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DANKO REVIEW CLASS FLASHCARDS > Post Review Flashcards > Flashcards

Post Review Flashcards

1
Q

Medicare- must PAY or DONATE the first X Units.

A

You must either pay the provider costs for the first 3 units of blood you get in a calendar year, or you or someone else can donate the blood.

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2
Q

Max age for COBRA?

A

26 years kicked off plan. Life event = +36 Months for Cobra coverage. = 29 Years

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3
Q

Cash value and death benefit of VUL and UL

A

VUL (3 Letters) = you get both CV AND (3 letters) DB

UL (2 Letters) = you get CV OR (2 Letters) DB

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4
Q

Life insurance and creditor protection

A

ALL cash value in a life insurance creditor protected

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5
Q

If you don’t need life insurance never buy…

A

permanent policy, whole life, VUL, VL etc

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6
Q

1035 Rules

A

Life to Life (ok)
Life to Annuity (ok)
Annuity to Annuity (ok)
Annuity to Life (No way)

MT: Lindsay Lohan went to LA for AA, not AL

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7
Q

Owner of an S Corp get

A

TAX FREE BENEFITS

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8
Q

IRS wants to tax

A

Either the front end - when you pay or the back end - when you receive.

MT: Hug and a Slug ( you are getting hit on one side)
no double taxation

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9
Q

Viatical Settlement

A

terminal illness (2 years or less life expectancy) = tax free to owner (person) above the basis the viatical company pays tax on anything on their basis (what they paid the person)

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10
Q

Life Settlement

A

you are old and cash out early. this is taxable - life settlement = LTCG

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11
Q

Non Forfeiture Options

A

when you want to STOP paying premiums

C - cash
E - extended term/paid up term
P - paid up reduced amount

MT: I Can’t Even Pay (amount)

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12
Q

Settlement for Life Insurance

A

Bene option when the insured is dead

C - cash (check)
R - refund
I - Interest Only (hold my $ and company invests)
S - Specified Period Income
P - Period certain and life
P - Pure life/ Single Life

(review book I-31)

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13
Q

Dividend Options

A

when you are continuing to pay premium as planned
participating whole life

C - cash
R - reduce premiums
A - accumulated with interest
P - paid up additions
O - one year term (5th dividend)

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14
Q

Provisions

A

C - Conversion (exchange term for permeant type plan WITHOUT evidence of insurability
R - reinstatement (reinsure)
A - APL Provision (automatic premium loans)
I - Incontestability (after 2 years validity cannot be questions except in fraud cases
G - Grace Period ( # of days allowed for premium in default)
S - Suicide Clause (within 2 years you get return of premium no DB)

(Review I-29)

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15
Q

Exam Tip on life insurance

A

For exam purposes ALL term policies are convertible

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16
Q

How to set up insurance on Exam

A

write down….

Owner:
Insured:
Beneficiary:

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17
Q

MECs Can’t Flex (lifo)

A

Remember MECs aren’t flexible (no income)

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18
Q

Whole (5) Life insurance is…

A

FORCE (5)d Savings

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19
Q

Exam loves Whole Life

A

If you are down to 2 pick WHOLE LIFE as the answer

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20
Q

GST Tax (EP 42)

A

Direct Skip: Donor/Estate pays GST

Taxable Termination: GST paid by Trustee

Taxable Distribution: GST paid by transferee

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21
Q

Estate Planning where you don’t need income…

A

House = QPRT

Equipment = Gift leaseback

Non-service Business = Gift Shares

Maintain Control or Split Income = FLP, Family Limited Partnership

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22
Q

Estate Planning - Income

A

CRAT or CRUT

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23
Q

Estate Planning - Inflation Hedge

A

Flexible payments CRUT

U is open to you can add to it

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24
Q

Estate Planning - Charitable Lead Annuity Trust

A

Charity gets the LEAD (income) think Jackie O Trust

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25
Q

What’s a CRAT

A

Charitable Remainder Annuity Trust

Charity gets the Remainder

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26
Q

CRATS

A

Any ten 5% kicks out out on the front end (lead income) 10% principal to the charity (at the end)

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27
Q

Memory for CR v CL

A

5% - Private foundation, CRAT, CRUT

CR = cash received (donor)

CL = cash leaves (to the charity)

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28
Q

A v C Trust

A

C = 2nd marriage (what you do after 2nd letter of alphabet/2nd marriage)
C Trust does not get unlimited control over Corpus

A = 1st letter of alphabet / 1st marriage

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29
Q

C Trust

A

C trust is for Sven Example

C Trust controlled by first to die spouse

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30
Q

A Trust

A

“A” (marital) trust is for person ABOVE the ground ALIVE

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31
Q

B Trust

A

B trust funded by person BELOW the ground

*funded with exemption amount “credit shelter” trust - you are “sheltering” the credit amount ($12.92M)

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32
Q

C Trust (QTIP) Trust

A

LAME:
L - lifetime for spouse
A - annual income for spouse
M - mandatory distribution to spouse
E - exclusively for spouse

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33
Q

In what order do you found ABC trust?

