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Series 6 > vocab 3 > Flashcards

vocab 3 Flashcards

1
Q

What U.S. Government agency, created by the ‘34 Act, enforces securities laws?

A

The Securities and Exchange Commission (SEC)

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2
Q

Define an insider.

A

Officers, directors, partners, greater than 10% owners, and immediate family members of all listed

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3
Q

Trading on material, non-public information is considered __________________.

A

insider trading.

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4
Q

A corporate officer informs his son of an upcoming earnings report and the son effects trades. Is this a violation?

A

Yes. Both parties, the tipper (officer) and the tippee (the son), have violated the Insider Trading Act.

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5
Q

The criminal penalties for insider trading by individuals is a maximum of $____________ and/or ____ years in prison.

A

$5 million and/or 20 years

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6
Q

What is the criminal penalty for insider trading by corporations?

A

$25 million per violation

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7
Q

Who is eligible to contribute to a qualified annuity?

A

Public school employees [403(b)] and certain non-profit organization employees [501(c)3]

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8
Q

____% of earned income up to $_______ is the maximum contribution to an IRA.

A

100% of earned income up to $5,000 is the maximum contribution to an IRA.

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9
Q

If Joe is 55 years old, how much could he contribute to his IRA?

A

For anyone 50 or older, an additional $1,000 is allowed, making the maximum contribution $6,000.

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10
Q

A contribution of $_______ can be made to a Spousal IRA for a non-working spouse.

A

$5,000

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11
Q

What is the penalty for making excess contributions to an IRA?

A

6% of the excess

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12
Q

True or False: Excess contributions made to an IRA will still be deductible and will grow tax-deferred.

A

False. Excess contributions are non-deductible and will not grow on a tax-deferred basis

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13
Q

IRA contributions must be made in what form?

A

Cash

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14
Q

What are some of the acceptable investments for IRA contributions?

A

Stocks, bonds, mutual funds, and CDs

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15
Q

What are some of the investments that are not suitable for IRA contributions?

A

Collectibles, insurance, and metals (except U.S. gold and silver coins)

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16
Q

When is an individual (single filer) eligible to make tax-deductible contributions to a Traditional IRA?

A

When not covered by an employer-sponsored plan and he is below an adjusted gross income limit.

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17
Q

Rollovers must be completed within ____ days.

A

60

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18
Q

Only one rollover is allowed per rolling ____ months.

A

12

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19
Q

There is a ____% penalty for early withdrawals from an IRA.

A

10%

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20
Q

True or False: To avoid a late withdrawal penalty, IRAs have a required minimum distribution (RMD) provision.

A

True

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21
Q

What is the late withdrawal penalty?

A

50% of the amount that should have been taken (an actuarial amount).

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22
Q

How is a Roth IRA contribution different from a Traditional IRA contribution?

A

The Roth IRA contribution is always made on an after-tax basis.

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23
Q

How are withdrawals from a Traditional IRA treated for tax purposes?

A

If all contributions were deductible, then the entire withdrawal is taxed as ordinary income.

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24
Q

How are withdrawals from a Roth IRA treated for tax purposes?

A

Withdrawals will be tax-free if the account is open for at least 5 years and is not considered an early withdrawal.

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25
Q

Early withdrawal without penalty is allowed for what reasons?

A

Death, disability, qualified higher education expenses, or first-time home buyer ($10,000 limit)

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26
Q

ERISA gave the U.S. Government jurisdiction over ___________________ plans.

A

private pension

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27
Q

According to ERISA, are there any standards that must be followed regarding how money is invested?

A

Yes. The plan’s trustee must abide by the Uniform Prudent Investor Act.

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28
Q

Does ERISA permit the writing of covered calls in retirement plans?

A

Yes

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29
Q

Describe the employees who must be eligible to contribute to an ERISA qualified plan.

A

Employees who are 21 years or older with one year of full-time service

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30
Q

What retirement plans are available to the self-employed?

A

Keogh Plans and SEPs

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31
Q

Contributions to a Keogh plan are solely based on _________________ income.

A

self-employment

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32
Q

May an employee of a corporation who contributes to a corporate pension plan also contribute to a Keogh plan?

A

Yes, provided the Keogh contribution is solely based upon the employee’s self-employment income

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33
Q

May an individual with a Keogh Plan also fund an IRA?

