Study from Wrong Answers Flashcards

1
Q

To allow a DE spouse to receive income from an A trust, the spouse is given a ____________ power of appointment whereas in a B trust, the spouse is given a ___________ power of appointment.

A

General; limited

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What are the tax consequences of selecting the QTIP election?

A

Anything as part of the QTIP qualifies for the unlimited marital selection and is not taxed.

However, the assets are then included in the surviving spouses estate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Each of the following vehicles for charitable giving generates a deduction equal to the present value of the charity’s remainder interest EXCEPT:

Charitable Remainder Trust
Pooled Income Fund
Donor-Advised Fund
Charitable Gift Annuity

A

Donor-advised funds only allows a deduction based on the type of property contributed, subject to AGI limitations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

When using a charitable gift annuity to make payments to a spouse, if the spouse receives all payments and has a general power of appointment following the donor’s death, _______________________ is available.

a marital deduction

deduction for the PV of the charity’s remainder interest

deduction for the PV of the charity’s income interest

an income tax deduction limited to 30% for cash and to 20% for LTCG property

A

a marital deduction

For gift annuity payments made to a spouse, a marital deduction is available if the spouse receives all annuity payments and has general POA over payments after the donor’s death

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What kind of marital deduction is available for non-US citizens?

A

None

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the early withdrawal penalty for 457’s?

A

There isn’t one

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What funds can a 403(b) invest in?

A

Mutual funds and annuities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Which annuitization method provides the highest monthly income to the annuitant?

Life, 10-year certain
Life, 20-year certain
Life, refund certain
Life only

A

Life only

Biggest payment but all payments end when the annuitant dies. (better than 10 years, I guess??)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

‘Annuity Certain’ is a subcategory within which of the following annuity features?

Guaranteed Minimums
How Funds are Invested
Lives Covered
Forms of Payment

A

Forms of Payment

‘Annuity Certain’ can refer to either a Fixed Period or Fixed Payment.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What does rule 72(t) refer to?

A

Sep from service at or after 55

An exception to qualified plans early withdrawal penalties, (BUT NOT FROM IRAs)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What’s the way to remember FAFSA EFC percentages?

A

low to high: A ssets before I income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is the “final” step in determining the EFC?

A

Subtracting the family contribution calculation from the cost of tuition

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

When calculating the taxes and penalty on a 529 withdrawal for non-qualified expenses, what is the formula?

A

Total - principle / total

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What are tax sheltered annuities?

A

TSAs or 403(b)s

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is the key to differentiating collision from comprehensive policy use?

A

Hitting STATIONARY objects (or other cars) - collision

Hitting NON-STATIONARY objects - comprehenisve

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Rollovers may be made without penalty from a section 529 tuition account to a section 529A ABLE account if

I) is a qualified relative per the IRS
II) is an eligible member of the family

A

II only

Rollovers may be made without penalty from a section 529 tuition account to a section 529A ABLE account if the beneficiary of the ABLE account is the DESIGNATED beneficiary of the tuition account or is an ELIGABLE member of the family.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What are REITs?

A

Companies that invest in real estate instead of financial assets to provide passive income.

Two types: Equity and Mortgage (REMICs of 2008)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What are the tax filing penalties?

A

Fraud: 75%
Frivolous: $5000
Negligence: 20%
Failure to file: 5% per month up to 25%
Failure to pay: .5% per month up to 25%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What method of accounting must be used if there is inventory involved in the business?

A

Accrual. Hybrid if there is a service component

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What is the formula to determine mixed-use rental deductions?

A

rental days / total days (pers & rent) used * total expenses

Cannot deduct more than rental income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

How much can educators deduct - Single? MFJ?

A

Single or married, you can deduct up to $300 qualifying expenses per educator

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What happens if failure to file and failure to pay taxes before 5 months and when it exceeds 5 months?

A

Prior to 5 months, only failure to file is levied. After 5 months, only failure to pay is levied

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What kind of student loan debt forgiveness can be deducted from gross income?

A

Only forgiven debt using the public service loan forgiveness program

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What is the correct discount rate used in the NPV formula?

