Trading Equities & Retirement Plans Flashcards
1
Q
When a written trade confirmation must be given or sent to a customer
A
At or before the completion of the transaction (settlement)
2
Q
The capacity shown on a confirmation when the shares are sold from the inventory of the broker-dealer
A
Principal
3
Q
The capacity shown on a confirmation when the broker has arranged a trade between a buyer and seller
A
Agent
4
Q
Compensation charged when a dealer sells shares from inventory
A
Mark-up
5
Q
Compensation charged when a dealer purchases shares for inventory
A
Mark-down
6
Q
Compensation charged when a broker transacts an order on a client’s behalf
A
Commission
7
Q
Standard trading unit of equity securities
A
Round lot (100 shares)
8
Q
Order that is executed immediately at the current price, and has priority over all other orders
A
Market order
9
Q
An order that is entered to protect a profit or prevent a loss
A
Stop order
10
Q
Can be executed only at the specified price or better
A
Limit order
11
Q
When principal approval is required for a new customer account
A
At or promptly after the first transaction in the account
12
Q
Type of trading authorization granted to permit a third party to make trades but not withdraw cash or securities
A
Limited trading authorization
13
Q
Type of trading authorization granted to permit a third party to make trades and withdraw cash or securities
A
Full trading authorization
14
Q
Two types of custodial accounts established for minors
A
UGMAs and UTMAs
15
Q
Joint account that passes assets to remaining tenant at death with no probate
A
Joint tenancy with rights of survivorship (JTWROS)
16
Q
Type of account that passes assets by will to the heirs
A
Joint tenants in common (JTIC)
17
Q
Type of joint account that permits unequal ownership interests
A
Joint tenants in common (JTIC)
18
Q
Type of joint account that requires equal ownership interests
A
Joint tenancy with rights of survivorship (JTWROS)
19
Q
Type of account that authorizes registered representative to make trades on behalf of the customer
A
Discretionary
20
Q
Type of individual account that passes assets to a named beneficiary at death and avoids probate
A
Transfer on death (TOD)
21
Q
Three trading restrictions for custodial account
A
Short sales, uncovered options, margin accounts
22
Q
Prohibited practice of trading frequently to boost commissions
A
Churning
23
Q
The number of days a firm has to validate positions when an account transfer is requested
A
One business day
24
Q
The number of days a firm has to transfer the securities after the account has been frozen
A
Three business days
25
Two order instructions that are not considered discretionary
Time and price
26
Length of time mail can be held for customers that are traveling in the U.S.
2 months
27
Length of time mail can be held for customers that are traveling outside of the U.S.
3 months
28
Minimum frequency a statement must be sent to a customer in an inactive account
Quarterly
29
Frequency with which account statements are sent to customers in an active account
Monthly
30
Minimum frequency statements are sent to customers if penny stocks are held in the account
Monthly
31
When a principal must approve an order ticket
Promptly after execution
32
The number of days after account opening a firm has to furnish a copy of the account record to the customer
30 days
33
Two required documents for opening a corporate account
Corporate charter and corporate resolution
34
Account charge that is appropriate only for persons who engage in moderate to active trading
Fee-based
35
Account charge that is appropriate for persons who engage in little trading activity
Commission
36
Accounts that provide a group of services such as asset allocation and portfolio management, and are generally available through investment advisors
Managed accounts
37
Document that must be obtained when opening a partnership account
Partnership agreement
38
An individual who is charged with prudently managing a custodial account to achieve the stated investment objectives
Fiduciary
39
Series of steps that a firm must follow at the death of an individual account owner
Cancel all open orders, freeze the account, await instructions
40
The party that can buy, sell or liquidate securities in an UGMA account
Custodian
41
When assets transfer to the donee in an UGMA account
Age of majority
42
The Social Security number on an UGMA account form
The minor’s
43
Documents that can confirm identity of a new customer as specified by a firm’s Customer Identification Program
Unexpired driver’s license or passport
44
The organization that maintains a list of known or suspected terrorists that must be checked when a firm verifies a new customer’s identity
US Treasury (Office of Foreign Assets Control – OFAC)
45
The frequency that customer account information must be updated
Every 3 years
46
Frequency that privacy notices must be provided to customers after account opening
Annually
47
Protects a profit or limits a loss in a short stock position
Buy stop order
48
Protects a profit or limits a loss in a long stock position
Sell stop order
49
Orders that are entered below the current market price
Buy limits, sell stops and sell stop limits
50
Orders that are entered above the current market price
