types of accounts Flashcards
Are covered calls allowed in an IRA?
Yes
Do C corps get double taxed?
Yes
Do LLCs get double taxed?
No
T/F: S corps avoid double taxation
True
S corps are not double taxed
Would a prime broker make sure it’s client’s transactions abide by exchange rules?
No
This would be the responsobility of the executing broker
Would a prime broker handle executions for it’s cleint?
No
That wouuld be for the executing broker to do
Would a prime broker supply clearing services to a cleint?
Yes
Would a prime broker supply lending services to a client?
Yes
A distrubution is made from a Coverdell Education Savings Account for $12k when educational expenses were only $10K. Any portion of the extra $2k that represents earnings will be taxable to who?
Taxable to the beneficiary
T/F: A defined benefit plan is a form of qualified tax-deferred corporate pension plan
True
A temporary hold lasts for up to ___ days
15 days
T/F: Regarding IRA rollovers. One rollover may be conducted annually, but it must be completed within 60 days.
False
The IRS permits IRA holders to engage in one rollover every 12 months. Legally, that is not the same as annually.
Can tennants in a TIC acconut make unequal investments in the account?
Yes
T/F: Under tenants in common, the tennants may own a disproportionate interest in the property of the account
True
T/F: If one tennant dies in a TIC account, their assets are tassed to their estate, not the srviving joint tenant
True
Can more than two people have a TIC account?
Yes
If someone dies in a TIC account, does the account have to be froen?
Yes
Frozen untill assets are passed to the deceased’s estate
Do fee based accounts charge comission?
No
They charge a single fee (either fixed or % of assets) instead of a comission
Reverse churning
When a client w/ a fee-based account pays more in fees than he would in comissions if he had a comission based account
T/F: In a deferred compensation plan, the employee can lose everything they put in if the business fails
True
This can make them risky
What happens to a participant in a dferred compensation plan if the business goes under?
He becomes a general creditor of the company & will be on the same level as unseured bondholders
What can make deferred compensation plans somewhat risky?
The fact that if the business fails, the employee could lose everything he put in
Most important thing to understand about sole proprietorships
Owner is liable for all debts of the business
T/F: If you own a sole propreitorship, you are responsible if the business liquidates
True
This is very important to keep in mind about SPs
How long do customers have to opt out of a bulk transfer? (such as when a member firm is acquired by another member)
30 days
If customers wish to opt out of a bulk transfer, can they be charged fees for transferring their acounts to another member firm?
No
FINRA prohibits this
If converting a traditional IRA into a Roth, how is the distrubution from the original account taxed?
It is all taxed as ordinary income in the year of the conversion
When converting a traditional IRA to a Roth IRA, there is no 10% tax penalty on the funds if the conversion is done before the age of _____
No penalty if done before the age of 59.5
Is a Keogh plan a tax-deferred pension plan?
Yes
A keogh plan can be set up as either a ___ or a ___ plan (2 answers)
defined benefit or defined contribution
Who usually uses Keogh plans? (2 answers)
Self-employed ppl
Small businesses
Can indipendent contractos use a Keogh plan?
No
Are profit sharing plans a type of Keogh plan?
Yes
Which has highest contribution limits: Keogh plan or 401(k)
Keogh
Which one has higher contribution limits: Keogh plan or simplified employee pension (SEP)
Keogh has higher contribution limits
T/F: A profit sharing plan is a type of Keogh plan that allows a business to contribute up to 100% of compensation (up to a limit)
True
Do deferred compensation plans have to meet standards under ERISA?
Nah
They’re not qualified plans
T/F: In most retirement plans, the amount of the contribution is usually deferred until withdrawal
True
In what cases is tax on earnings deferred until withdrawal?
All cases
Taxes on earnings is always deferred until withdrawal
Are qualified plans governed by ERISA
Yes
Are non-qualified plans subject to ERISA?