A

The investor’s required rate of return

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
The U.S. economy has experienced significant growth over the past six months after spending two years in a recession. In response, the Fed has begun aggressively increasing the discount rate, however, economists are anticipating another prolonged contraction 5-7 years from now. What is likely to occur in the yield curve as a result? A flat curve A steep positive curve A normal curve An inverted curve
An inverted curve Increase in short term rates and contraction in long term rates result in an inverted curve
26
Which part of Medicare uses a “gatekeeper” approach? Part C Part B Part A Part D
Part C Must use in-network for medicare advantage
27
Periodic withdrawals from a deferred annuity up until age 59 ½ receive what type of tax treatment? -All distributions are tax-free. -Distributions are considered basis first. -Distributions are considered earnings first. -Each periodic distribution has an exclusion allowance applied.
Distributions are considered earnings first.
28
What does an options contract intrinsic value include?
Only the market and exercise price - NO PREMIUM!!!
29
How many shares is a standard call or put contract?
1 = 100
30
When do you include the premium in the value of a put or call?
When the question asks for the net gain or loss
31
What are the filing (S) and (MFJ) breakpoints for 0%, 50% and 85% of SS taxed?
(S) $25k and $34K (MFJ) $32k and $44k
32
When do you use .9235 when calculating taxes?
For SE income ONLY!
33
True / False. There is an annual exclusion for GST.
True. $16k per person
34
What are the matches to: Straddle Collar Spread
Straddle = volatility Collar = income from Call covers cost of Put Spread = stability
35
A standardized contract to buy or sell a commodity is known as: Forward Option Future Swap
Future
36
In a liquidation of an S Corporation, the event is taxable at the _____________________. I. corporate level II. shareholder level I only II only Both I and II Neither I nor II
II only
37
Taxpayers using the ____________ generally report income in the year it is received. accrual method cash method hybrid method constructive receipt method
cash method
38
What tax form and dollar threshold amount is associated with the FBAR?
Form 114 - over an aggregate of $10k in foreign accounts at any time
39
What should be considered when deciding to calculate 3.8% NII or income over additional medicare threshold?
The 3.8% surcharge tax is applied against the lesser of NII or income over the threshold
40
What is the child and dependent care credit amount, assuming AGI over the $45k threshold?
20% of the qualifying expenses
41
How much is the child tax credit and what are the thresholds for getting the max credit for both filiing (S) and (MFJ)?
$2000 if AGI is not above... (S) $200k (MFJ) $400k
42
What is the maximum capital loss a (MFS) can claim?
$1500 - the IRS hates MFS
43
When does the first RMD have to be taken for an IRA vs a 401(k)?
For an IRA, it has to be taken by April 1st of the year following turning 72. For a 401(k) same rules apply as an IRA. But if the EE is still working for the ER offering a 401(k), he does not have to take distributions until he actually retires, unless he owns more than 5% of the company.
44
What are the various taxing rules on SBP distributions?
ER Basis: Ordinary Earnings at distribution: LTCG Earnings at sale: ST/LT holding period rules
45
What is the 83(b) election?
Allows an EE to elect to pay ord income tax at SBP grant for basis, then pay LTCG at sell.
46
Non-discrimination testing. What are the formulas for: Safe Habor Ratio Avg Benefits
Safe Harbor: #NHCE benefiting / total NHCE Ratio: -Safe harbor % / (#HCE benefiting / total HCE) Avg benefits: NHCE benefits must be 70% of HCE benefits
47
How do you calculate total contribution amount to SS using integration base rates?
Take the base rate % and multiply times $147,000. Then take that base rate + excess rate and multiply times the excess income amount above $147,000
48
What is the maximum SS integration base rate that can be multiplied by 2?
5.7%
49
What is the maximum increase in benefits for SS integration formula?
.75 x .01 x (up to 35 years)
50
For a solo 401(k), what can the EE contribute and what can the ER contribute?
EE can max elective deferrals limit w/catch-up ER can contribute 25% of covered comp up to annual additions limit
51
What is a key EE?
Anyone... Making over $200k p/yr Is a more than 5% owner Is a more than 1% owner and makes $150k
52
What are the consequences of a top-heavy test fail?
Vesting schedule changes to 2-6 year graded/3 yr cliff DB plan: 2% benefit p/yr up to 10 years DC plan: min of 3% comp or match to lower HCE comp
53
What retirement plan do teachers participate in?
403(b)
54
What is required for a current spouse to receive SS benefits?