Sell limits, buy stops and buy stop limits
51
Order that is to be executed immediately in its entirety
Fill-or-Kill
52
Order that is to be executed immediately; partial execution is acceptable, remainder is canceled
Immediate-or-cancel
53
Execute the entire order or none of it; does not require an immediate fill
All-or-none
54
Price-weighted index of 30 “blue chip” U.S. stocks of industrial companies
Dow Jones Industrial Average
55
Capitalization-weighted index of 500 stocks, regarded as the standard for measuring large-cap U.S. stock market performance
S&P 500
56
Used in anticipation of a breakout of the level of resistance
Buy stop order
57
Used in anticipation of a breakout of the level of support
Sell stop order
58
Upon receipt of an ACAT form, a firm must verify the account positions within
1 business day
59
A pattern day trader effects 4 or more day trades within a
5 business day period
60
Customers must receive a copy of new account form every
36 months
61
Order ticket must be filled out prior to
order execution
62
Customers must be given a copy of new account form within
30 days of account opening
63
If traveling internationally, customer mail can be held for
up to 3 months
64
The party that can buy, sell or liquidate securities in an UGMA account
Custodian
65
When assets transfer to the donee in an UGMA account
Age of majority
66
The Social Security number on an UGMA account form is that of
The minor
67
Category of retirement plans with tax deductible contributions
Qualified
68
Retirement plan category that can make non-deductible contributions on a discriminatory basis
Non-qualified
69
Annual IRA catch-up contribution amount allowed for individuals 50 and over
$1,000
70
Age at which distributions from an IRA may begin without penalty
59.5
71
In a traditional IRA account, age at which distributions must begin to avoid penalties
72
72
Amount of IRA insufficient distribution penalty
50% of amount that should have been withdrawn
73
Amount of IRA early distribution penalty
10% of amount distributed (plus ordinary income)
74
Five events prior to age 59 1/2 that will not trigger an IRA early distribution penalty
Death; disability; 1st time home purchase; education expenses for taxpayer, spouse, child or grandchild; medical premiums for unemployed; and excess medical expenses
75
Two examples of ineligible IRA investments
Collectibles and life insurance
76
Three investment practices that are prohibited in IRA accounts
Short sales of stock, speculative options strategies, margin account trading
77
Time limit allowed for completion of an IRA rollover
60 days
78
Number of IRA trustee to trustee transfers allowed in one year
No limit
79
Tax status of contributions made to Roth IRAs
After tax
80
Tax status of distributions from Roth IRAs
Non-taxable
81
Withholding tax that applies when an individual receives a distribution of assets from an employer-sponsored qualified plan prior to age 59 1/2.
20%
82
Permit after-tax contributions of $2,000 per student for children under age 18
Coverdell Education Account (Education Savings Account)
83
Age at which funds from Coverdell accounts must be distributed or rolled into an ESA for another family member
30
84
Federal tax status of contributions made to Section 529 plan
After-tax
85
Tax advantage available for 529 plan contributions in many states to state residents
Contributions to 529 plan sponsored by that state are tax deductible on state tax returns
86
Type of small business retirement plan in which IRAs are set up by employees to receive employer contributions
Simplified employee pension plans (SEPS)
87
Taxation that applies to a lump sum withdrawal from an IRA account at age 55
Ordinary income + 10% penalty
88
Retirement plan for self-employed persons, unincorporated businesses or professional practices
HR-10 plan (Keogh plan)
89
Penalty for excess contributions made to an IRA account
6%
90
Qualified plan available to employees of non-profit organizations; funded by elective employee deferral
403(b) (TSA plan)
91
Type of qualified plan that promises a specified benefit at retirement
Defined benefit
92
Type of defined contribution plan that allows employee pre-tax contributions which may be matched by employer contributions up to a certain percentage
401(k) plan
93
Federal regulation that specifies guidelines for private sector and certain union plans
Employee Retirement Income Security Act (ERISA)
94
Schedule that identifies employee entitlement to pension benefits, based on years of service
Vesting schedule
95
ERISA clause that specifies impartial treatment for eligible employees
Non-discrimination clause
96
ERISA-defined employee eligibility requirements for plan participation
21 years of age; one year of full time service, minimum of 1000 hours
97
ERISA criteria for qualified corporate retirement plans
1. Eligible to all employees 21 years old with at least one year of service and who work full time.
2. A vesting schedule.
3. Nondiscrimination, a uniform formula to determine employee benefits
98
ERISA Section 404
Requires retirement plan trustees (fiduciaries) act in the best interest of the plan participants and beneficiaries and invest prudently (i.e. in a diversified manner). Trustees can delegate investment choices to an investment advisor.