A

Fund B trust 1st then allocate between “A” trust and “C” trust

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34
Q

General Power of Appointment

A

outright ownership

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35
Q

Gifts of Future Interest or Present Interest

A

Gifts of FUTURE INTEREST are NOT eligible for annual exclusion

Only gifts of PRESENT INTEREST ARE eligible for annual exclusion

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36
Q

Inheritance v Gift

A

Inheritance: dead person gives property to a living person
Gift: living person gives property to living person

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37
Q

Buy Sell - how many individual policies are needed?

A

x(x-1)

x= owner

Bene needs $ to buy out dead owner

example:

Policy 1:
Owner: Brett
Insured: John
Bene: Brett

Policy 2:
Owner: John
Insured: Brett
Bene: John

Use entity for lots of owners

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38
Q

Non-MEC v MEC

A

non-MECpolicy: withdrawals (to basis) and loans are not subject to income tax

MEC: Policy withdrawals and even loans above basis is tax.

Under 59.5 YO those withdrawals and loans are subject to 10% penalty.

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39
Q

Grandfathered MEC

(Review I-33)

A

G10 - $150K or lower
guarenteed insurability option
- no need to prove insurability

if you have to prove insurability $1 or more = MEC

to avoid a MEC buy a new policy! when proving insurability

  1. if it increased by more than $150,000 you can lose grandfathered status
  2. if you have to prove insurability it can be MEC
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40
Q

MECs Modified Endowment Contract

A

ONE A MEC ALWAYS A MEC!

LIFO think MECS make LIFE harder

7 pay test

if the age isn’t listed assume under 59.5 (10% penalty)

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41
Q

Transfer for Value (&exceptions)

A

If an interest in a life insurance policy is transferred for valuable consideration (not a gift) the proceeds in excess of the consideration paid for the policy, combined with any premiums paid by owners ARE TAXABLE AS ORDINARY INCOME

exceptions
I - Insured
C - Corporation
D - Divorce
P - Partnership

MT: ICDP ( I see dead people)

I can buy my policy
the Company I work for can buy my policy
my Spouse can buy my policy in Divorce
my business Partner can buy my policy

Review (I 37)

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42
Q

What Types of Accounts have NO STEP UP

A

Annuities
pre-tax IRAs

(tax shelters because there is no basis)

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43
Q

Life Insurance Table 1 Pro Tip

A

MULTIPLY by 12! Table 1 is a MONTHLY cost and you will need an annual number for exam

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44
Q

Guaranteed Renewable

A

this means you can renew but the premiums/policy can still change

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45
Q

What numbers to use for a 1031

A

Use only 3 numbers:
1. FMV
2. Adjusted Basis of property given up
3. BOOT (anything not qualified or like-kind)

NO BOOT NO GAIN

Boot = recognized gain

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46
Q

Sale of Residences (Section 121)

A

Single $250K
MFJ: $500K

If you live in a home less than 2 years exceptions are available for unforeseen circumstance which include - marriage, moving for a job

They like to test moving make sure it’s MORE THAN 50 miles (for work)

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47
Q

179 Deduction

A

Election to expense up to $1,160,000 for qualifying property.

Tangible personal property 1245 computers, autos, light trucks, office equipment (not computer)

CANNOT CREATE A LOSS

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48
Q

Section 1244 Qualified Small Business Stock

A

loss of $100K a year joint, $50K otherwise

1244 + $3K capital loss allowed

*this applies to 1st million dollars of stock issued

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49
Q

Net Operation Loss

(T - 14)

A

A NOL may NOT be carried back but CAN be carried forward

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50
Q

Adoption Tax Credit

A

ALL COSTS are eligible, the credit can be claimed in the year the adoption is finalized.
-adoption fees
-court costs
-attorney fees
-cost to adopt foreign child

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51
Q

Child and dependent care Tax Credit: expenses until age 13

A

$3,000 for 1 kid
$6,000 for 2+

use 20% available expenses on the exam

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52
Q

Family credit/other dependent Tax Credit:

A

$500

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53
Q

Child tax Credit

A

Under 17, son, daughter, stepchild, foster child
Phased out for $400K, MAGI MFJ
Phased out for single at $200K

up to $1600 is a REFUNDABLE tax credit. $2000 p Kid

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54
Q

FICA on Earned Income above $160,200

A

1.45% FICA (SS + Medicare)

Below $160K is 6.2%

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55
Q

Self employment tax

A

income X 0.1413

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56
Q

Kiddie Tax on both earned income and unearned income

A

greater of $1250 unearned OR earned income plus $400 (never more than the standard deduction)

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57
Q

Personal and Dependency Exemptions

A

Suspended post 2017

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58
Q

Salaried employee cannot deduct unreimbursed meal exepenses

A

Employer should be reimbursing in full

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59
Q

Home office deduction

A

only available for self employed individuals.