Married for more than 1 year Worker is taking benefits
55
When earned and unearned income, how is the kids and parents tax totaled?
Step 1. Gross all income and subtract kid's standard deduction (earned income +400 capped at $12,950) Step 2. Work unearned income at parent's tax rate (what they owe) Step 3. (Answer 1 - Answer 2) * child's tax rate = what the kid owes
56
How is a funded ILIT taxed?
Whatever income is produced from the funded ILIT will be taxed at the grantors rates regardless of premiums paid.
57
In a family limited partnership, what are key factors to keep in mind regarding taxation?
Could trigger kiddie tax No step-up at basis
58
What are two discounts available to FLPs?
Lack of marketability Minority interest
59
What is a 303 redemption?
Keeps stock in the family and provides a tax friendly way to use business profits to help pay for death expenses
60
What is the formula for using 303 stock at death?
303 stock must be greater than (35% * Adjusted gross estate + losses added back in)
61
What is a 2032A Special Use Valuation?
Allows the estate to reduce estate taxes by lowering the value of qualified farm land
62
What are the requirements for a qualified 2032A property?
Must be farmland Must equal at least 50% of the gross estate At least 25% of gross estate (minus debts and mortgages) must be qualified farm property
63
What is the section 6166 election?
Allows the estate to make federal tax payments to alleviate liquidity problems at death Payments are spread across 10 years of equal payments
64
What are the requirements for the section 6166 election?
Closely held business must exceed 35% of the adjusted gross estate The first payment must be made within 5 years of death
65
What are key benchmarks for: Large US Stocks Small US Stocks Non-US economies Publicly traded companies
Large US Stocks - S&P 500 Small US Stocks - Russell 2000 Non US economies - MSCI Publicly traded companies - Wilshire 5000
66
What are the following legislative acts: Glass-Steagall 1933 Maloney 1938 Gramm-leach 1999
GS 1933: prohibited financial institutions from consolidating banking, investment, insurance Maloney 1938: Brought OTC investments under the SEC GL 1999: addressed privacy
67
Distributable Net Income (DNI) represents the maximum that can be taxed to the ________. trust beneficiaries grantor trustee
beneficiaries
68
Each of the following is a requirement for establishing a QDOT EXCEPT: The trustee must be a US citizen or a domestic corporation, or a US bank if trust assets exceed $2 million. The trust must retain sufficient assets to cover the non-citizen's spouse's estate taxes. The trust must be set up as an A-Trust or a B-Trust. The trustee must approve all distributions of principal and withhold estate taxes from distributions that are not subject to an ascertainable standard (HEMS).
The trust must be set up as an A-Trust or a B-Trust.
69
Each of the following is a BASIC need that a Special Needs Trust is available to cover EXCEPT: Food Shelter Clothing Medical Care
Medical Care
70
Each of the following is a SUPPLEMENTAL need that a Special Needs Trust is available to cover EXCEPT: Medical Care Education Clothing Special Equipment
Clothing
71
The reservist expense deduction applies to members of the Reserves and allows deduction of travel, meals, and lodging costs if the individual is _____________. 1) providing services 2) 200+ miles from home
1 Only. 2 is good when they provide services 100+ miles from home
72
What are/is the tax penalties for a non-qualfied withdrawal from an EE bond?
No tax penalty, but there is a prorated amount of ordinary tax on the unqualified amount
73
What is the TWWR calculation?
Price p/share invested (-/+)PV Price p/share current value FV Number of years [Solve I/YR]
74
What is the imputed interest rule for loans over $10k and under $100k?
Lesser of AFR or NII
75
What basis do TIC have after the death of their partner?
Whatever percentage they contributed to the property
76
What is the difference between an unfunded and funded ILIT?
Unfunded means there is no income-producing assets in the trust to pay for premiums. Money has to be added for that to happen. In addition, this type of trust is eligible for Crummey powers. A funded trust has income-producing assets that pay premiums. The income is taxed to the grantor
77
What are advantages and disadvantages of a family limited partnership?
Advantages: control, income shifting, valuation discounts Disadvantages: kiddie tax potential, no stepped-up basis
78
What is the main difference between a sale and a gift lease-back?
The gift-lease back goes to an irrevocable trust.
79
For the following intra-family transfers, what is the duration, are they secured, and what is the impact on the seller's gross estate? Installment Sale SCIN Private annuity
