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Post simualted Exam Flashcards

1
Q

For TVM questions, what are the examples of begin annuity problems?

A

Rent payments, tuition payments, retirement income

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2
Q

For AVD, when must an asset be valued?

A

When sold during the 6 month distribution

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3
Q

Using a DRIP, are dividends still taxable?

A

Yes. Admin fees are also not deductible due to TCJA

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4
Q

If the transferor is not the insured, does the 3 year rule apply to life insurance policies?

A

No

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5
Q

Is the value of an UGMA included in a custodian’s estate?

A

Yes, if they are custodian and legal guardian and the child is still a minor

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6
Q

Who is considered an active participant for IRA deductibility purposes?

A

An employee who has benefited under one of the following plans through a contribution or an accrued benefit during the year:

Qualified plan
Annuity plan
Tax sheltered annuity (403b)
Certain government plans (excluding 457)
SEP
SIMPLE

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7
Q

What is the maximum excess rate?

A

2x the contribution rate limited to 5.7%

Ex. 10% contribution means 15.7% max excess rate

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8
Q

Who qualifies as a dependent?

A

5 dependency tests
Gross Income
Support
Member of HH or family member
Citizenship (US, Canada, Mexico)
Joint Filing

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9
Q

What is a long straddle?
What is a short straddle?
What is a collar?

A

A long straddle is purchasing a call and put on the same stock

A short straddle is selling a call and put on the same stock

A collar is when the investor buys a put then sells a call to pay for the cost of the premiums

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10
Q

Are open-end fund shares bought/sold on the secondary market?

A

No, they are traded directly with the fund

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11
Q

With r2 of .8, is the .8 systematic or unsystematic risk?

A

Systematic risk

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12
Q

Can a fully diversified portfolio eliminate unsystematic risk?

A

Yes

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13
Q

Are DRIPs tax free?

A

No, though reinvested into shares they still generate taxable income as ordinary dividends

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14
Q

What is a QTIP used for?

A

Also called a C trust. Allows a decedent to utilize the unlimited marital deduction yet still control the ultimate disposition of the property

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15
Q

What is the different between an A trust and a C trust, for purposes of the unlimited marital deduction?

A

A trust (GPOA) allows spouse to appoint property
Whereas
C trust (QTIP) only allows spouse income

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16
Q

Who makes the final decisions for C trust?

A

The executor/administrator of the estate

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17
Q

Who pays the estate tax on a bequest?

A

The tax is charged against the bequest unless specified otherwise by special arrangements. Remember: $17k exclusion not available for bequests

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18
Q

What are the rules for AVD?

A

Total value of estate must depreciate

All assets use AVD value
Unless sold, then use sale date OR
wasting assets use DOD value

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19
Q

How much of the AGE must be comprised of the closely held C corp to qualify for section 303?

A

35%

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20
Q

How are letters testamentary and letters of administration assigned?

A

letters testamentary: assigned by will
letters of administration: assigned by probate court

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21
Q

For charitable remainder trusts, how is the value treated in the adjusted gross estate?

A

The value of the CRT is included in the gross estate, then deducted from the AGE as a charitable deduction.

If the trust is for the life of grantor and spouse, assets are included in first to die’s estate at the value of the assets, then the remainder interest is netted out as the unlimited charitable deduction against AGE

22
Q

What happens to installment note when a seller dies?

A

Outstanding principal and accrued interest is included in gross estate

23
Q

Is a private annuity included in the estate of the seller dies?

What about a SCIN?

What about a GRAT, GRUT, and QPRT?

A

No, the value is considered zero

No, only the received payments are calculated into estate

If a grantor of GRAT, GRUT, and QPRT dies during annuity term, the FMV within the GRAT is included in the estate

24
Q

Which plans allow loans?

A

401k, 403b, 457b, profit-sharing, and money purchase

IRA based plans cannot (SEP, SIMPLE IRA, SARAEP)

25
Q

How does a cash balance plan work?

A

The plan sponsor develops a formula to fund the cash balance of a hypothetical allocation.

The formula consists of a pat credit and an interest credit. Ex. 5% pay credit (5% contribution of salary) with a guaranteed 2% interest

It doesn’t have separate accounts, but it appears as such to the employee, who receives statements of the hypothetical benefits they will receive upon retirement

26
Q

How does a money purchase plan work?