CANNOT CREATE A LOSS

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60
Q

For taxes…

MUST be a FEDERALY DECLARED NAMED disaster

A

loss is reduced by $100 floor only loss in excess of 10% AGI is deductible.

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61
Q

Margin Interest…

no investment income =

A

no deduction of margin interest

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62
Q

Extra standard deduction per spouse over 65

A

$27,700
+$1500 (S 1 65+)
+$1500 (S 2 65+)
_________________
$30,700

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63
Q

Estimated Payments

A

110% of PRIOR year OR 90% of this year

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64
Q

Standard Deviation σ

A

68% of all returns fall within 1 σ
95% within 2 σ

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65
Q

How to find Mean and STD σ of a stock when annual returns are given

A

Mean = gold x (7)
σ (STD) = Gold Sx (8)

ex.
1. 8 Σ+
2. 12 Σ+
3. 0 Σ+

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66
Q

Coefficent of Variation (CV)

STD σ / AVG

Highest is most risky

A

ex.
1. avg 5.75% and std σ 7.59%
2. avg 7% and std σ 10.52

  1. 7.59%/5.75%=132%
  2. 10.52/7%=150%
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67
Q

Standard Deviation σ of Portfolio Shortcut

A

Correlation = 1 (perfectly correlated)
Correlation = 0.0 to 1.0 proportion of
Correlation Negative = -1 move opposite of each other

shortcut add risks and divide by 2. Then use above to decide closest #

*high correlation high #, low correlation low #

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68
Q

PRO TIP on MECs

A

for the exam all single premium policies are MECs

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69
Q

Concept: Private Placement are great for?

A

Roth IRA (need to be self directed)

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70
Q

What’s the unearned income kiddie standard deduction?

A

$1,250

T5

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71
Q

Deductions

A

State, local sales tax (SALT)
Real Estate tax

ALL CAPPED AT $10K DEDUCTION

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72
Q

NO Investment Income means

A

you can’t write off margin interest

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73
Q

Kiddie Tax Concept (T10)

A

1st $1250 (no tax)
next $1250 (10%)

remaining unearned income taxes and mom and dads bracket! ex. 24%

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74
Q

PRO TIP on INCOME

A

Watch for unearned vs earned income

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75
Q

Only REFUNDABLE tax credits can..

A

generate income to you. (Pays you even if you don’t owe any money)

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76
Q

What situations are not included in adoption credit?

A

Surrogate
Parenting Arrangement
OR
Adopting Spouses Child

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77
Q

What’s a tax credit?

A

You get $ back even if you didn’t owe. (Can generate income)

Credit for Child and Dependent Care to 13
$3K for 1 dependent
$6K for 2 dependents
(use 20% of allowable expense)

Child Tax Credit
$2K per Child
Under age 17
Up to $1600 per child refundable tax credit
phased out over $400K MFJ/$200K Single

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78
Q

Basis in a Partnership

A

Cash/Direct Loans/Bank Loans

ALL count towards basis! (you can take loses up to basis)

Unlimited liability

Income Tax 17

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79
Q

S Corp Basis

A

Basis = Cash + Direct Loans

NOT bank loans

this is why owner should take loan in own name and THEN loan to business

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80
Q

Net Operating Loss

A

you carryforward(verb) the NOL* (noun)

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81
Q

1250

A

27 1/2 Year: Residential Rental Property
39 Year: Nonresidential real property

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82
Q

1245

A

5 Year: Computer, Autos, Trucks
7 Year: Office furniture and equipment (except computers)

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83
Q

Highest Cap Gains Rates

A

20% starts in 35-37% Bracket

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84
Q

What’s the collectible tax rate

A

28%

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85
Q

Netting Gains and Losses

A

Net LT + LT
Net ST + ST
_____________
Net Together

(whichever has a balance you do ST or LT accordingly)

$3,000 losses can be applied and rest can be carryforward

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86
Q

How to do a 1031 no matter how many #s are given

A
  1. FMV of property received
  2. Adjusted basis of property given up
  3. BOOT (non like kind)

No Boot = Recognized Gain $0
Boot = Recognized Gain

T.23

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87
Q

1031 Memory Trick

A

Swap (1031) til you drop (full step up at death)

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88
Q

AMT Add Back Items (T27)

A
  • incentive stock option bargain element
  • property, state and city income taxes
    -Home equity indebtedness isn’t allowed (add back) UNLESS for home improvement.
89
Q

AMT Preference Items (T27)

A
  • excess Intangible drilling cost
  • Private activity muni bond
    -Oil and Gas PERCENTAGE DEPLETION (not cost depletion)
    -Depreciation (ACRS/MACRS) but NOT straight line
90
Q

Section 121

A

$500K MFJ/ $250K Single exclusion on primary residence
must live there 2 out of the 5 years

EXCEPTION: if living less than 2 years and moves MORE than 50 MILES for job/ health/ marriage (unforeseen reasons) you can get partial exclusion on sale of primary residence.