Installment: Fixed duration, secured, PV unpaid installments included in estate SCIN: Fixed duration, secured, transferred prop removed from estate Private annuity: Duration for life of seller, not secured, PV could be included in estate if joint and survivor
80
Age and max amount for QCD?
70.5 and $100k per person
81
What is the general ROT for an AMT year?
Point is to bring regular income tax up to reduce the gap between regular tax and AMT. That said... Accelerate income and defer deductions
82
AMT tax flow: Real Affluent Americans Get Taxed Alot
Regular tax AMTI AMT Base Gross AMT Tentative minimum tax AMT
83
How is the face amount of each policy determined in an entity or cross-purchase buy-sell?
The total value of the business divided by the number of policies required to make the business whole
84
If the grantor does not survive the QPRT, what is the amount added back into the estate?
The FMV at death
85
Beneficiaries are equitable owners of the trust in the sense that they are: (Select all that apply) Entitled to the enjoyment of the trust property. Entitled to the income produced by the trust property. Entitled to hold legal title to the property. Expected to pay the trust's income tax liability.
Entitled to the enjoyment of the trust property. Entitled to the income produced by the trust property.
86
Who pays the tax for: Direct skip Taxable distribution Taxable termination
Direct skip: the gifter Taxable distribution: the giftee Taxable termination: the trust
87
The estate tax implications for terminable interest property (TIP) include: I) Inclusion of property in the gross estate at death for the spouse receiving TIP. II) Removal of property from the estate of the spouse who gifts TIP. I only II only Both I and II Neither I nor II
II only Removal of property from the estate of the spouse who gifts TIP.
88
Last year, Seth received a corpus that was not subject to estate or gift tax. The trust was established by Seth’s grandfather, Milo. What type of GST transaction has occurred? Taxable distribution Taxable termination Direct skip GSTT exemption
Taxable distribution
89
What are key considerations for a SIMPLE?
Withdrawals within 2 years are taxed at 25% $14k EE contributions For EE with annual salary $5k
90
Who is taxed on a gift at or below the annual exclusion?
No one. Inheritance and gifts are one of the exclusions (DADS MADE PACIFISM)
91
Tom and Judith want to file under the Married Filing Separately status. If Tom wants to itemize his casualty losses, then __________. -they will have to file jointly -Judith must take the standard deduction -Judith must either itemize her deductions or claim a “zero” standard deduction -None of these
-Judith must either itemize her deductions or claim a “zero” standard deduction
92
Schedule K-1 is used to document each of the following items pertaining to a partnership EXCEPT: Shares of income Shares of partnership credits Available partnership deductions Basis of the partnership interest
Basis of the partnership interest
93
__________________ is a law that provides individuals with the opportunity to fairly obtain credit. Fair Credit Reporting Act Fair Debt Collection Practices Act Equal Credit Opportunity Act Fair Credit Billing Act
Equal Credit Opportunity Act
94
Under SEC Rule 415, how long do companies have to issue shares from their IPO filing? One year Two years Three years Four years
Two years
95
Under which of the duties of Standard A.1, Fiduciary Duty, is a CFP® professional required to “[a]void Conflicts of Interest, or fully disclose Material Conflicts of Interest to the Client, obtain the Client’s informed consent, and properly manage the conflict.”? Duty of Loyalty. Duty of Care. Duty to Follow Client Instructions. None of these.
Duty of Loyalty.
96
Which law indicates that supply for an economic product will vary directly with its price? The law of supply The law of demand The law of supply and demand The law of large numbers
The law of supply
97
What is the ER match percentage based off in a PS plan?
Percentage of total compensation. Ex: 100% match on first 5% of EE deferments on a $200k salary = $10k match
98
What does medicare part B pay after the deductible has been paid?
80%
99
What is the EE portion of SS and Medicare?
SS = 6.2% Medicare = 1.45%
100
SIMPLE IRAs are available to employees who have earned at least $5,000 in each of the past ______ and are expected to earn $5,000 are eligible. 1 year 2 years 3 years 5 years
2 years
101
What is the fair credit billing act?
A right to have mistakes corrected
102
What is the fair credit reporting act?
A right to know what's in your file
103
VA LOAN Down payment Terms Fixed or adjustable Funding Fees
Down payment: None Terms: 15 - 30 years Fixed or adjustable: Both Funding Fees: 2.3-3.6%
104
Conventional loan Down payment Terms Fixed or adjustable Funding Fees
Down payment: 3-20% Terms: 15-30 years Fixed or adjustable: both Funding Fees: none
