Missed Questions (2nd time through) Flashcards
During analyzing and evaluating step of financial planning, what would likely occur?
- Development of a statement of financial condition
- Identifying strengths and weaknesses.
Conflicts of interest are disclosed under which principle?
“Fairness”
True or false: An engagement letter signed by the planner and client must be in place before personal financial planning services take place.
False, it does not need to be.
What regulates brokerage companies - SEC or FINRA?
FINRA
Are securities held at a brokerage company insured?
Yes - via SIPC insuring against losses arising from the failure of a brokerage firm.
True or false: the aggregate contribution on behalf of a beneficiary for a Coverdell ESA cannot exceed $2,000.
True!
True or false: Coverdell ESA earnings must be distributed when the beneficiary reaches age 30.
True.
Is selling a home or refinancing a home a way to access home equity?
yes
Does your home need to be owned free and clear to qualify for a reverse mortgage?
no
Can a Series 6 sell a Mutual Fund traded on a major exchange? Why or why not?
They cannot - this qualifies as a closed end fund. To do this you need a Series 7.
A financial planner who enters into a plan with a client is exposed to what kind of legal concept / risk.
Contract law / contract exposure
Do QDROs apply to IRAs or 401(k)s / Qualified Plans?
401ks and other qualified plans are affected by QDROs. IRAs can’t be touched by QDROs.
When is a CFP professional thought to be engaged with a client?
If the client reasonably relies on information or service provided by the CFP. Payment does not indicate engagement.
Which regulatory body establishes initial margin regulation requirements?
Federal Reserve Board
Does a client’s age affect the computation of available deductions for medical expenses?
Yes - if they are over age 65 the medical expenses need to exceed 7.5% of their AGI rather than the normal 10% of AGI to be eligible for deductibility.
How would the price of a call option with 3 months to expiration compare to a call option with 9 months to expiration?
The price of the 3 month option will be lower because it has a smaller time premium.
If a client is subject to AMT, for which items may the client receive a tax credit in future years:
1) ISO
2) Interest from Private Activity Bonds
3) Depreciation adjustments
4) State income taxes paid
ISO and Depreciation Adjustments.
Can distributions on EARNINGS of a Roth IRA be tax-free?
YES - if the taxpayer has met the 5 year holding period AND they are 59.5 years old.
How do you find the basis of an annuity?
Multiply premiums by number of years paid.
Backing into another car while parking. What kind of liability is this?
Negligence
What is true about policies written by a participating insurance company?
They overcharge for premiums due.
Would babysitting be considered a “negligent” situation?
no
What does the term “break point” mean in a major medical policy?
The insurer begins to pay 100% of expenses.
Are outpatient services covered under Medicare part B?
Yes.
What are the major differences between HSAs and MSAs?
HSAs have smaller deductibles and they have catch-up provisions.
Does Universal Life have a guaranteed cash value?
No, but it has a guaranteed minimum interest rate.
Can a company deduct premiums on an entity purchase buy-sell agreement?
NO, they cannot.
How would an annuity be taxed held by a corporation?
Ordinary income - not owned by a “natural person.”
How would an annuity be taxed if held by a “natural person”?
Taxation is deferred. Annuities do not declare capital gains.
How long is the waiting period for Social Security disability?
5 months
Do disability type group policies have conversion features?
no they do not
Are the premiums paid for group term life insurance a deductible business expense by the company?
Yes they are a deductible expense.
Can an FSA account pay for premiums?
No.
Can a cafeteria plan provide for nonqualified deferred compensation?
No.
Is an FSA subject to FICA taxes?
No.
What are some characteristics of a Unit Trust?
- Passive investment
- They self liquidate
- Can be traded on secondary market
- Payments can be income and or return of principal.
Which is a measure of total risk - Beta or Standard D?
Standard Deviation.
What is the geometric return:
8%, 12%, -6%
(1.08 x 1.12 x .94) = (1.137)
FV = 1.137
PV = -1
N =3 (3 return numbers)
i =
Name some examples of probability distributions.
Normal
Triangular
Uniform
Lognormal
What are some details on Dow Theory
It identifies the top of a bull market and bottom of a bear market. It is based on trends, not day to day fluctuations.
Would ownership of a REIT be considered a “current asset”?
Yes.
Would a 401(k) balance be counted as a “current asset”?
No.
Under Black/Scholes, which of the following variables will decrease the value of a call option?
An increase in the strike price.
What is a Eurodollar?
A deposit in any foreign bank that is denominated in U.S. dollars.
T Bill and T Bond - which is callable?
A treasury bond is callable. A T-Bill is not.
Would Muni Bond interest be counted towards AGI?
no.
How is the Child CARE Credit found?
Multiply 20 percent by either 3,000 (one dependent) or 6,000 (two dependents).
Are compensatory damages taxable income?
No.
What is the basis of an S-Corp?
Cash + Direct Loans. Does NOT include bank loans.
How do you calculate AMT payable?
Subtract regular tax liability from AMT.
How does donation of short-term capital gain property to a public charity work?
Using BASIS, you can take up to 50% of your AGI.
How does donation of long-term capital gain property to a public charity work?
Using FMV, you can take up to 30% of your AGI.
How far can Net Operating Loss be carried backwards?
Two years.
To what would you refer to in order to obtain the intent of a change in tax law?
Congressional committee reports
For itemized deductions, overall reduction cannot exceed ______
80%
Self employment tax liability - General Partnership or Limited Partnership?
General partnership - K1 distributions.
Can a simple trust make charitable deductions?
No, only a complex trust can.
Section 179 expense for a corporation is limited to what?
The corporation’s taxable income.
Would an exchange of rental property for a personal residence qualify for a like-kind exchange?