91
Q

Active Participation

A

Gains pass through
Losses sometimes do

92
Q

Limited Partners are ALWAYS

A

PASSIVE INCOME (silent investors)

93
Q

Active participants in Real Estate

A

can take a $25,000 loss.

*Phased out for tax payers AGI between $100K-$150K on 2 for 1 basis

94
Q

What is Phantom Income?
Insurance
Tax
Retirement
Investments

A

Insurance:
-any type of lapse with a loan
-section 162 life and disability (A 162 Executive Bonus plan allows a business to provide life and/or disability income insurance to key executives using tax deductible dollars)

Tax:
- K-1 from family limited partnership or limited partnership
-Recapture

Retirement:
-ESOP Distribution (basis only)
-Secular Trust

Investments:
-Zero/Strip Income
-TIPS
-Declared but not paid dividends and Capital Gains

T34/T35

95
Q

Oil & Gas working interest are exempt from?

A

Exempt from PAL rules.

*If limited partner you generally don’t have immediate right to take loss.
At dissolution take loss.

T34

96
Q

Low Income Housing Programs

A

Deduction up to $25,000 NO phaseout.

Ex. Calculate your tax to determine max

if 37% tax bracket multiply $25,000 x 37% = $9,250 credit

T34

97
Q

Rules about renting your own vacation home

A

Normally a business means your PERSONAL use cannot exceed the longer of
1. 14 days
OR
2. 10% of the rental use

T33

98
Q

How many hours of continuing ed do you need for CFP annually?

A

30 Hours

2 hours of CFP Board approved Ethics CE and 28 hours of CE covering 1 or more of CFP Board’s Principal Topics.

99
Q

Rental of your Principal Residence (NOT normally a business)

A

Fewer than 15 days you don’t pay any tax on income

NO loss deduction for damage

100
Q

Payee v Payor

A

PayeE: ReciEving Spouse

PayOR: pay OR go to jail, pay or your kids hate you etc.

101
Q

Public Charity: 50% Organizations

A
  • churches, schools, hospitals,
    -all organizations for charitable, religious, educational, literacy, or prevention of cruelty to children or animals
102
Q

Private Charity: 30% Organizations

A

-war veterans, fraternal orders, private foundations

103
Q

Donated Property (Capital Gains) T38:

A
  • when using FMV(3) individual can deduct 30% AGI

-when using BASIS(5), individual can deduct 50% AGI

104
Q

Social Security Coverage and Not Covered

A

Covered
-nearly every American worker is covered under OASDI

NOT COVERED:
- railroad employees
-child under 18 employed by a parent unincorporated business
-religious, minister (if they claim exemption)
-tribal council

105
Q

Charitable Contribution Deduction

A

CASH 60% (DOLLAR 6) of AGI
Carryforward for up to 5 more years or death if sooner

106
Q

How is use unrelated gifts considered?

A

You can only use basis

107
Q

SS Benefit by Age

A

YOUNGER than FRA
- reduce $1 from your benefits for each $2 you earn over $21,240

FRA and OVER FULL BENEFIT
-year you turn FRA deduct $1 from every $3 you earn above $56,520 until the month you reach FRA

R3

108
Q

SS Dependent

A

-surviving dependent

Unmarried child of deceased insured work qualifies for SS if:
- under 19 and full time elementary or secondary school student
OR IS
-age 18 or older but has a disability which began before age 22

109
Q

SS Widowers Benefits

A

Spouse of a retired or disabled worked he/she:
-age 62 or over
-child in care UNDER 16 OR age 16 and over if disabled

Divorce = married 10 years or more

Surviving Spouse: Qualifies for SS if caring for a child UNDER 16 or disabled before 22

R-2

110
Q

Defined Benefit Pension Plan (DB)

A

Guarantees specific amount of income

-only 1st $330,000 counted

ex.
y1 $90K
y2 $110K
y3 $140K
___________
$330K

MAX BENEFIT 100% of average comp so $330K/3Y= $110K

111
Q

What to know about SARSEPs

A

NO new SARSEP Plans!

Only NEW employees can be added to a SARSEP Plan established before 1/1/1997

112
Q

When does your spouse decided your beneficiary?

A

When it’s a pension plan
R-5

113
Q

What percentage of SS is taxed?

A

85% taxed above $44K & hits AGI

114
Q

What type of income is added to AGI when determining taxation of SS Benefits?

A

MUNI bond interest

tax exempt interest is added to AGI to get MAGI

115
Q

Defined Benefit Plan

A

Stuff like a pig!

More than $66K but favors based on age.
Older = More $
Younger = Less $ (not as good for them)

Practice Tip: When the owner retires expect them to shut this down

116
Q

What’s a CODA?

A

CODA is a 401K
stands for
Cash or Deferral Arrangement

117
Q

Profit Sharing Plan

A

-NO assumed return in a PSP
-set contributions
-max $66K
-discretionary in the since that if there is NO profit NOTHING to share
-company $ only

R.10

118
Q

Defined Benefit Plan

A
  • NO Max
    -STUFF IT LIKE A PIG

DBP (1st letters all fat like a pig, you can make a pig nose out of each one)

119
Q

Section 415 Limit

A

$66,000

Section 415 of the Internal Revenue Code (“Code”) provides for dollar limitations on benefits and contributions under qualified retirement plans.