105
USDA Loan Down payment Terms Fixed or adjustable Funding Fees
Down payment: 0 Terms: 15 - 30 years Fixed or adjustable: fixed only Funding Fees: 1% up front; .35% annually
106
What is the P/E ratio?
Price to earnings. Share price / earnings per share OR... market cap / net income
107
When market risk premiums go up, what does the value of a stock do?
The stock goes down As risk goes up, investors become hesitant to invest which then drives the price down
108
Given dividends of stocks over many years, how do you find the growth rate?
Time value of money PV: first dividend FV: last dividend N: how may years in between [solve I/IR]
109
What formula is used for required rate of return?
CAPM
110
If an investor is expecting a large drop in interest rates, how could he combat it?
By increasing the yield of his portfolio
111
When calculating how much of an IRA is deductible for an active particpant over 50, do you include the catchup contribution?
Yes
112
What is the vesting schedule for the two DB pension plans?
Traditional: 3-7 graded, 5 year graded Cash Balance: 3 YEAR CLIFF!!!!!!!!!!!
113
Of the ADP and ACP, which one applies to the EE and which one applies to the ER?
ACP = ER (contributions) ADP = EE (deferrals)
114
When solving for the P/E ratio, what are the primary numbers needed to solve and what are the secondary?
Pri: stock price / earnings per share Sec: Market cap / Company net earnings
115
What are the two COBRA coverages of less than 36 months?
Termination (18) and SS Disability (29)
116
According to the Fitness Standards, which of the following is a presumptive bar for CFP® certification? Arbitrations and/or civil proceedings. Revocation of a financial license for non-administrative reasons. Felony conviction for a financial-based crime. Felony conviction of a non-violent crime within the past 5 years.
Felony conviction of a non-violent crime within the past 5 years.
117
When calculating NUA, what gets taxed in the year of distribution and at what rate?
The business basis in the stock Any amount above the value of the stock that is distributed (e.g. total stock value $60k, but account value is $100k = $40k taxed)
118
What is a market, limit, and stop order?
Market: an order at what you think is the best price Limit: an order with a restriction to buy at a specific low price or sell at a specific high price Stop: A buy or sell order for a stock at a specific price.
119
In super-funding a 529, how (and over how many years) is the total amount distributed into the 529? What is the significance?
Total amount is divided by 5 and that amount is placed in each year. This is significant if the super-funding is less than the annual exclusion and that same person wants to add more funds later. They can only add the difference between what was previously funded and what is currently allowed by annual exclusion
120
What are the 45-day timings for CFB board procedures?
Hearing documents Written statements Stipulations
121
For both ISOs and NQSOs, what happens at exercise?
ISO - a positive AMT adjustment NQSO - ordinary taxes on the bargain element
122
The general purposes of A, B, and C trusts.
A: all - martial deduction and spouse gets control B: bypass - no martial deduction, no control C: compromise - QTIP. Marital deduction, but no control
123
What are the at risk amounts in a limited partnership?
Cash contributions, additional investments, and any amount that the taxpayer has borrowed and is personally liable. NOT A BUSINESS LIABILITY!
124
In a futures contract, if you a long a product you need a _________ hedge and if you are short a product, you need a ________ hedge.
Short / long
125
When the loan/borrowed amount is less than $100,000 and the NII is less than $1000, what is the imputed interest?
$0. Loans of $10k-$100k receive lesser of NII or current AFR. When NII is less than $1,000, it doesn't count at all, becoming $0.
126
What is the ER-required contributions to a SIMPLE?
Either a 100$ match of up to 3% of the EE deferral or 2% period with no EE deferral
127
What is the US to non-US citizen limit for marital deduction?
$164,000
128
When faced with a scenario requiring use of both the lifetime and GST in the same year, how does that work?
There is only one use of the $12,060,000. So reduce the total taxable amount(s) by the annual exclusion(s), then by a single use of the lifetime exemption, and then the rest by 40% tax rate
129
When does the 3-year rule not apply to an ILIT?
When the ILIT purchases the life insurance policy. Look for "transfer into" vs "bought by"
130
When is the 20% withholding for traditional rollover, exempt?
IRA-IRA roll
131
Identify the statistical measure that is used to quantify non-diversifiable risk. Beta Alpha Variance Standard Deviation
Beta
132
