Unit 6 Flashcards
2 3 4 5 6 7 8 9c 10 11 12 14 16 17 18 19 20 21 22 23 27 28 29 30
At what minimum age can retirement withdrawals be made from an individual retirement account (IRA) without a penalty?
59 1/2
The minimum age to withdraw funds from a tax-qualified plan without penalty is 59½. Before that age, withdrawals are subject to a 10% penalty on growth withdrawn unless an exclusion applies.
Margin Maintenance requirements are set by
A) the SEC.
B) FINRA.
C) the FRB.
D) the FBI.
(B) FINRA
Maintenance requirements are set by the governing SRO. FINRA is the best answer of this set.
FRB sets the initial margin requirement along with the SRO minimum. The FRB does not set maintenance requirements.
What is SRO minimum
(check book)
A customer has an account with a broker-dealer who provides a group of services, such as asset allocation, portfolio management, trade executions, and administration, for a single fee. This is known as a
Wrap account
Wrap accounts are accounts for which firms provide a group of services, such as asset allocation, portfolio management, executions, and administration, for a single fee rather than charging commissions for individual transactions. Wrap accounts are generally investment advisory accounts and can be cash accounts, margin accounts, discretionary accounts, or nondiscretionary accounts.
What is a wrap account?
Wrap accounts are accounts for which firms provide a group of services, such as asset allocation, portfolio management, executions, and administration, for a single fee rather than charging commissions for individual transactions. Wrap accounts are generally investment advisory accounts and can be cash accounts, margin accounts, discretionary accounts, or nondiscretionary accounts.
Which of the following are characteristics of a revocable living trust?
A) It is established before the grantor dies
B) The grantor can change beneficiaries
C) The grantor can add or remove items from the trust
D) The grantor is not subject to tax on income that remains in the trust
(A, B, C)
In a revocable living trust the grantor has complete control over the trust while alive, and because of this, the grantor is also subject to any tax implications of the trust.
Who benefits most from a defined contribution plan? Why?
Younger employees.
They have more time for the money to grow.
To meet a Regulation T margin call, a customer would have how long relative to settlement?
Settlement plus two additional business days
The rule requires that the call be met within two business days of the settlement date, referred to as S + 2. If regular way settlement was T + 2, adding the two additional business days to the trade date would be T+4.
The income level of a donor
A) may affect contributions into a Coverdell ESA.
B) may affect contributions into both Coverdell ESA’s and Section 529 plans.
C) will affect contributions into a Section 529 plan.
D) will not affect contributions into a Coverdell Education Savings Account (ESA) or a section 529 plan.
(A) may affect contributions into a Coverdell ESA.
Contributions into a Coverdell Education Savings Account (ESA) are phased out at high income levels for a donor, whereas the income level of a donor has no impact on contributions made into a Section 529 plan.
A registered representative is appointed the fiduciary for a trust account. Which of the following is true?
A) Investment decisions must be made in accordance with the prudent investor rule.
B) A RR, as fiduciary, may share in the account’s profits and charge a reasonable fee for services.
C) It is expected that speculative positions should be taken to enhance the performance of the account for the benefit of the trustee.
D) Trading on margin is always permissible as a safe and efficient way to employ leverage for the account.
(A)
When acting as a fiduciary, all investment decisions must be made in accordance with the prudent investor rule, which mandates that only wise and safe investment decisions be made. Speculative positions, such as selling short or writing uncovered call options, are almost always prohibited. Margin trading can only occur if it has been specifically designated as being allowed in the trust documents. Fiduciaries may charge a reasonable fee for their services but may not be compensated based on, or share in, profits.
When acting as a fiduciary, what must all investment decisions be made in accordance with?
What does this mandate?
Examples of what is now allowed?
When acting as a fiduciary, all investment decisions must be made in accordance with the prudent investor rule, which mandates that only wise and safe investment decisions be made.
Speculative positions, such as selling short or writing uncovered call options, are almost always prohibited. Margin trading can only occur if it has been specifically designated as being allowed in the trust documents. Fiduciaries may charge a reasonable fee for their services but may not be compensated based on, or share in, profits.
How may fiduciaries be compensated? What is not allowed?
Fiduciaries may charge a reasonable fee for their services but may not be compensated based on, or share in, profits.
What is a benefit for broker-dealers offering margin accounts to their customers?
The additional income generated from the payment of margin interest
Margin interest paid by customers is considered a source of income for broker-dealers and pledging the customer’s securities as collateral for the loan is simply a necessary part of offering margin to customers. The need for more operational staff is a cost, not a benefit, and margin accounts are not typically attractive to conservative investors.
If a 40-year-old customer earns $85,000 a year and his 38-year-old spouse earns $140,000 a year, how much may they contribute to individual retirement accounts (IRAs)?
A) They may contribute up to the maximum annual allowable dollar limit, split evenly between both accounts.
B) Only the higher wage earner may contribute to an IRA.
C) They may each contribute 100% of earned income or the maximum annual allowable dollar limit, whichever is less.
D) They may not contribute because their combined income is too high.
(C) They may each contribute 100% of earned income or the maximum annual allowable dollar limit, whichever is less.
No matter how much income individuals or couples receive, they may contribute to their IRAs if they have earned income. Each is entitled to contribute 100% of earned income up to the maximum allowed. However, if either or both of them are covered under a qualified plan, limits may exist on the deductibility of the contributions.
Your customer retired two years ago at age 68. He recently took a job with a golf course cleaning carts. He would like to contribute to a retirement plan to accumulate additional money with the view to leave something to his grandchildren. You would most likely advise him to open
The Roth IRA would require after-tax (nondeductible) contributions but would allow earnings to accumulate tax deferred as in any retirement plan. Roth IRA distributions need not begin at age 72, and if holding period requirements are satisfied, all distributions are tax free.