120
Q

Deferrals vs. Contributions

A

Deferrals come from employee

Contributions come from Company (C and C)

121
Q

What’s the catch up contribution for 50+?

A

$7,500

this is a Catch Up Contribution NOT a deferral so it is not matched

if it were matched it would be discrimination in favor of 50+ so catch ups aren’t matched

122
Q

Max an employer can deduct a maximum of _____ of participants compensation?

A

25%

any employer may contribute and deduct up to a maximum of 25% in addition to elective deferral

R-11

123
Q

What’s a SARSEP?

A

A Salary Reduction SEP

-can’t do anymore
-only grandfathered in when new hire to an existing plan
-no new SARSEPs allowed

124
Q

What’s a SEP?

A

Simplified Employee Pension

no salary deferrals

125
Q

Simple IRA

A

Contribute up to $15,500
Catch Up (50+) + $3,500

$ for $ up to 3%

NO Salary Cap of $330,000 but the most you can make is $516,667

25% Penalty for premature distribution 1st 2 years

MT: simples are not simple

R-15

126
Q

Keogh Contributions

A

Owners Only

Qualified Plan for Sole Prop/Partnership OR Self Employed SEP
Max Salary: $160,200

15% plan 12.12% x profit
ex $50,000 x 12.12 = $6,060

25% plan 18.59% x profit
ex $50,000 x 18.59 = $9,295

MAX is 25%

MT:
Owner (5) Keogh (5)
Keogh Math
- Year 18.59 for the Max (25%)
- 12 out of 12 for low 12.12 (15%)

127
Q

Lump Sum v Pension (conceptual)

A

Ask lots of questions!

NO pension if either spouse has poor health

Lump Sum = lack of outside assets

128
Q

NUA Concept

A

sell higher basis less taxes

then NUA
-lower basis you pay ordinary income on less
-cost basis only

R-12

129
Q

NUA

A

employer stock only

  • pay ordinary income on Basis
    -NUA always LTCG NO matter when employer stock is sold

55 or older no 10% penalty

EXAMPLE:
Cost Basis: $20,000
FMV: $200,000
___________________
NUA: $180,000

R13

130
Q

If you move from your Plan to an IRA what happens to NUA?

A

You loose the opportunity to use NUA FOREVER!
- stock is taxable
-remainder to IRA

131
Q

55 v 59.5

A

The exam likes to conflate 10% exception and penalty for IRAs and Plans they are different!

2 separate set of rules

Plans = 55
IRA(3)s=59.5 (3)

to avoid penalty

132
Q

Types of Annual Additions

A

Deferrals = workers $

Contributions = Company $

Forfeitures = Company $ forfeited by employees who left early

133
Q

Only 4 Plans allow for salary deferrals (workers $ to go in), what are they?

A
  • 401(k)
    -403(b)
    -457
    -SIMPLE

ALL OTHERS ARE COMPANY MONEY ONLY!!

134
Q

Where is the only place you can make a hardship withdrawl?

A

401(k) only

*Many 401(k) plans allow you to withdraw money before you actually retire to pay for certain events that cause you a financial hardship. For example, some 401(k) plans may allow a hardship distribution to pay for your, your spouse’s, your dependents’ or your primary plan beneficiary’s:
- medical expenses,
-funeral expenses, or
-tuition and related educational expenses.

Consequences :
-You must pay income tax on any previously untaxed money you receive as a hardship distribution.
-You may also have to pay an additional 10% tax, UNLESS you’re age 59½ or older or qualify for another exception
-You may not be able to contribute to your account for six months after the hardship distribution.*

135
Q

What’s a forfeiture?

A

An Employee leaves without being fully vested in a 401K. $ goes into a forfeiture fund.

Ex. what would happen if I left RBC since my match vests over 5 years

136
Q

Roth withdrawl Rules

A

cOnverted is 59.5 Or 5 years

eArnings is 59.5 And 5 years

(note your contributions are always tax free - think you already paid tax once you don’t pay double tax as a person)

137
Q

Roth withdrawn within the 1st 5 years and Roth owners is under 59.5?

A

10% Penalty

138
Q

MT: The IRS is gentle on you the first time…

A

1st Home (IRA)
1st RMD

139
Q

TEST TIP

A

If the test does NOT say they are in a plan DO NOT assume they are
same with
If the test does NOT say they are over 59.5 DO NOT assume they are

140
Q

Tax Reminder

A

AGI is NOT the same as EARNED income

141
Q

What must you have to have an IRA?

A

to have an IRA you must have EARNED INCOME

MT: King IRAs body guard is Earnie Income

R36

142
Q

QDROS affect ______ plan only.