Anne and Gloria started a small specialty tech manufacturing firm 5 years ago. Each invested $500,000. The company is growing rapidly, and the owners implemented a cross-purchase buy-sell agreement, based on a valuation of $2,000,000. Within a year, Anne died unexpectedly, and the buy-sell agreement was executed. Following the buy-sell, what is Gloria’s basis in the company? $2,000,000 $1,500,000 $1,000,000 $500,000
$1,500,000 Gloria's original basis is $500,000. The buy-sell was based off $2,000,000 valuation (each had $1,000,000 policy). When Anne died, her $1,000,000 payout to Gloria was used to purchase Anne's portion of the company. Hence an additional $1,000,000 was added to Gloria's basis of $500,000.
133
Given this list, what is AGI? (break it down) $92,500 Net W-2 Income $9,000 Municipal Bond Interest $3,650 after-tax HSA contribution $7,000 Traditional IRA Contribution $17,000 gift received from Auntie Bea $30,000 in unreimbursed medical expenses from a surgery $7,650 in FICA withholdings
Gross income - $92,500 + $9,000 + $17,000 = $118,500 Gross income exemptions DADSMADEPAFACISM - Muni and gift -$9,000 + $17,000 ATL deductions: THE HMS BEARS Trad IRA (above threshold), HSA contributions, 1/2 SE FICA (but this doesn't state self employed) -$3,650 -Med expenses are BTL. =$88,850
134
To what extent are distributions to shareholders in an S Corps, tax free?
To their basis in the S Corps stock
135
When is alimony deductible and who can deduct it?
Prior to Dec 31st, 2018. The payor of the alimony deducts it for AGI (the hms beArs)
136
What are the 4 qualified distributions to a ROTH? (DHAD)
Death Home (1st home limited to $10k) Age 59.5 Disability
137
In quarterly tax payments, what is the rule - lesser or greater of .9 / 1 / 1.1%?
Lesser
138
The Employee Retirement Income Security Act of 1974 (ERISA) is administered and enforced by each of these bodies EXCEPT: PBGC DOL IRS SEC
SEC
139
What does it take to be considered an investment advisor?
A - providing advice B - in the business of giving advice C- being compensated for advice
140
Easy way to remember which non-exemptions for early withdrawal penalty - IRA vs qualified plan
HHH -> Q (as in HHQuarters)
141
When calculating the phaseout for a ROTH contribution, how does that apply to a married couple?
The percentage within the phaseout applies to both of their contribution allowances equally
142
What is the relationship between interest rates and bond yields?
Inverse
143
How are mixed-use rental deduction losses calculated?
Total number of rental days / total number of days used * losses (not to exceed total rental income)
144
What are the three actions CFP board can take the member is found in violation?
Letter of dismissal: maybe guilty, but not enough to send to DEC Settlement offer: send to DEC Complaint: deliver a complaint
145
What is the difference between a balance sheet and a Statement of Cash Flow?
A balance sheet is a snapshot in time outlaying the overall net worth - assets are listed from most liquid to least. Statement of cash flow indicates all of the inflows and outflows during a period
146
What are the FDIC account groupings and who qualifies for protection with each? Checking Money market savings Savings CDs IRAs Revocable trusts Corporations Irrevocable trusts EE benefit plans Money market mutual Government accounts
Cash accounts = checking, savings, CDs, and money market savings are $250k per owner of account (single or joint) All other accounts are individually broken out and give $250k insurance per owner/beneficiary ***Money market mutual fund - NO***
147
Net or Gross. Which debt ratios use net or gross income?
The only net income is the debt or current ratio at 20% Both the PITI and total debt ratios use gross income
148
What are the tax consequences for using a ROTH or Traditional IRA for education funding prior to 59 1/2?
The 10% early withdraw penalty is waived for both. On the Tradition IRA, you still have to pay ordinary tax. On the ROTH, you've already paid ordinary tax.
149
In EFC, who get asset and/or income protection?
Both parents and kids get income protection Parents get asset protection
150
In market structure, what makes up the capital market and what makes up the financial market?
Financial: Money market and Capital Capital: primary and secondary markets
151
What is the difference between marketability and liquidity?
Marketability is the ability to sell something - but it may not come in at the value you want Liquidity is the ability to quickly turn something into cash without losing value
152
What are unique benefits of LCTi features and tax benefits?
Features: "guaranteed renewable" 2-year incontestable clause Dividends reduce premiums or increase benefits Tax: Benefits tax-free premiums paid by ER remain tax-free to EE Qual med expense for itemized deduction
153
What are the annuity forms of payment?
FOP-LAW Life Annuity Annuity certain -fixed income or period Withdrawals