A

Yes, but since the Keogh is a qualified plan, the IRA contributions may not be tax-deductible.

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34
Q

_____ Plans are college savings plans with high contribution limits set by the state sponsor.

A

529

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35
Q

Describe the tax treatment of contributions made to a 529 Plan.

A

They are after-tax contributions that may possibly grow tax-free.

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36
Q

True or False: 529 Plans allow for a 5-year front-end contribution of $65,000, which avoids gift tax.

A

True ($13,000 x 5 years)

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37
Q

Grandparents contributing to a grandchild’s 529 Plan may give how much money and still avoid gift tax consequences?

A

Front-loading 5 years of contributions is allowed; therefore, each could contribute $65,000 for a total of $130,000.

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38
Q

A savings plan which funds both elementary and higher education is referred to as the ____________________________.

A

Coverdell Education Savings Plan.

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39
Q

How much may be contributed to a Coverdell each year?

A

An after-tax contribution of $2,000 is allowed per year.

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40
Q

Is it a 529 Plan or Education IRA that imposes income limitation on the contributors?

A

The Education IRA (Coverdell)

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41
Q

In a 529 Plan, what happens if the funds are withdrawn, but not used for qualified education expenses?

A

The earnings would be subject to ordinary income tax plus a 10% penalty.

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42
Q

If not needed for a child’s education, may the funds in a 529 Plan be transferred to a relative’s 529 Plan?

A

Yes

43
Q

For employers with SEP Plans, where are the contributions they make for their employees directed?

A

The employee’s individual SEP-IRA.

44
Q

Define vesting.

A

The right an employee gradually acquires by length of service at a company to receive employer-contributed benefits

45
Q

True or False: Keogh plans follow a vesting schedule.

A

True. A scale would indicate how long an employee must remain with the employer to be fully vested.

46
Q

True or False: SEPs require employees to become immediately vested in the full amount contributed.

A

True

47
Q

If an employer makes a Keogh contribution on its own behalf, what must be done for its employees?

A

A contribution at the same percentage must be made for the employee.

48
Q

True or False: If a mutual fund investor chooses to reinvest dividends, taxes will be deferred.

A

False

49
Q

True or False: Regulated Investment Companies (under Subchapter M) may relieve their burden of paying tax on income.

A

True. Regulated Investment Companies will only be taxed on the income retained.

50
Q

What are the requirements for being considered a Regulated Investment Company?

A

The fund must be a domestic company that distributes at least 90% of its net investment income.

51
Q

A Regulated Investment Company’s net investment income will ultimately be taxed to the __________________.

A

shareholders.

52
Q

When a fund distributes a capital gain, is it the fund’s or shareholder’s holding period that is considered?

A

The fund’s holding period is used to determine whether long-term or short-term.

53
Q

A fund distributes a gain on shares held for 3 yrs. Joe has owned the fund shares for 6 months. How is Joe’s gain taxed?

A

As a long-term capital gain, since the fund held the shares for three years. Joe’s holding period is irrelevant.

54
Q

Which annuity allows for a pre-tax contribution - Qualified or Non-Qualified?

A

Qualified

55
Q

Which annuity is funded with after-tax dollars - Qualified or Non-Qualified?

A

Non-Qualified

56
Q

In a Non-Qualified Annuity, how is the payout taxed?

A

Only the earnings portion is subject to tax as ordinary income

57
Q

How is interest on corporate bonds treated for tax purposes?

A

Fully taxable (taxed at the federal, state, and local level)

58
Q

How is interest on Treasuries treated for tax purposes?

A

Exempt at the state and local level, but subject to federal tax

59
Q

Cash dividends received by individuals are generally taxed at a maximum rate of ____%.

A

15%.

60
Q

What is the tax consequence for an investor who receives a stock dividend?

A

Her cost basis must be adjusted

61
Q

Does the receipt of a stock dividend create a taxable event?

A

No, not until the stock is actually sold.

62
Q

Joe owns 100 shares of MNO at $20 (total cost $2,000). If MNO declares a 10% stock dividend, what is Joe’s new basis?

A

Original cost ÷ new total number of shares ($2,000 ÷ 110 shares = $18.18)

63
Q

If an asset was held for one year or less prior to its sale, any gain or loss would be ____________.

A

short-term.

64
Q

For a gain to be considered long-term, the asset must be held for ______________________.

A

more than one year.

65
Q

What are the capital gains tax rates?