A

For exam only

QDROS affect QUALIFED Plan Only
employer-sponsored retirement plans that satisfy requirements in the Internal Revenue Code for receiving tax-deferred treatment

It does NOT affect IRA

143
Q

SEP may be established when?

A

After Employers fiscal year end.

Employer has until due date of business tax return (including extension) to ESTABLISH and CONTRIBUTE to SEP for Year.

R35

144
Q

Practice Tip: When do you take Inherited Roth RMD?

A

Wait on Roth RMD to 9 Years and 364 days then you get all tax deferred growth. Then move it to taxable and the IRS can get their taxes from there. Never roll it out early. It grows tax free.

145
Q

What is a QCD? What does it do?

A

Qualified Charitable Distribution

Age 70.5 up to $100K of RMD per year. No tax to public charity and fulfills RMD requirement.

keep an eye on age!

146
Q

EXAM TIP

A

When the exam says IRA they mean Traditional IRA unless they say ROTH IRA.
Always assume Traditional.

147
Q

What’s the basis of an IRA?

A

NO BASIS, ALL taxable.

Remember you never paid taxes on this income so you have to at distribution (it’s a hug and a slug)

148
Q

Non Spouse Beneficiary IRA is to be emptied by when?

A

Must be emptied by 10th year FOLLOWING the year of death.

If over 73 must take RMD for year if they hadn’t

149
Q

Spousal Beneficiary of an IRA - RMD Concepts

A

Younger Surviving Spouse: can delay RMDs by rolling it into their own plan and taking it off of THEIR age

Older Surviving Spouse: leave in younger (deceased spouses) plan and take the RMD based on the deceased’s age 73

150
Q

RMD Rules before 1/1/2020

A

Beneficiaries can take RMDs over the beneficiaries lifetime (NOT 10 years)

151
Q

TEST TIP

A

Look for answers with “gather additional information”

152
Q

Does the (5%>) owner age 73+ need to take an RMD if still working?

A

YES, An owner in a Pension Plan (more than 5%) must take RMDs or has a 25% penalty.

R32

153
Q

Is there a still working RMD exception in IRAs?

A

NO. No “still working” exception in IRAs.

MT: “It’s Required Anyway”

154
Q

Is there a still working RMD exception in 401(k)s?

A

Yes. You are exempt from RMDs in a plans where you are still working.

155
Q

How do RMDs work? When are you required to take your first RMD?

A

If you turn 73 in 2023 your 2023 RMD will be based on 12/31/2022 Balance.

BUT

First year you don’t have to take your RMD until April 1,2024.

MT: IRS is nice the 1st time

156
Q

What are exceptions to the 10% early withdrawal rule in a plan?

What are exceptions to the 10% penalty for IRAs?

A

Plan: Death and Disability are exceptions to the 10% early withdrawal rule before age 55 in a plan

IRA: exception to 10% penalty for IRA(3) 1st house & qualified education costs (59 1/2)

157
Q

Mandatory withholding on a check from a qualified plan?
AND what are the exceptions to the witholding?

A

20% withholding will be imposed on a distribution if a qualified plan issues a check the the recipient.

EXCEPTIONS:
- Substantially equal payments (72T)
-distribution to comply with minimum distribution

158
Q

Life Insurance Test to be considered “Incidental” to the retirement benefit purpose of the plan.

A

If the amount of insurance meets either of the following tests it is considered incidental.

  1. Traditionally defined contribution plans use the “percentage” limits. The aggregate premiums paid for a participants insured death benefit are at all times less than the following percentages of the plan cost contributions for that participant.
    Ordinary Life Insurance (whole life) 50%
    Universal Life 25%
    Term Life 25%
  2. Defined benefit plans typically factor the “100 times” limit. The participants insured death benefit must be no more than 100 times the expected monthly benefit. For example, if the monthly benefit is $4,000 than the life insurance death benefit cannot exceed $400,000.
159
Q

What’s a 457?

A

A 457 plans are non-qualified deferred comp.
Section 457 plans are nonqualified, unfunded deferred compensation plans established by state and local government and tax-exempt employers.

Remember government always gets different rules

160
Q

Who does cross testing provide the most generous benefit?

A

The OLDER owner/employee.

HCE: Max 20%
NHCE: 5%

*this is the governments way of protecting the non highly compensated employee

161
Q

ADP/ACP Actual Deferral/ Actual Contribution Test

A

Shortcut Method:
0 to 2% is “times 2”
2% to 8% is “plus 2”

Deferral NHCE HCE
1% x2 2%
2% +2 4%
3% +2 5%
4% +2 6%

162
Q

What is the 21 AND 2 Rule?

A

Requires the employee to be age 21 or older AND have 2 years of service.

163
Q

Top Heavy Defined Benefit versus Non Top Heavy

A

Top Heavy DB:
+ ALL defined contribution plan
Faster vesting schedule
3 year cliff
OR
2 to 6 year graded
OR
100% vested with 2 year eligibility

Non Top Heavy DB
Defined Benefit Plan
Slower vesting schedule
5 Year Cliff
3 to 7 year graded
or
100% vested 2 year eligibility

think gravity with vesting schedule, top heavy goes faster than something “less” top heavy

Remember this is the worst case anything better is ok

164
Q

What’s Top Heavy?