154
Which definition of disability in a disability income insurance policy has the most stringent underwriting requirements? Modified own occupation Presumptive total disability Any occupation Own occupation
Own occupation
155
During periods of disability, does disability income still count toward the taxation of social security disability income?
Yes - see pg 5 for wage base earnings
156
At what point, are disability benefits "tax free" to the EE?
When the ER includes the premium payments as compensation to the EE
157
How are non-qualified HSA distributions taxed?
Ord income + 20% penalty
158
Can a married couple have both a HDHP and another health coverage?
Yes, but only on one spouse who is only covered by the HDHP
159
In a guaranteed renewable term life insurance policy, as the premium rate increases with each renewal, mortality experience increasingly reflects ______________. adverse selection actuarial tables client's age life expectancy
adverse selection
160
The opportunity to renew a lapsed life insurance policy is called the ___________________. reinstatement provision incontestable clause entire contract provision grace period
reinstatement provision
161
In community property, what is the new basis when a spouse passes?
100% full basis.
162
Beta and Std Dev. Which is total and which is systematic risk?
Beta = systematic Std Dev = total
163
In CAPM, what is the market risk premium and what is the stock risk premium?
Market = (Rm - Rf) Stock = (Rm - Rf)B
164
Which of the following is a linear estimate of sensitivity to changes in rates? Convexity Duration Covariance Derivative
Duration
165
Std Dev, Beta, CML, SML, CAPM, Efficient frontier. Put them together.
CML= efficient frontier and std dev SML = CAPM and beta
166
What are the two components to HPR?
Income yield = D / beginning Capital appreciation = Pe - Pb / Pb
167
What is the difference between private and public interests in passive activity rules?
Private - can take losses against any gains Public or PTPs - can only take losses against gains in that specific company
168
How long can charity contribution deductions be carried over?
5 years
169
Of the additional 3.8% medicare tax, which gets taxed- NII or excess income?
The lesser of NII or excess income gets taxed an additional 3.8%
170
Individuals will owe the NII tax if they have: I) Net Investment Income II) MAGI over the stated threshold for their filing status I only II only Both I and II Neither I nor II
Both I and II
171
To claim qualified widow status, what is required?
Children - or dependents
172
FBAR form and amount exceeded that you are then required to follow.
110; $10,000
173
Form 8938 (foreign) thresholds 2 groups (residents and non-residents)
Resident Single and joint: 50k, 75k, 100k, 150k Non-res Single and joint: 200, 300, 400, 600
174
Three types of special needs trusts Pooled 1st Party 3rd Party
Pooled: managed by non-profit 1st Party: funded by the person w/disability 3rd Party: formed by an estate to aid the disabled after death
175
AMT on exercise and sale. Which is positive and which is negative?
At Ex: positive (pay ordinary) At sale: negative (get income)
176
AMT tax flow: Real Affluent Americans Get Taxed Alot
Regular taxable income tax preference standard/itemized deduction AMT adjustments and tax preference items AMTI (Alternative Minimum Taxable Income) Exemption Amount AMT base AMT tax rate(s) Gross AMT tax AMT foreign tax credit Tentative minimum tax (TMT) Regular tax liability AMT* (If tentative minimum tax exceeds the regular tax, the difference is the AMT)
177
What is the LIFO / FIFO quad chart?
FALL RISE FIFO low high Real Real LIFO high low over under
178
Section 1231 property is ________________________. I) property used in a trade or business II) property held for investment I only II only Both I and II Neither I nor II
I only Property held for the production of income
179
If the home is transferred to a taxpayer as a result of a divorce, the time that the divorced spouse owned the home is _______ the taxpayer’s period of ownership for Section 121 exclusion eligibility. added to subtracted from excluded from this. divided by
added to
180
If married, to qualify for the Section 121 exclusion _____ spouse(s) must meet the usage test, _____ spouse(s) needs to meet the ownership test. both; both both; one one; both one; one
both; one
181
What are the withholding amounts of SS if earning income at the same time? (Earning limits on tax tables)
Prior to FRA: $1 for every $2 Post FRA: $1 for every $3
182
What is Medicare parts A and B?
A - in hospital B - outpatient
183
What is the medicare tax?
2.9% across the board. Additional .9% on amounts above additional medicare tax on tax sheet
184
What is the SS tax?
12.4% on the wage base
185