No
That’s why they’re called “non-qualified”
Define: qaulified plan
An employer sponsored plan (such as pension, 401(k), 403(b)) where contributions are made with pretax dollars & earnings grow tax deferred
What does the term “qualified” mean by itsself
That contributions are made w/ pretax dollars & earnings in the acct are tax deferred untill withdrawal
T/F: Contributions to a qualified plan are made with after tax dollars
False
contributions to a qualified plan are made with pretax dollars and are tax deferred until withdrawal
Name the only tax advantage of a nonqualified plan
Pay is not recieved untill later when the employee will prob be in a lower tax bracket
What’s the advantage to the employer of having a nonqualified plan?
It can discriminate between employees
Is a nondeductible contribution made with pretax or after tax dollars?
Contributions made with after tax dollars
Is there any tax benefit derived from the contribution of a nondeductible contribution?
No
The funds do grow tax ddeferred, but there is no benefit from the contribution
The main alternitive to joint tenancy is _____
TIC
If someone dies in a joint tenancy account, does the deceased get to decide what happens to his assets?
No
RMD for Roth IRA
None
Catch-up provision
People older than 50 can contribute extra $1k to IRAs or 401(k)s
so an extra $1,000 on top of the $6,000 limit
Can S corps and LLCs be formed with just one shareholder/member?
Yes
Although S corporations and LLCs can be formed with a single shareholder or member, that would be the exception rather than the rul
What does TSA stand for?
Tax sheltered annuity
Most common name for the 403(b) retirement plan
TSA plan or tax-sheltered annuity plan
A 403(b) plan (TSA plan) is similiar to what other retirement plan?
Similiar to 401(k)
Just as with a 401(k) plan, a 403(b) plan lets employees defer some of their salary into individual accounts
Can 403(b) plan (TSA plan) employees defer some of their salary into individual accounts?
Yes
just as with a 401(k)
Most of the funding from a 403(b) plan (TSA plan) is invested in ____
Annuities
Although you can buy mutual funds, most funding goes to annuities
Can you buy mutual funds in a 403(b) plan
yes
T/F: The owner of a TOD (transfer on death) account can change beneficiaries at any time
True
The hassles of probate are avoided, and without any legal impediments, the owner of the account can make changes at will.
T/F: Employees of 501(c)(3) and 403(b) organizations (which include charities, religious groups, sports organizations, and school systems) qualify for TSA (tax sheltered annuity)
True
Is any outside approval required if the fiduciary of a qualified corporate retirement plan wants to write covered calls?
No, he’s free to do so as long as it fits the objectives of the plan
What happens if someone in a partnership accont dies?
The account is frozen until a new or amended partnership agreement is received.
Firms that offer wrap-fee accounts must be registered as BDs and also _____
Registered investment advisors
T/F: Paying a wrap fee can be a great option for investors who intend to use their broker’s full line of services because it pays for all the direct services the customer receives
True
The wrap fee includes charges like commissions, trading fees, advising fees, and other investment expenses. The fee also covers the administrative costs incurred by investment firms, which tend to be a full-service brokerage or affiliated or unaffiliated broker-dealer firms.
Wrap-fee acconts usually charge fees based on ____
Charge fee as a % of AUM
If a client is using a tatical aset allocatino strategy and pays comissions for each of his transactions, what kind of account might be better for him?
A fee based account (not wrap-fee account)
T/F: {IRAs} All earnings, whether from deductible or nondeductible contributions, are tax free
False
All earnings are tax deferred
T/F: All earnings from an IRA are tax deferred and therfore taxable as ordinary income upon withdrawal
True
Are contributions to a Coverdell education savings accont (ESA) tax deductible?
No
Contributions to a Coverdell EDA are made with after-tax $
T/F: [Coverdell ESA] Distributions used for qualified eductional expenses are taxable upon withdrawal
False
Distrubutions for qualified edu expenses are tax free
Are protective puts allowed in ERISA plans?
Yes
[ERISA plans] When can you buy/sell a security from a plan participant?
Never
All earnings, whether from deductible or nondeductible contributions, are tax defer
. Selling a security to or buying a security from a plan participant is a prohibited transaction. Most collectibles are not permitted in ERISA plans.
If someone with a traditional IRA made some contributions that were not tax deductible and now wants to make a lump sum withdrawal, is the principal from the nondeductible contributions taxable?