A

More than 60% of it’s aggregate accrued benefits or account balance allocated to key employees

165
Q

What’s the minimum benefit for a non-key employee in a top heavy Defined Benefit and Defined Contribution plan?

A

Defined Benefit = 2%, MT 2nd letter in alphabet
Defined Contribution = 3% MT 3rd letter in alphabet

166
Q

Who is a Key Employee?

A

-Greater than 5%

kEy
vEsting

officer and compensation greater than $215K
greater than 1% owner and compensation greater than $150K

167
Q

Who is a Highly Compensated Employee?

A

HCE:

hIghly compensated employee
dIscriminated

greater than 5% owner, $150K+

168
Q

Test Tip: if the goal is for a plan to be flexible what can you do?

A

Cross Out ALL pensions

169
Q

Test Tip: what perspective is the exam always written from?

A

The owners perspective not the employees. Think your client is usually the owner.

170
Q

Other names for a Solo 401k?

A
  • Sole Propertier 401k
  • Uni - k
171
Q

Defined Benefit Plan Memory Trick

A

When playing Dodge Ball (DB) you target older people

172
Q

What are employer contributions in a defined benefit plan?

A

Mandatory and FIXED

173
Q

Profit Sharing 401k Plan

A

Flexible employer contributions with higher limits ($66,000)

174
Q

What’s the max for salary reduction and discretionary employer contributions?

A

Salary reduction $22,500

May not EXCEED section 415 limit of $66,000 OR 100% of Salary

175
Q

What kind of an account should a REIT always go into?

A

A tax deferred account.

Think ordinary income tax rates, defer it!

176
Q

What’s a Rabbi Trust?

A
  • Private letter ruling
  • Merger, acquisition or change of company ownership
  • immediate vest
  • only way you can lose money is if the company goes bankrupt

A rabbi trust is a type of trust used by companies to provide non-qualified benefits to key employees. Most rabbi trusts are irrevocable, meaning a company can’t take the assets out once they’ve been put in.

Most Fortune 500 CEOs have this

177
Q

Holding Periods for NSO and ISO

A

LTCG Holding Period:

NSO
1 Year

ISO
1+ Year from exercise date
2+ years from grant date
MT: E GG
1 2

R48

178
Q

Is a Section 457 Plan protected from creditors?

A

NO
- subject to creditors
- if they go bankrupt you lose it all

Those funds are subject to the employer’s creditors. For this reason a 457(b) provides excellent asset protection against your creditors, but it provides no protection at all against an employer’s creditors.

Remember: Section 457 plans are nonqualified, unfunded deferred compensation plans established by state and local government and tax-exempt employers.

179
Q

Which features on a bond decrease yield?

A

Put and Conversion Features

think these features benefit the bond holder so that will come at a price.

180
Q

Conversion Value of a Convertible Bond Formula

A

CV = (PAR/CP) X Ps

CP= Conversion Price
Ps= Current price of underlying stock
PAR= Par value of bond (typically but not necessarily $1000)

181
Q

Risk with Corporate and Muni Bonds

A

Default Risk
Reinvestment Risk
Interest Rate Risk
Purchasing Power Risk

MT: DRIP

182
Q

CMO

A

CMO has A to Z Tranches

Fast pay A
Medium pay M
Slow pay Z

Plus issue of Z Tranche no coupon (most risk) no cash flow basically gets the leftovers (Z Slowest = Longest Duration)

183
Q

Revenue Bond

A

Backed by a specific source of revenue. Credit of issuer is NOT pledged.

Backed by a single source (tolls, hospital, nuclear plant)

Riskier so higher yields

184
Q

General Obligation Bond

A

Backed by full fait and credit and TAXING power of the issuer.
MT: Think GO Bond we won’t GO broke.

Safest muni credit

Taxes can be raised until debt is paid back to the bond holder.

185
Q

GNMA
FNMA
FHLMCC

A

GNMA = government / guaranteed

FNMA
FHLMC
you can get Fed out of your money. (Technically these are NOT guaranteed)

186
Q

Who has to own EE bonds for the “education” status?

A

Only the parents ownership qualifies the bond for EE education status.

187
Q

Taxation of Federal Issues

A

ONLY pays FEDERAL Tax

188
Q

Basis on TIPS

A

any increase in the inflation adjusted principal amount is treated as taxable and increases basis.

