wins

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9
Q

the EMH does not find value in what?

A

technical analysis

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10
Q

r2

A

is the coefficient of determination
it is the square of the correlation coefficient (R)

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11
Q

what is the approximate alpha of an S&P 500 fund?

A

0 (technically a little less with any fees)

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12
Q

what is the beta of the S&P 500

A

1

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13
Q

ex dividend

A

to be listed on the corporation’s books as holder of record, the investor must purchase its stock before the ex-dividend date

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14
Q

“at margin” price formula

A

(1-initial margin)/(1-maintenance margin)

Then multiply by the purchase price

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15
Q

active strategies for investing?

A

tactical asset allocation
dow theory

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16
Q

frivolous return

A

penalty is $5k

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17
Q

Negligence

A

penalty is 20% of the portion of the tax underpayment

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18
Q

civil fraud

A

75% of the portion of the tax underpayment

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19
Q

failure to file

A

5% of the tax due per month (25% max)

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20
Q

failure to pay

A

.5% per month (25% max)

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21
Q

estimated tax penalty

A

90% of the current year liability or 100% of the previous year liability
(110% of the pervious year’s adjusted gross income exceeded $150k)

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22
Q

child unearned deduction

A

$1300

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23
Q

maximum deduction for state, local, sales, and real estate tax?

A

$10k

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24
Q

deductible casualty loss

A

MUST BE a federally declared disaster
Use the lesser of basis or FMV
then subtract any insurance coverage
then subtract $100 floor
the subtract 10% of AGI

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25
Q

home office deduction

A

suspended UNLESS you’re self employed
the deduction is taken on schedule C and limited to the gross income derived from the activity reduced by all other deductible expenses

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26
Q

child tax credit vs child and dependent care credit

A

dependent care expenses:
-until age 13
-$3k for one dependent or $6k total
20% credit

child tax credit:
-$2k for each qualifying child under 17
400k MAGI phase out
$1700 is deductible

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27
Q

interest paid for sole props

A

interest paid (without limit) on the debt is deductible on schedule c

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28
Q

partnership losses

A

up to basis

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29
Q

what entity can’t have ESOPs?

A

partnerships (there isn’t stock)

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30
Q

Section 197

A

intangibles
amoritized under a tax section called section 197
recovery method is similar to straight-line depreciation

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31
Q

179 deduction

A

tangible personal property (1245 property)

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32
Q

Renting your vacation home

A

personal use cannot exceed the longer of (1) 14 days or (2) 10% of the rental use

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33
Q

low-income housing programs (taxes)

A

low income housing programs that are held as a passive activity may generate a deduction-equivalent tax credit up to $25k

allowed annually over a ten year “credit-period”

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34
Q

when is alimony deductible by the payor and taxable to the payee

A

for divorces finalized BEFORE 1/1/19
cannot file a joint return or live together
must be cash

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35
Q

Matching contributions for SIMPLEs

A

mandatory

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36
Q

Salary cap on SIMPLEs

A

trick there isn’t one.

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37
Q

money purchase pension plan keys

A

up to 25% employer deduction
fixed contributions
Stable cash flow needed

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38
Q

Target benefit pension keys

A

up to 25% employer deduction
fixed contributions
stable cash flow
favors older employees

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39
Q

profit sharing plan keys

A

up to 25% employer deduction
flexible contributions (must be recurring and substantial)
401(k) provisions $23K (FICA) (HARDSHIP WITHDRAWALS)
SIMPLE 401k is exempt from creditors - see SIMPLE for additional info

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40
Q

stock bonus plan keys

A
  1. up to 25% employer deduction
  2. flexible contributions
  3. 100% of the contribution can be invested in company stock
  4. ESOP cannot be integrated with social security or cross tested
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41
Q

SIMPLE IRA keys

A
  1. for small employers (100 or fewer)
  2. requires employer match (immediate vesting)
  3. salary reduction limit up to $16k (FICA)
  4. company cannot have another plan
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42
Q

SEP IRA key

A

no salary deferrals
1. up to 25% contribution for owner /up to 18.59% contribution for self employed
2. account immediately vested
3. can be integrated with social security
4. special eligibility: 21+ years old, paid at least $750, and worked 3 of the 5 prior years

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43
Q

SARSEP keys

A
  1. may have up to 25 employees, and 50% of the eligible employees must defer
  2. must have been in existence before 12/31/96
  3. salary deduction limit $23k (FICA)
  4. new employees may participate in a SARSEP if it was established before 1/1/97
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44
Q