99
ERISA Section 404(c)
404(c) of ERISA permits a retirement plan trustee to delegate investment responsibility to the plan participants for their own accounts (typically in a 401(k) plan). Participants must have:
1. investment selection,
2. investment control, and
3. adequate communication
100
What is the penalty for excessive IRA contributions?
6% penalty on the excess contribution
101
Category of retirement plans with tax deductible contributions
Qualified
102
Retirement plan category that can make non-deductible employee contributions on a discriminatory basis
Non-qualified
103
Annual IRA catch-up contribution amount allowed for individuals 50 and over
$1,000
104
Age at which distributions from an IRA may begin without penalty
59 1/2
105
In a traditional IRA account, age at which distributions must begin to avoid penalties
72
106
Amount of IRA insufficient distribution penalty
50% of amount that should have been withdrawn
107
Amount of IRA early distribution penalty
10% of amount distributed (plus ordinary income tax)
108
Five events prior to age 59 1/2 that will not trigger an IRA early distribution penalty
Death; disability; 1st time home purchase; education expenses for taxpayer, spouse, child or grandchild; medical premiums for unemployed; and excess medical expenses
109
Two examples of ineligible IRA investments
Collectibles and life insurance
110
Three investment practices that are prohibited in IRA accounts
Short sales of stock, speculative options strategies, margin account trading
111
Time limit allowed for completion of an IRA rollover
60 days
112
Number of IRA trustee to trustee transfers allowed in one year
No limit
113
Tax status of contributions made to Roth IRAs
After tax
114
Tax status of distributions from Roth IRAs
Non-taxable
115
Withholding tax that applies when an individual receives a distribution of assets from an employer-sponsored qualified plan prior to age 59 1/2.
20%
116
Type of small business retirement plan in which IRAs are set up by employees to receive employer contributions
Simplified employee pension plans (SEPS)
117
Taxation that applies to a lump sum withdrawal from an IRA account at age 55
Ordinary income on earnings + 10% penalty
118
Retirement plan for self-employed persons, unincorporated businesses or professional practices
HR-10 plan (Keogh plan)
119
Penalty for excess contributions made to an IRA account
6%
120
Qualified plan available to employees of non-profit organizations; funded by elective employee deferral
403(b) (TSA plan)
121
Type of qualified plan that promises a specified benefit at retirement
Defined benefit
122
Type of defined contribution plan that allows employee pre-tax contributions which may be matched by employer contributions up to a certain percentage
401(k) plan
123
Federal regulation that specifies guidelines for private sector and certain union plans
Employee Retirement Income Security Act (ERISA)
124
Schedule that identifies employee entitlement to pension benefits, based on years of service
Vesting schedule
125
ERISA clause that specifies impartial treatment for eligible employees
Non-discrimination clause
126
ERISA-defined employee eligibility requirements for plan participation
21 years of age; one year of full time service, minimum of 1000 hours
127
An IRA rollover must be completed within
60 days
128
Distributions from tax deferred annuities are
100% taxable
129
A retirement plan requiring the services of an actuary to determine annual contributions
Defined benefit plan
130
The penalty that applies if funds are withdrawn from an annuity before age 59 1/2.
10% penalty on earnings
131
Number of IRA rollovers permitted each year
One
132
An employee’s pension payments are based on his salary and length of service. He does not bear the risk of the pension being affected by market performance. He is enrolled in a
defined benefit plan
133
defined benefit plan
A type of retirement fund that pays out a set benefit upon retirement. A pension is an example of a defined benefit plan.
134
defined contribution plan
A retirement plan where there is no guarantee of value upon retirement. Usually investment choices are controled by the employee. A 401(k) plan is an example of a defined contribution plan.