So gain is…
Original Basis + Adjusted Basis

Sale - Basis = Gain

ex.
1000 + 300 principal sold for 1400

Gain of $100

189
Q

STRIPS

A

-Treasury zero coupon bonds
-Produce phantom income

STRIPS are normally purchased by tax deferred entities like pensions/IRAs/Annuities given their tax deferred nature the phantom income need not be recognized

190
Q

Treasury:
Bills
Notes
Bonds

A

NO STATE OR LOCAL TAX ON INTEREST (THINK FED ONLY TAXES FED)

Bills: 3-12 Months
Notes: 1-10 Years
Bonds: 10-30 Years

191
Q

Beta β

A

Beta measures systematic risk. Measures volatility of securities return relative to a market index. (MT: Think B is for Bounce)

Higher Beta β = greater risk (& return potential)

β of 1 = stock return moves exactly with the market as a whole

β of <1 = (ex 0.25) means stock return fluctuates less than market as a whole

β > 1 = (ex 1.25) means stock return fluctuates more than market as a whole.

192
Q

What can you lose on a naked call?

A

to zero. Limited loss can only go to zero.

193
Q

What’s the most risky thing you can lose in our industry?

A

Naked Call! Unlimited loss (could never stop going up)

194
Q

Derivatives: IV + TV = Premium

A

Intrinsic Value is NEVER negative only ZERO

195
Q

How do you hedge futures?

A

You are So
Long Go short
ex. you are a corn farmer you love corn

Short Go Long

MT: Do today what you want in the future

The point of futures is to provide balance and regulate prices for consumers think corn farmer and cereal industry

196
Q

Private Placement = Reg D

A

Regulation D
offering memoranDum
1 2 3 Test

$1M net worth
$200K Single Income
$300K Joint Income

197
Q

Correlation Coefficent

A

the test likes to make you move this around

COVij = Pijσiσj

or

(COVij/σi x σj) = pij

DON’T panic just plug in answers if you can’t figure this out!

198
Q

Alpha and Beta of S&P 500?

A

Alpha of S&P 500 = 0
Beta of S&P 500 = 1

199
Q

R2

A

Index funds based on S&P 500 will have an R2 close to 100%

Sector funds will have a lower R2 around 25%ish

200
Q

Sharpe

A

Risk measured in terms of standard deviation σ

Variability systematic and unsystematic risk

  1. look for low R2 (less than 60) OR non-diversified portfolio
  2. look for highest Sharpe number
201
Q

think RATS

A

R2 over 60 use Alpha if no Alpha use Treynor

if R2 less than 60 use Sharpe

202
Q

Jensen (Alpha)/Treynor

A

Risk measured in terms of Beta β

Volatility Systematic Risk Only

  1. Look for higher R2 (60+) OR Diversified Portfolio
  2. Look for highest positive Alpha *if none given look for highest Treynor number
203
Q

Point of Tangency of SML and CML

A

SML = Micro think SML is Small

CML= Complete/capital market line

204
Q

Call Options and Attitudes

A

Bullish = Buyers (UP)
Bearish(7) = Writers(7)(down)

205
Q

Cap Rate

A

Value/NOI = CAP Rate

OR

NOI/Cap Rate = what you should pay (value)

206
Q

Test Tip

A

NSOs and ISOs are OPTIONS (it’s in the name)

207
Q

Is Compensation subject to income tax and FICA

A

YES

208
Q

Is ordinary income subject to FICA?

A

NO, Ordinary income is only subject to income tax no FICA

209
Q

Medicare doesn’t cover?

A

Dental
Eye Care/Emergency outside of US
Most immunizations
Prescribed Drugs

MT: DEMP

210
Q

What does Worker’s Comp Cover?

A

Medical expense
Disability income
Death benefit
Rehabilitation

MT: WC (covers) MD DR
WCMDDR

211
Q

What are homeowners insurance exclusions?

A

OPEN WIF

Ordinance or Law
Power Failure
Earth Movement
Neglect /Nuclear Hazard

War
Intentional Loss
Flood

212
Q

Homeowners Parts (Letter)

A

A = Adobe (dwelling)
B = buildings/backyard (garages)
C = Contents (covers content owned or used anywhere in the world)
D = Days Inn (if loss of use they put you up)
E = enemies/everyone loves to sue (comprehensive liability insurance)
F = First Aid (medical payment to others)

213
Q

Nursing Home Progression covered by Medicare

A

3 Days in Hospital
20 Days of skilled care (they pay all)
next
80 days $200 a day (for a max of 100 days) anything over $200 patient covers
after
100 days Grandma pays all

214
Q

COBRA

A

18 Months = Job Related
36 Months = Non Job Related

215
Q

Medicare is like?

A

Swiss cheese, little holes filled in by additional parts

216
Q

What’s under the 3 Year Rules?

A

Gift taxes: paid on any gifts within 3 years of death are added to gross estate

Incidence of Ownership: if you had incidence of ownership that you gifted and then you die within the 3 years gift is clawed back into your estate

217
Q

How to remember what is subject to Probate?

A

MT: COMESTIC

COMmunity property
ESTate is the beneficiary
Singly owner property
TIC tenants in common

218
Q

Are Roth 401ks subject to RMDs?

A

YES! for the test only

(this requirement goes away in 2024)

DANKO REVIEW CLASS FLASHCARDS (1 decks)

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