No
The portion representing principal from the nondeductible contributions is tax free, while the balance is taxable as ordinary income
T/F: Contributions to a coverdell ESA are made with pre-tax dollars
False
Contributions to a Coverdell ESA are made with after-tax dollars
Coverdell ESAs allow after-tax contributions of up to ____ per student, per year, for children until their 18th birthday.
$2,000
(. If the accumulated value in the account is not used by age 30, the funds must be distributed and are subject to income tax and a 10% penalty, or they are rolled over into a different Coverdell ESA for another family member.)
When must the funds for a coverdell ESA be used by
Age 30
Otherwise, funda are either rolled over into ESA for another family member,, or funds must be distributed and are subject to both income tax and a 10% penalty
T/F: Traditional IRAs allow for tax-free distributions when owned for five years and the recipient is age 59½ or older
False
That is Roth IRAs, traditional IRAs are still taxed upon withdrawal (duh)
If an employee is saving for retirement, when should he put money into regular variable annuities?
only after contributions to employer-sponsored plans and IRAs are maxed out.
Excess contributions to an IRA are subject to a ___ % penalty tax
6%
Do earnings in a traditional IRA accumulate on a tax-deferred basis?
Yes
An early withdrawal from an IRA (roth and traditional) is taxed as _______ plus a 10% penalty
Taxed as ordinary income plus 10%
On March 1, a 40 yr old client wants to open and fund a Roth IRA at the max level. She earns less than what would limit her contribution amount. What is the max amount she can put into her new IRA
$12,000
Since opening acct of Mar 1, can contribute for this year and last year
T/F: Community property applies to property obtained during a marriage but does not apply to property owned individually by one spouse before the marriage
True
>community property deosn’t aply to property owned individually before marriage
Does community property apply to property obtained during the marriage?
Yes
but not property owned individually before the marriage
T/F: commuity property applies to both inheritances and gifts
False
>neither inheritancs nor gitfts count as community property
Difference between limited and full power of attorney
The only difference between a limited and a full POA is that the person with a full POA can access funds as well as make trades.
Can a person with full power of attorney access funds and make trades?
Yes
“The only difference between a limited and a full POA is that the person with a full POA can access funds as well as make trades.”
A retiree is paid an annual amount equal to 30% of the average of his last three years’ salary. Which of the following retirement plans offers this type of payment?
A) Defined contribution B) Deferred compensation C) Defined benefit D) Profit-sharing
c) defined benefit
Explanation
A defined benefit retirement plan establishes, in advance, the payout to be received by the retiree.
LO 1.h
T/F: contibutions to a Roth IRA are non deductible
True, non deductible
withdrawls after age 59.5 can be tax free
Which of the following would the prudent investor rule apply to:
Trustee
Executor
Custodian
Registered representative who has been granted discretionary auth
All of them
“The prudent investor rule applies to fiduciary accounts, or accounts in which someone is acting on someone else’s behalf. With these accounts, the fiduciary must act prudently. A registered representative who has been granted discretionary authority is acting in a fiduciary capacity.”
T/F: . The owner of a traditional IRA has until April 1 of the year after the year in which he turns age 72 to begin withdrawing from the account. If insufficient distributions are taken, there is a 50% penalty on the shortfall.
True
Your customer opened a Roth IRA on February 2 and deposited $5,000. In August of the same the year, the value of the account had risen to $6,000, but by December, the value declined to $5,100 and the customer closed the securities positions and withdrew the entire amount. If the customer was age 55 at the time of the withdrawal, what would be the early withdrawal penalty?
A) $510 B) $10 C) $500 D) 0
B) $10
>10% penalty on the TAXABLE amount (increase above investment)
>in this case 10% penalty of $100
($5,100 - $5,000 = $100)
Explanation
The customer would have an early withdrawal penalty of $10. A 10% early withdrawal penalty applies to the taxable amount withdrawn for those aged less than 59½.In a Roth IRA, the investment is made with after-tax dollars. Therefore, only the increase above the investment is subject to an early withdrawal penalty. In this case, the earnings of $100 would be taxable and have a 10% penalty equaling $10.
LO 1.g
T/F: Community property applies to property that was owned individually before the marriage and is now joint property once the marriage has occurred.
False
“Community property applies to property obtained during a marriage but does not apply to property owned individually by one spouse before the marriage.”