403(b)keys

A
  1. for 501c3 organizations and public schools
  2. subject to ERISA only if employer contributes
  3. salary reduction limit up to $23k (FICA)
  4. employwer contributions may be subject to vesting schedule
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45
Q

“year of service”

A

1000 hours during the initial 12 month period

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46
Q

ratio percentage test

A

the plan must cover a % of NHCE that is at least 70% of the HCE employees

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47
Q

average benefits test

A

Average benef for NHCE must be at least 70% of that for HCE employees

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48
Q

what is a highly compensated employee

A

a greater than 5% owner OR any EE earning in excess of $155k in the preceeding year

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49
Q

what’s a key employee

A

a greater than 5% owner OR
an officer AND comp .$220 OR
a greater than 1% owner and comp .$155k

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50
Q

attribution rules

A
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51
Q

IRAs/SEPs/SARSEPs/SIMPLES required beginning date (RBD)

A

april 1st of the year following age 73
subsequent must be made by december 31st of each year after

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52
Q

what happens if you miss RMD

A

25% excise tax

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53
Q

qualified charitable distribution (QCD)

A

direct transfer from an IRA to a qualified charity
age 70.5 (not 73) or older

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54
Q

taxation of workers comp

A

benefits are received income tax free

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55
Q

taxation of unemployment insurance

A

included in recipient’s gross income (generally taxable)

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56
Q

noncancellable (disability insurance)

A

means it’s a continuous term policy guaranteeing the insured’s right to maintain the policy at the STATED PREMIUM

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57
Q

Steps in the Financial Planning Process

A
  1. Understanding the client’s personal and financial circumstances
  2. identifying and selecting goals
  3. analyzing the client’s current course of action and potential altervative course
  4. developing the financial planning rec
  5. presenting it
  6. implemeting it
  7. monitoring progress and updating
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58
Q

proper use of the marks

A

inc cant be with CFP
RIA must be written out
CERTIFIED FINANCIAL PLANNER(TM)
CFP(R)

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59
Q

what do you need to do if CFP or CERTIFIED FINANCIAL PLANNER(TM) marks are used in a sentance?

A

must be followed by a noun:
-certificant
practitioner
professional
certification
mark
exam

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60
Q

max mortgage loan for interest deduction

A

$750k (MFJ)

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61
Q

age for a reverse mortgage

A

62

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62
Q

American Opportunity Tax Credit

A

100% of the first $2k
25% of the next $2k
(max2500)
*can’t use if you have a felony drug conviction

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63
Q

Lifetime learning credit

A

2000 max
(20%)

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64
Q

coverdell

A

$2k per year total
must be used before 30

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65
Q

coordination of usage for college funding

A
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66
Q

fiscal policy

A

tax rates and spendingm

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67
Q

monetary policy

A

action taken by the federal reserve:
-reserve requirement/discount rate
-open market operations

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68
Q

fed funds rate

A

BANKS to BANKS

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69
Q

prime rate

A

BANKS to BEST customers

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70
Q

the sec regulates the requirements for disclosures via……

A

Form ADV

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71
Q

debts generally NOT cancelable by bankruptcy

A

student loans
child support
taxes
govt loans
alimony

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72
Q

survivorship rights in community property

A

NONE!

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73
Q

spousal basis calc at death common law vs community property

A

at the death of the first spouse property receives a 100% step up in basis for COMMUNITY property only

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74
Q

estate tax - non spouse joint tenant

A

JTWROS with a non spouse requires FULL value of jointly held property is included in the gross estate of the first tenant to die unless the survivior can document that they contributed to the purchase price of the JT property
gifts =/= contributions

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75
Q

TBE

A

tenancy by the entirety
only for spouses
The same as community property
no probate

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76
Q

TIC

A

tenancy in common
subject to probate
several possible owners
undivided interest
can transfer their share to others

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77
Q

assets subject to probate

A

Individual
Community property
Estate as beneficiary
Tenants in Common

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78
Q

does a testamentary trust pass through probate?