A

Employer promises to make a fixed percentage of employee’s compensation contribution to the plan each year, but does not guarantee a specific retirement benefit

27
Q

How does a target benefit plan work?

A

A target benefit is determined for each employee that determines how much an employer must contribute to their plan based on actuarial assumptions (actuary only needed at onset, not annually). Individual is responsible for their investment selection.

Contribution is based on original assumptions, not the current amount necessary to hit the target.

28
Q

What formula do you use for determining exclusion in IRA basis?

A

Same as the annuity exclusion ratio:

Adjusted Basis / FMV of account at withdrawal

29
Q

How are RMDs from IRAs different from those of 401k?

A

IRA RMD Must begin even if working

30
Q

When is the 10% early withdrawal penalty assessed?

A

On the 1040 during tax filing, not at time of distribution

31
Q

What are the 403b catch up amounts?

A

$7500 or $3k using 15 year rule

32
Q

What are the 457 catch up amounts?

A

$7500 or $22500 if final 3 year catch up

33
Q

What is the SIMPLE contribution and catch up limit?

A

$15.5k and $3.5k

34
Q

What organizations are allowed to use 403b?

A

Qualified nonprofit organizations (ministers, hospitals, etc.) or public educational systems

35
Q

What organization can use a 457b?

A

Any state organization or tax exempt organization (trade, religious, private hospital, cooperatives, private school, unions, charity)

Does not include churches!

36
Q

What are the requirements for an ESOP’s non-recognition of gain?

A

Must own at least 30% of corporation’s stock after the sale

Seller must reinvest proceeds into qualified replacement within 12 months and hold for 3 years

Corporation must have no class of stock outstanding that is tradable on securities market

Sellers are precluded from receiving allocations of stock acquired by the ESOP through the rollover for 3 years

Must have been owned by the seller for 3 years

ESOP may not sell the stock acquired through the rollover transaction for 3 years

37
Q

Is there income tax at ISO grant?
What about when exercised?

A

Neither, so long as the requirements are met ($100k, 2 and 1)

The bargain element IS a positive adjustment for AMT

38
Q

How soon after coverage ending must COBRA be elected?

A

60 days

39
Q

What is your marginal tax rate vs. effective tax rate?

A

Marginal is the highest tax bracket your income falls under, and effective is the average rate you pay

40
Q

What amount of investment interest expense is deductible?

A

investment interest expense is limited to investment interest income. Excess expense may be carried over indefinitely

41
Q

Are punitive damages excluded from income?

A

No

42
Q

Can COBRA coverage continue if employee begins new health coverage?

A

No

43
Q

What is the net gift formula?

A

The donee’s basis is increased by the gift tax paid :

Donor’s basis + [net appreciation in value of gift / value of taxable gift, x gift tax paid]

44
Q

What assets are included in FAFSA?

A

Cash
Businesses
Investment farms
Real estate (non-residence)
Other investments

45
Q

What happens if an NQSO has a readily ascertainable value at the date of grant?

A

Generates w2 income equal to the value

46
Q

Does a dependent’s blindness affect standard deduction of filer?

A

No

47
Q

What is basis for depreciation?

A

Lower of FMV or adjusted basis

48
Q

What are the exceptions to the 10% withdrawal penalty for BOTH qualified plans and IRAs?

A

Death, disability, terminal illness
SEPP (72t)
Medical expenses (7.5% floor)
Federally declared disaster
Adoption of child ($5k)

49
Q

What are the exceptions to the 10% penalty for qualified plans?

A

Death, disability, terminal illness
SEPP (72t)
Medical expenses (7.5% floor)
Federally declared disaster
Adoption of child ($5k)

QDRO
Age 55 and separation of service
Age 50 and separation of public service (25 years, fire fighter or corrections or safety)

50
Q

What are the exceptions to the 10% early withdrawal penalty for IRAs?

A

Death, disability, terminal illness
SEPP (72t)
Medical expenses (7.5% floor)
Federally declared disaster
Adoption of child ($5k)

Higher education expenses
First time home purchase ($10k)
Health insurance premiums for unemployed

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