135
ERISA
A law passed by Congress that governs qualified corporate retirement plans. According to ERISA, for a plan to be qualified and eligible for tax-deductible contributions, it must be offered to all full-time employees with at least 21 years of age and one year of service with the employer. The plan must also have a vesting schedule.
136
non-qualified corporate retirement plan
A corporate retirement plan, such as a deferred compensation or payroll deduction plan, that is not required to meet strict ERISA guidelines. Instead, companies have the flexibility to choose which employees are offered to participate in the plan. Because these plans are discriminatory, they do not allow deductible contributions. Instead, after-tax contributions are made, which grow tax-deferred, and when distributions are taken, only the growth is taxed as ordinary income.
137
profit-sharing plan
A type of qualified, defined contribution corporate retirement plan that allows
companies to contribute to their employees’ retirement based on the companies’ profits. Because these plans are qualified, they allow for tax-deductible contributions.
138
required minimum distribution
Requires the owner of a traditional IRA to begin minimum withdrawals specified by IRS rules from the account by April 1st following the individual’s 72 birthday.
Any shortfalls in this distribution are penalized with a 50% tax on the under-distribution amount.
139
rollover
The process of an investor moving their retirement funds from one custodian to another. In a rollover, the individual takes possession of the funds and from that point has 60 days to move the funds to the new custodian or else it may be considered a distribution and taxes and penalties may apply.
140
Roth IRA
A type of IRA that requires after-tax contributions, but allows the assets in the plan to grow tax-free. Distributions from the plan are also completely tax-free as long as the assets have been in the plan for at least five years and withdrawals do not begin prior to age 59 1/2. Only individuals who have income below a certain threshold are allowed to contribute to a Roth IRA.
141
Transfer
Occurs when an individual moves their retirement plan from one custodian to another. Because the individual does not take possession of the funds, there are no potential tax consequences or penalties.
142
money purchase plan
A type of defined contribution retirement plan where each year the employer contributes a specified percentage of the employee’s compensation to the plan.
143
What does the acronym ERISA refer to?
ERISA stands for Employee Retirement Income Security Act.
It defines what types of plans may be considered qualified plans for the purposes of retirement planning.
144
What does it mean for a plan to be “qualified”?
Qualified plans allow the investor to contribute to the plan prior to taxes being taken out of their paycheck. This means they have a lower gross income, which is good for tax purposes, but it also means they have never paid taxes on those contributions to the retirement plan.
145
What are the tax characteristics of an ERISA plan?
- Contributions are made with pre-tax dollars
- The earnings grow in the plan tax-deferred
- All distributions are taxed as ordinary income
146
What are the tax characteristics of a non-qualified corporate plan?
- Contributions are made with after-tax dollars
- The earnings in the plan grow tax-deferred
- When distributions are taken from the plan, only the growth is taxed as ordinary income
147
What is the maximum contribution in an IRA Account?
Currently the cap on contributions is $6,000 per year for those under age 50 and $7,000 for those over 50 (referred to as a catch-up contribution)
148
Up until what date may a prior year contribution be made to an individual’s IRA?
Individuals may make IRA contributions until April 15th of the following year, i.e. an individual can contribute for 2018 until April 15th of 2019.
149
Before what age and at what rate are early withdrawals from a traditional IRA penalized?
Before 59 1/2, early withdrawals are penalized at 10%.
150
When do mandatory distributions begin from a traditional IRA?
Mandatory distributions from an IRA must begin on the April 1st of the calendar year following an individual’s 72nd birthday.
151
What is an IRA rollover and how often can they occur?
Whan an employee leaves an employer with assets in a qualified plan, that employer may choose to do nothing and keep those funds in the employee’s plan while retaining ownership, or they may choose to move their qualified dollars from the 401(k) to an IRA. This is called a Rollover and it can happen once per year.
152
Can an IRA hold any type of asset?
No
IRAs are limited to holding regular securities such as stocks, bonds, and annuities, and can also hold precious metals. They cannot hold art, raw commodities, land, real estate or insurance policies.
153
What is the age for mandatory distributions in a ROTH IRA?
Unlike Traditional IRAs, Roth IRAs do not have a mandatory age distribution.
154
Can anyone contribute to a Roth IRA?
No, only individuals below a certain income threshold can contribute to a Roth IRA. This is because a Roth provides unique tax benefits as the earnings and growth are completely tax-free as long as the individual takes distributions after age 59.5 and the money has been in the plan for at least five years.