For the same premium, which of the following types of life insurance provides the least amount of face amount death benefit at the onset of the policy? Whole life insurance Universal life Option A Universal Life Option B 10-year term life insurance
Whole life insurance
186
A terminally ill individual is someone who has been certified by a physician as having an illness or physical condition that can reasonably be expected to result in death in _________ or less after the date of certification. 36 months 24 months 12 months 6 months
24 months
187
Ernesto has been unable to transfer from his bed to a chair or bathe independently for 4 months. During his annual physical, his physician determined that Ernesto is chronically ill. To afford the daily expenses associated with extra at-home assistance, Ernesto elects to secure a viatical settlement for $120,000 using his life insurance policy with a face value of $200,000. Throughout the year, Ernesto’s breakdown of expenses is as follows: $80,000 home health care $40,000 non-medical expenses Assuming that Ernesto is in the 24% marginal tax bracket, what is the tax owed on the viatical settlement proceeds? $19,200 $9,600 $28,800 $0
$9,600 The key is chronically ill. If he was terminally ill, he would pay no taxes.
188
Which type of life insurance is recommended for a client who wants the greater potential for cash value growth but does not want to experience a negative return on the cash value? Equity-indexed universal life insurance Whole life insurance Variable universal life insurance Fixed universal life option B
Equity-indexed universal life insurance
189
Which of the following types of life insurance is most likely to be a participating policy? Whole life insurance 10-year term life insurance Universal life insurance Variable universal life insurance
Whole life insurance
190
How are RMDs accumulated against other IRAs and 401(k)s?
A single RMD can account for the entirety of all IRAs and a single IRA can fund the entire RMD for all IRAs. 401(k)s need an RMD per 401(k)
191
14, 30, 45, 90, and 1 year. What are the significant reporting actions in these timeframes?
14 days: generally the amount of time to respond to something after being summoned or missing a deadline 45 days: hearing docs, stipulations, & written statements due 90 days: inform your clients of wrongdoing 1 year: update your client privacy policy 30 days... everything else
192
Per capita Per stirpes Per capita by gen
Per capita: even split down all generations Per stirpes: even split at 1st gen, 2nd gen gets & splits the 1st gen portion Per capita by gen: even split at 1st gen, even split at 2nd gen
193
DIfference between durable and non-durable POA?
Durable outlasts incapacity
194
When property is gifted at a loss and then sold at a further loss, what are the tax consequences and holding period associated?
The DE uses the date of gift as the holding period and the DR date of gift FMV as the basis
195
The federal estate tax is on a right to (transfer or receive) property?
Transfer
196
What is the 65 day rule and the section 645 election?
65 day rule allows the trustee to distribute assets up to 65 days into the new year, for last year. Section 645 election allows the trustee to count the trust and estate as one for tax purposes
197
What is the rule for DNI versus distributions from non-grantor trusts?
The beneficiary is taxed on the lesser of the two
198
What is the percentage of income provided to the beneficiary of a CRAT or CRUT?
Between 5-50% annually
199
Identify the estate planning document on which a testator can name guardians, appoint an executor, and direct assets into a revocable living trust (RLT) that were incorrectly titled. Last Will Living Will Pour-over Will Holographic Will
Pour-over Will
200
What powers of attorney end at death?
All of them
201
Which of the following allows the surviving spouse to determine what portion of the decedent’s estate to transfer into a trust to use the decedent’s unified credit? A-Trust B-Trust Estate Trust Disclaimer Trust
Disclaimer Trust
202
Each of the following is a type of property that is NOT transferred by will that is subject to probate EXCEPT: -Intestate property -Life insurance policy proceeds or annuities payable to the decedent’s estate -Homestead and exempt property allowances -Tenancy-in-Common property
-Tenancy-in-Common property Transfers by will and through probate
203
Given the 3 year pull-back rule with life insurance into an ILIT, what is the exception?
That the policy owner isn't the insured.
204
The principal within a 2503(b) trust _____________________. -may be withheld from the beneficiary until his or her death -must be distributed no later than upon the beneficiary attaining age 21 -must be distributed at least annually -will be excluded from the gross estate of the donor who serves as the trustee
-may be withheld from the beneficiary until his or her death