A

NO. the will CREATES the trust

79
Q

annual renewable term

A

premiums increase annually

80
Q

level term

A

premiums level for term of years

81
Q

decreasing term

A

decreasing death benefit/level premium (Mortgage premium)

82
Q

variable universal life (what should you think)

A

various and flexible

83
Q

reinstatement clause

A

provides for a policy to be reinstated within a specified period after the date of premium default (WITH PROOF OF INSURABILITY)

84
Q

“Conversion” in life insurance

A

exchange term for a permanent type plan without having to prove evidence of insurability

85
Q

“5th dividend”

A

industry language for a one year term

86
Q

nonforfeiture options (life insurance)

A

cash
paid up reduced amount
extended term/paid up term

87
Q

dividend options

A

Cash
Reduce Premium
Accumulate with Interest
Paid Up Additions
One Year term/5th dividend

88
Q

once a MEC

A

always a mec

89
Q

Settlement options

A

Cash
Pure life/single life
refund
period certain
specified period/income
interest only

90
Q

ALL single premium polices areeeeee

A

MECS

91
Q

MEC Provisions

A

distributions = LIFO
before 59.5 = 10% penalty

92
Q

risk

A

condition in which there is a possibility of loss

93
Q

peril

A

the cause of a possible loss

94
Q

hazard

A

a condition that may create or increase the chance of loss from a given peril

95
Q

Characteristics of Insurable risk

A

large number of homogeneous exposure units
loss must be definite and measurable
must be fortuitous or accidental
must NOT be catastrophic (to insurer)

96
Q

self insurance is a type offffff

A

risk rentention (formal)

97
Q

Examples for each type of risk
avoidance
diversification
reduction
retention
transfer

A

avoid = don’t drive
diversification = spead of assets
reduce = sprinkler systems
retain - deductibles
transfer - insurance

98
Q

principle of indeminity

A

insurer generally seeks to reimburse the insured for the amount lost. Not more. not less

99
Q

insurable interest

A

property and casualty - preset at inception AND loss
life insurance - only at inception

100
Q

subrogation

A

gives the insurer all rights the insured possessed against negligent third parties

101
Q

unilateral

A

only one party is bound; the insured makes no promise

102
Q

adhesion

A

contract is acccepted “As is”

103
Q

aleatory

A

of dollars given up is unequal. Outcome is uncertain

104
Q

Parts of the insurance contract (remember DDICE)

A

declatrations
definitons
insuring agreements
conditions
exclusions

105
Q

attractive nusiance

A

high degree of care is imposed on the land occupier for certain conditions on the land
example: swimming pool/vacant lot

106
Q

negligence per se

A

situation where the standard of care is set by a statute
Example: school zones or cross walks

107
Q

absolute liability

A

an extra hazardous condition which results in losses to others
examples: keeping of wild animals, blasting
Workers’ compensation

108
Q

strict liability

A

generally limited to manufacturers and distributors for defective products
example firestone tires

109
Q

vicarious liability

A

when one person is held liable for the negligent behavior of another person
Principals responsible for their agents

110
Q

contributory negligence

A

any negligence on the part of the injured party, even though slight, defeats the claim
examples: jaywalking, driving while drunk, etc

111
Q

capital utilization approach

A

uses annuitization to provide needed income but leaves no money at the end of the presumed term

112
Q

human life value

A

based on the individual’s income-earning ability
present value of the income lost by dependents as a result of the insured’s death
it does NOT consider other resources available to provide for income and cash needs because of an individual’s premature death

113
Q

participating vs nonparticipating policies

A

participating policies pay annual dividends (due to larger premiums). if extra premium isn’t used, it is returned (generally tax free)
nonparticipating policies =company retains the profits for its shareholders

114
Q

insurance companies (ratings)

A

AM Best (A++ to F)
Standard & Poors (AAA to CCC)

115
Q

express authority

A

written, explicit direction from PRINCIPAL (the insurance company) to the agent

116
Q

implied authority

A

the public believes the agent holds and includes signage, rate books, etc

117
Q

apparent authority

A

rises out of the negligence of the principal in allowing the agent to appear to have the authority because of certain actions of the agent in the past

118
Q

home owners insurance parts

A

A - Abode
B - Buildings
C - Contents
D (‘dditional or ‘demnity)
E - enemies
F - first aid

119
Q

Home owners coverage a

A

Dewelling and ATTACHED structures

120
Q

Homeowners B

A

structures separated from the dwelling by a clear space (like dads garage)

121
Q

Homeowners C

A

contents and personal property (anywhere in the world)
Boats and trailers limited to $1k

122
Q

Homeowners coverage d

A

loss of use coverage

123
Q

Homeowners E

A

comprehensive liability insurance

124
Q

Homeowners F

A

Medical payments to others, not the insured’s family members

125
Q

Basic form

A

WHARVES/FLT
Windstorm
hail
aircraft
riot
vandalism
vehicles
explosion
smoke
fire
lightenig
theft

126
Q

broad

A

Basic plus RAF
Rupture of a system
artificially generated electricity
falling objects
freezing of plumbing

127
Q

open perils

A

generally the answer on the exam

128
Q

general exclusions for ALL homeowner forms

A

ordinance or law
earth movement
water damage
power failure
neglect
war
nuclear hazard
intentional loss

129
Q

is sinkhole covered for the exam?

