Unit 23 Flashcards
Mutual fund return
Total return is all div distributions and realized capital gains. Current return is calculated by annual div/ current price. This is the return in the past 12 months. We divide dividends by POP not NAV
Annualized return
is return for the year. So, if the return is shown for 6 months, we multiple by two to show the annualized return.
Inflation adjusted return (real return)
debt security; reduce nominal return by the inflation rate given by CPI
(final return is reduced by both taxes and inflation)
Equity security; reduce the total return by inflation rate given by CPI
Sharp ratio
Measure risk adjusted returns
3 main components:
-The actual return minus
-The risk free rate (91 t bills) divided by
-the standard deviation
Time-weighted returns
determined without regard to any subsequent cash flows of the investor
It measure the performance of the investment over a period.
But dollar weighted returns considers contributions and withdrawals from an investment.
Qualified plan
401k 403b Contribute pre-tax and earnings tax deferred. Employer sponsored plans and meet IRA req for contributing tax deductible.
Non-qualified
Employer sponsored plan such as deferred compensation plan, not tax advantages other than the pay is not received until sometime later when the ind. should be in a lower tax bracket.
IRAs
Traditional IRAs
-Income and capital gains are tax deferred. Contributions are tax deductible
Not contribute compensation: Capital gains, interest and divs, pension income, child support, passive income from DPPS, alimony post 2018 divorce.
-Catch up contributions for older IRA olders:
Additional contributions to IRAs if you are aged 50 or older. Ruled by EGTRRA.
There is also the possibility of Spousal IRA (if one spouse is having little to no income)
Contributions to IRA for the year can be done until tax deadline which is in next year. If extended, the contrib deadline is still April 15. 6% penalty for over contribution if not cashed out by APril 15.
Roth IRAs
Contributions are not tax deductible. Gains are tax free.
5 years after the deposit given that:
account holder is 591/2 or older
money withdrawn is used for the first time purchase of a principle residence (up to 10k)
Account holder dies or becomes disabled.
Regular contributions are tax free because they are contributed after tax.
Roth Conversion
Traditional IRAs can be converted to Roth IRAs. Entire amount converted is added to investor’s income. As long as the funds are transferred with 60 days or rolled over, there will be no 10% penalty for those under age 59 1/2. Conversion may also be done from 401k and 403 b plans as well as SEP and Simple.
A minor can be named as beneficiary
SEP IRA
By employer offered to employees. Can contribute with IRA money to this in addition to sep contributions. There is no catch up. but hte contributions are not taxable to an employee until withdrawn and employer gets to deduct taxes. Earnings grow tax deferred.
RMD
Dist. on IRAs and SEP IRas must begin once clients hit 70 1/2. Before 59 1/2 subject to penalty (10%) and withdrawals below RMD is also penalty (50%) on the amount short of the dist. RMD must be taken by Dec. 31 except the first year the client turns 70 1/2.
Transfer
IRA transfer from one brokerage to another, 20% wihthold but direct transfer is like rolling over 401k to an IRA.
Beneficiary
If beneficiary is the spouse, can roll over the IRA into personal IRA
If beneficiary is not the spouse, can’t roll into the personal IRA.
Take the cash now:
Cash out the IRA in 5 years
Take RMD over own’s life expectancy.
403 b
Public education institutions and NGOs (tax exempt, and church
Contributions are deductible and earnings accumulate tax free until distribution
Historically, they are called tax sheltered annuity plan.