No it would not.
A company can only deduct _____% of entertainment costs.
50
Explain the interplay between publicly traded partnerships and nonpublicly traded partnerships in terms of taking gains and losses.
Gains and losses from publicly traded partnerships cannot be netted against one another. A loss from a publicly traded partnership can be used only against future income from that same partnership.
Gains and losses from NONpublicly traded partnerships CAN be netted but there is a limit to the amount of loss you can take - only up to income produced from a non publicly traded partnership.
Would an exchange of rental property for a personal residence qualify for a like-kind exchange?
No it would not.
A company can only deduct _____% of entertainment costs.
50
What is the qualification for social security for the spouse of a deceased worker?
The widower must be age 60 or over.
What is the qualification for social security for the spouse of a retired or disabled worker?
Spouse must be…
- Age 62 or older
- Or Child in care under 16
- Or Child in care over 16 and disabled.
What is the qualification for social security for a divorced spouse?
- Age 62 or older
- Married for 10 years,
- Ex-spouse did not remarry.
Are there income restrictions for a Roth 401(k)?
No.
A TSA cannot be funded with _________
Common Stock
What is the early withdrawal penalty for a SIMPLE IRA?
25% if withdrawn in the first two years. SIMPLE 401(k) is only a 10% penalty.
For which plans must a spouse be the beneficiary?
Pension plans - Defined Benefit, Cash Balance, Money Purchase, and Target Benefit.
Tenancy by the Entirety may be severed in which way?
Joint spouses’ creditors
Which charitable transfers allow for both a life annuity and term certain (up to 20 years)?
CRAT and CRUT.
What are some examples of estate “freezing” techniques?
GRAT, Recapitalization, QPRT
Qualified home equity debt cannot exceed what?
The difference between current FMV and current indebtedness (mortgage balance)
Principle number 4 of the CFP Code of Ethics is…
Fairness
True or false: A CFP certificant may not commingle client funds with the funds of the financial planning firm.
True
True or false: Client funds can be commingled in a common client investment account.
True
How many Lifetime Learning Credits may be used per tax return?
One
How many American Opportunity Tax Credits may be used per tax return?
You can use one per every eligible student, but you cannot combine the AOTC and the Lifetime Learning for any one student.
Where are disciplinary rules and procedures covered?
“Articles”
If a client gives a gift of future interest, does a gift tax form need to be filled out?
Yes - because it does not qualify at all for the annual exclusion.
What happens if an insurance agent writes a policy that the insurance company instructs the agent not to?
The company may have to pay because the agent has IMPLIED authority.
When is limited-pay whole life most appropriate?
If the owner only wants to pay premiums for a limited number of years.
Why would a joint life policy not make sense for a key person policy?
A key person only needs to cover ONE person. There is no need for the joint life feature.
If a corporation buys a business overhead expense policy and pays the premium, what is true?
Benefits payable by the policy are limited by the actual business expenses incurred?
What happens to the cash value of a life insurance policy at death?
It ceases - beneficiaries do not receive
Can group health insurance be converted to an individual health policy?
Yes
Can group life insurance be converted to term insurance?
No, it can only be converted to individual permanent.
Is split dollar insurance an employee-benefit type policy or a key person policy?
Employee benefit application of life insurance.
True or false: All of the rules are applicable to the activities of all CFP certificants.
False.
Could a CFP release info of a client to an insurance company if they request it with regard to the clients application for insurance?
yes they could.
Would the identity of the bank or other institutions the firm deposits client funds and securities need to be included in the firm brochure?
no it would not.
True or False: Concepts such as the “January effect” and “day of the week effect” are not related to any forms of the Efficient Market Hypothesis.
True - they are market anomalies, not related to the EMH.
What is the function and objective of the Federal Reserve?
its function is monetary policy, its objective is financial soundness.
What happens if someone dies as the owner and is the insured of a life insurance policy?
The full death benefit is included in their gross estate, not the cash value.
What happens if the owner of a life insurance policy dies where someone else is the insured?
Only the cash value is included in their gross estate.
Taxability of Muni Bonds
Federal income tax free, state and local tax free if purchased in the state that you reside in.
How does the Wash Sale rule work?
If you buy a substantially similar fund/stock after selling prior to 30 days, the disallowed loss will be added to the basis of the newly acquired shares.
Are securities from a different issuer considered “substantially identical”?
No they are not considered substantially identical.
What is the phaseout for the low-income housing credit?
There is no phaseout.
Is income from an S Corp subject to self employment tax?
No it is not.
In a profit sharing plan, can the employer contribute more than 25% to an employee’s account?
Yes - the limit is the lesser of 100% or 54,000 dollars. As long as the total company contributions do NOT exceed 25% of total employee compensation, the employer can contribute more than 25%.
Are SIMPLE plan deferrals subject to FICA and FUTA?
Yes.
Qualified plan vs. IRA - How do RMDs differ?
In a qualified plan you do not have to start taking RMDs until you retire. IRA RMDs are required to start at 70.5 regardless.
What is a junior stock plan?
The right to purchase newly issued shares with later conversion into the company’s common stock.
Section 6166 and 303 - How much Closely Held business interest as part of the gross estate does there need to be for this to be usable?
35%.
Special Use Valuation - When can it be used?
Allows land to be valued at current use rather than its best used. In order to qualify the real estate needs to be 25% of the gross estate. Farm needs to be 50% of the gross estate.
Are Target Benefit plans backed by the PBGC?
No.
What are two trusts that could have ascertainable standard provisions (HEMS?)
- QTIP Trust
- Disclaimer Trust (for surviving spouse also).
Does the Scope of Engagement need to be in writing?
Yes.