A

yes

130
Q

replacement cost vs ACV

A

replacement cost provides that losses will be paid on a replacement cost basis
acv is replacement value less depreciation

131
Q

property loss calculations

A

[(insurance carried/insurance required) x loss] - deductible

132
Q

Auto insurance parts

A

A liability
B medical payments
C uninsured motorist
D Damage to your auto
—1. collision loss
—-2. other than collision

133
Q

requirements for a vehicle to be eligible for a personal auto policy (PAP)

A
  • owned by an individual or by spouses living in the same household
  • be a private passenger auto
    -not be used as a public or livery conveyance
    -not be rented to others
134
Q

what happens with auto insurance if a husband and wife separate

A

one of them will need his/her own policy
the second spouse listed on the declaration page will need his/her policy

135
Q

malpractice vs E&O

A

malpractice is generally for bodily injury
E&O is generally for property damage (intangibles and money too)

136
Q

what type of liability is workers compensation

A

absolute liability

137
Q

taxation of workers comp benefits

A

tax free

138
Q

taxation of unemployment insurance

A

included in recipient’s gross income and are generally taxable

139
Q

medicare part b

A

voluntary
80/20
no stop loss

140
Q

medicare part d

A

you MUST have part a and b

141
Q

happens if you fail to enroll during the initial enrollment period for medicare?

A

may enroll during a general enrollment period (1/1 - 3/1)
coverage begins the next july
part b premium will be higher (10% for each 12 month delay

142
Q

medicare-skilled nursing home care

A

pays all of the first 20 days of skilled care and EVERYTHING OVER a specified amount per day ($200) for the next 80 days of skilled care (max of 100 days)

143
Q

COBRA requirement(s)

A

small companies (fewer than 20 employees for at least half of the prior year) are exempt from the federal legislation

144
Q

COBRA Qualifying event:
voluntary or unvoluntary termination; change from full time to part time

A

up to 18 months

145
Q

COBRA qualifying event:
employee death, divorce, legal separation or eligibility for medicare

A

up to 36 months for spouses and other dependents

146
Q

COBRA qualifying event:
loss of coverage status (marriage, reaching age 26)

A

children of employees - up to 36 months

147
Q

Health Reimbursement arrangement

A

HRA
only c corps can use
solely employer-funded
reimburses employee for substantiated medical expenses up to a max amount per coverage period

148
Q

benefit amount for disability insurance

A

generally 50 to 60 percent
a pro making $400k or more may only be able to insure 30 to 50 percent of earnings

149
Q

non cancellable

A

-continuous term policy guaranteeing the insured’s right to maintain the police at the stated premium

150
Q

guaranteed renewable

A

continuous right to maintain the policy, but the insurer may increase the premium by class of insureds

151
Q

social insurance substitute benefit

A

extra benefit until social security pays
monthly benefit will be equal to the social insurance substitute benefit shown on the policy schedule page less any social insurance benefit received in that month

152
Q

taxation of disability insurance
individual owns the contract and pays the premium

A

premiums are not deductible
paid with after tax dollars
benefits are tax free to the individual

153
Q

taxation of disability insurance
employee owns the contract and the employer pays the entire premium under a bonus arrangement like section 162 disabiliity insurance

A

premiums are deductible by the employer
employee recognizes premiums in income
benefits are tax free to the employee

154
Q

disability taxation for partnership and s corporation shareholders

A

partnership or s corp CAN deduct the premiums paid for coverage for a partner or a gerer than 2% shareholder of an s corp
deduction is based on the premium cost

155
Q

section 1035 exchanges

A

life to life/life to annuity/annuity to annuity
CANNNOT go annuity to life
ALSO a 1035 cannot be done if the insured changes.

