Unit 1- Types Of Accounts

Question 1

Define: Pattern Day Trader

Answer 1

Day Trader = Buying and selling the same security on the same day.

Pattern Day Trader = Executes 4 day trades in a 5 business day window.

Question 2

Minimum account equity to pattern day trade?

Answer 2

$25,000

Question 3

Two member firm requirements to open a day trading account?

Answer 3

• Risk disclosed document must be provided.
• Account approval for day trading, OR written statement from customer saying they don’t intent to day trade.

Question 4

Which account registration type requires the % interest of each party on the account be specified?

Answer 4

Tenants In Common

Question 5

Can a TIC account have a TOD designation?

Answer 5

No.

Question 6

Define: Sole Proprietorship

Answer 6

• Simplest business account.
• Is treated like an individual account (including suitability).
• Income/loss is that of the individual.
• Individual’s assets are liable for the debts of the business.

Question 7

Define: General Partnership

Answer 7

• An unincorporated association
• Easy to form/dissolve
• Not suited for raising capital.
• Profits/losses flow through to the individual partners .
• Can be double taxed (business and individual level).
• Suitability must consider all partners.

Question 8

Define: General Partnership

Answer 8

• An unincorporated association
• Easy to form/dissolve
• Not suited for raising capital.
• Profits/losses flow through to the individual partners .
• Can be double taxed (business and individual level).
• Suitability must consider all partners.

Question 9

Define: Limited Partnership

Answer 9

• Liability is that of the general partners.
• Limited partner’s liability is that of their investment and recourse debt.
• Suitability includes all parties.

Question 10

Define: Limited Liability Company

Answer 10

• Combines incorporation (limited liability) with tax advantages of a partnership (flow through of taxable gains/losses).
• LLC owners are members, not shareholders.
• Each individual must be considered from a suitability standpoint.

Question 11

Define: S Corporation

Answer 11

• Profit/losses are passed through to the shareholders.
• Limited to 100 or less shareholders.
• Shareholders can NOT be nonresident aliens.
• Only one class of stock can be issued.

Question 12

Define: C Corporation

Answer 12

• Distinguishes the company as a separate entity from the ownership.
• Leaders and mangers are shielded from personal liability.
• Is a good choice for raising large capital.
• Shareholders are shielded from corporate creditors.
• Corporate income tax is owed by the company, not the shareholders.
• Suitability is determined by the attributes of the corporation, not the owners.
• Note: Earnings can be double taxed (corporate tax + tax on dividend distributions)

Question 13

What info is on the New Account Form?

Answer 13

• Customers name and address.
• Age
• Member firm’s associated person responsible for the account.
• If a business account, the names of the people authorized to transact in the account.
• Signature of form officer accepting the account.
• Trusted Persons name and contact info.
• NOTE: customers signage is NOT required.

Question 14

Account information delivery requirements when opening a new account?

Answer 14

• Within 30 days of opening

AND

• Every 36 months thereafter

Question 15

Information required under CIP?

Answer 15

• Name
• Date of birth
• Address
• SS # or business tax id

Question 16

When opening an account, special procedures apply to?

Answer 16

• Employee of member for a
• Souses and minor children of member form employees.

Question 17

Requirements for a member ferm employee to open an account at another firm?

Answer 17

• Member must inform both the employer and contractor firm of their association, in writing.
• Employer must grant permission in writing.
• NOTE: Members are excluded if they are purchasing mutual funds or variable annuities from the issuer directly. Also excludes non-security purchases.

Question 18

Length of time a member firm can place a hold on distributions from a specified adult?

Answer 18

Up to 55 days

Question 19

Under Regulation S-P, how long for a customer have to opt out when the receive a privacy notice?

Answer 19

30 days

Question 20

Under Regulation S-P, when does a customer receive a privacy police notice?

Answer 20

At the opening of EACH account, and annually thereafter.

Question 21

Define: Full Power Of Attorney

Answer 21

• Can deposit/withdraw cash and securities.
• Can make investment decisions

Question 22

Define: Limited Power Of Attorney

Answer 22

• Only allows buy/sell orders.

-Note: sometimes called “limited trade authorization.”

Question 23

Does durable power of attorney extend beyond death?

Answer 23

No, only physical and mental incompetence

Question 24

Are non-qualified plans covered by ERISA?

Answer 24

No

Question 25

Two most common non-qualified plans?

Answer 25

• Deferred compensation plans
• Payroll deduction plans

Note: a 401k is not a payroll deduction plan.

Question 26

Amount of a 529 that can be used to pay interest or principal on a student loan?

Answer 26

$10,000 per child

Question 27

ERISA eligibility for a 401k plan?

Answer 27

• Work 1,000 hrs/yr

Or

• Work 500 hrs/yr for three years

Question 28

When dealing with an IRA, is alimony considered earned income?

Answer 28

ONLY if the divorce decree was entered BEFORE 1/1/2019.

Question 29

What legislation allowed for catch up contributions to an IRA?

Answer 29

The Economic Growth and Tax Relief Reconcileation Act of 2001 (EGTRRA)

Question 30

Tax penalty on excess IRA contributions?

Answer 30

6%, if excess not removed by tax filing.

Question 31

When are Roth IRA distributions treated as qualified? (10% tax penalty forgiven)

Answer 31

• Death
• Disability
• 1st time home purchase

Question 32

Ineligible IRA investments?

Answer 32

• Collectables
• Life insirance

Question 33

Unique traits of a Coverdell ESA

Answer 33

• Funds must be distributed by age 30
• Funds subject to 10% tax penalty if held beyond are 30.
• Contribution limit is $2,000/child
• Can be transferred to other family members, including cousins, aunts/uncles, and even in-laws.

Question 34

HSA eligibility requirements?

Answer 34

• Covered by a high deductible health plan (HDHP) on the 1st day of the month. (Note: eligibility on Dec 1 means you are eligible for the entire year)
• You have no other health coverage.
• Not enrolled in Medicare.
• Not being claimed as a depended.
• NOTE: there are NO joint HSA, only individual accounts.

Question 35

Eligible HSA investments?

Answer 35

-Stocks

-Bonds

-Mutual funds

Question 36

Who pays the tax and penalty when excess distribution is takes from an ESA?

Answer 36

The beneficial owner.

Question 37

The two types of vesting under ERISA?

Answer 37

• “cliff” vesting = ownership from day 1

-“graded vesting” = ownership over time.

Question 38

Profit sharing and pension plans are setup as what?

Answer 38

A trust

Question 39

Under regulation S-P, the difference between a “consumer” and “customer”?

Answer 39

Consumer = No ongoing relationship (privacy policy only delivered initially)

Customer = Ongoing relationship (privacy policy delivered initially, and then annually)

Question 40

Whose tax ID is on an UTMA/UGMA account?

Answer 40

The beneficial owner. The account is owned by and taxes to the minor.