156
Q

life insurance reinstatement

A

provides for a policy to be reinstated within a specified time period (with proof of insurability)

157
Q

life insurance conversion

A

exchange term for a permanent type plan without having to prove evidence of insurability

158
Q

dividend options

A
  1. cash
  2. reduce premium
  3. accumulated with interest
  4. paid up additions
    5 one year term (5th dividend)
159
Q

nonforfeiture options

A

cash
paid up reduced amount
extended term/paid up term

160
Q

dividend options

A

cash
reduce premium
accumulate with interest
paid up additions
one year term/5th dividedn

161
Q

settlement options

A

cash
pure life
refund
period certain and life
specified period/income
interest only

162
Q

life settlements

A

transaction involving an insured who is not terminally or chronically ill and generally over 65
LOOK FOR the LTCG answer

163
Q

key employee life insurance

A

business should be the owner and beneficiary
premiums are nondeductible
benefits are tax free
employee has no incidents of ownership

164
Q

annuity taxation

A

after 8/13/1982 - LIFO
withdrawals prior to age 59.5 are subject to ordinary income PLUS 10% premature withdrawal penalty

165
Q

income tax for group disability

A

employer generally pays 100% OF PREMIUM
taxable income (benefits) to the employee
taxation is based on the ratio of employee contributions to total premium paid

166
Q

when to use “beg” mode on the calculator

A

college tuition
retirement benefits
family needs

167
Q

when to use “end” mode on the calculator

A

bond interest
retirement plan contibutions
mortgage payments

168
Q

public disciplinary actions

A

In order of severity
a public letter of admonition
suspension for up to five years
permanent revocation of the marks

169
Q

home equity loan limits

A

can’t exceed the difference between the current FMV and current indebtedness

170
Q

who controls monetary policy?

A

Federal open market committee (FOMC)

171
Q

general power of appointment

A

think outright ownership because the holder can appoint the property to themselves
estate tax and gift tax can occur

172
Q

when must you fill out a form709

A

-gift more than $18k to any non spouse donee
-a gift of a future interest in any amount
- a gift from a noncommunity/individual account for which spouses elect gift spliting

173
Q

holding period for property acquired from a decedent

A

long term regardless of the actual holding period

174
Q

gifts of future interest that don’t qualify for the $18k annual exclusion

A

2503b trusts
remainder interest
a trust in which income will be accumulated for a period of years

MUST USE EXEMPTION

175
Q

powers that cannot be given to another

A

-power to execute or revoke a will
-power to execute a living will (right to die)

176
Q

required parities of a trust

A

property itself
grantor (aka trustor)
trustee
beneficiary

177
Q

Simple trust examples

A

2503b
qtip
qdt
dynastye

178
Q

complex trust most common example

A

2503c

179
Q

what type of trust is a crummey trust?

A

irrevocable

180
Q

general power of appointment is the same as what?

A

outright ownership

181
Q

distributions for ascertainable standards

A

not subject to estate or gift tax

182
Q

five or five

A

property subject to a general power will be included in the donee-decedent’s estate (or considered a taxable gift) only to the extent that the property exceeds the greater of $5,000 or 5% of the total value of the fund subject to the power

183
Q

which spouse is in control for
A trust
b trust
q tip trust

A

second spouse to die
first spouse to die
first spouse to die

184
Q

fully insured vs currently insured worker

A

fully insured if worker has 40 social security credits (covered for life)
currently insured if he/she has at least 6 quarters

185
Q

under 18, not covered by social security

A

a child, under age 18, who is employed by a parent in an unincorporated business is NOT covered by social security

186
Q

taxation of social security

A

if a person’s income (MAGI) plus half of their social security is more than 25k single or 32k MFJ, up to 50% of benefits are taxed
If more than $34k - single or
$44k MFJ
up to 85% of benefits are taxed

187
Q

section 415

A

limits the amount of DB a person can receive
lesser of $275k or 100% of the comp averaged over highest earning consecutive years

188
Q

DB/DC salary cap

A

$345k

189
Q

PBGC insurance applies to

A

Defined benefit and cash balance plans

190
Q

cash balance plan guarantees

A

annual employer contribution AND minimum rate of return on each participant’s account

191
Q

what do you need to remember about hardship withdrawals and profit sharing plans?

A

the test might ask if hardship withdrawals can come from profit sharing plans.
NO, the plan has to have 401k provisions

192
Q

taxation of NUA

A

always taxed at long term rates
it’s the subsequent sale after the distribution rate that can be subject to short term gains/losses

193
Q

if you see ESOP, you should think what?

A

NUA

194
Q
A

CFP - Review Cards (17 decks)

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