A

Short-term gains are taxed at ordinary income rates, and long-term gains are taxed at a maximum of 15%.

66
Q

What is the first use of capital losses?

A

They are first used as deductions against capital gains.

67
Q

If there are losses remaining after offsetting gains, what amount may be used against ordinary income?

A

A maximum of $3,000.

68
Q

What happens to losses that remain after offsetting gains and also taking $3,000 against ordinary income?

A

They are carried forward to subsequent years.

69
Q

If not designated by a client at the time of sale, what method will the IRS use to determine which shares were sold?

A

FIFO (first-in, first-out

70
Q

A client selling shares would like to determine the specific shares being sold, he should use ________________________.

A

Specific Identification.

71
Q

If an investor does not use Specific Identification when selling securities, the IRS assumes __________________.

A

FIFO (first-in, first-out)

72
Q

A sale for a loss would trigger the wash sale rule if the same security is repurchased within ____________________.

A

30 days of the sale.

73
Q

What generates a capital gain or loss?

A

The sale of an asset at a price that exceeds its basis (gain) or at a price lower than its basis (loss)

74
Q

According to the wash sale rule, what securities are considered substantially the same?

A

Same stock, rights, warrants, a bond or preferred stock convertible into the stock, or the purchase of a call option

75
Q

Joe sells XYZ and claims a 5-point loss, but triggers the wash sale by repurchasing XYZ at $40. Joe’s cost basis is:

A

$40 + 5 point loss = $45 (The disallowed loss is added to the new purchase.)

76
Q

Is a gift of $13,000 per person, per year, exempt from gift tax?

A

Yes

77
Q

Is a gift of $26,000 per married couple, per year, exempt from gift tax?

A

Yes

78
Q

How large can a gift be between spouses and remain exempt from the gift tax?

A

An unlimited amount

79
Q

Progressive taxes are also referred to as ____________ taxes.

A

graduated

80
Q

Regressive taxes are also referred to as _______ taxes.

A

flat

81
Q

Income or estate tax is an example of a _______________________ tax.

A

progressive or graduated

82
Q

Define the term basis.

A

The total cost to acquire an asset.

83
Q

Is the conversion of a bond a taxable event?

A

No, it is a tax-free exchange. The taxable event would occur when the stock is sold.

84
Q

If securities are inherited, a beneficiary’s holding period is automatically ____________.

A

long-term (regardless of previous owner’s).

85
Q

Pete just inherited securities from his grandfather and is asking about his basis. What is the correct response to Pete?

A

His basis is the market value at the time of his grandfather’s death (stepped up basis).

86
Q

How is basis determined for the recipient of gifted securities?

A

Basis will be the donor’s cost or market value, whichever is lower.

87
Q

When securities are gifted, the recipient’s holding period will be _______________________.

A

the same as the donor’s.

88
Q

What is the role of an SRO?

A

Maintain fair and orderly securities markets and establish rules and regulations for protecting investors

89
Q

The __________________________________________ is the SRO for the OTC market.

A

The Financial Industry Regulatory Authority (FINRA) is the SRO for the OTC market.

90
Q

Underwriters that have made a firm commitment to an issuer are acting in a ________________ capacity.

A

principal/dealer

91
Q

Underwriters operating under a best-efforts agreement with an issuer are acting in a ________________ capacity.

A

agency/broker

92
Q

What is the difference between a syndicate member and a firm in the selling group?

A

Syndicate members assume liability, while firms in the selling group do not.

93
Q

A BD must file Form U5 with FINRA when a person’s association with that firm ______________.

A

ends/ceases.

94
Q

What are the justifiable reasons for denying an individual’s registration?

A

Conviction for any felony or securities-related misdemeanor within the last 10 years

95
Q

What is the net yield for an investor in the 28% tax bracket who owns an 8.5% corporate bond?

A

The formula is: Taxable Yield x (100% - Tax Bracket %). 8.5 x 72% = 6.12%.

96
Q

When an individual reaches age ______, they may begin withdrawing from an IRA without penalty.

A

59 1/2

97
Q

Who uses 457 Plans?

A

Employees of state and local governments

98
Q

Accredited investors have net worth of at least $_________ or pre-tax income in each of the last two years of $________.

A

1,000,000 $200,000.

99
Q

True or False: Firm Element CE must be completed every three years after initial qualification.

A

False. Participation in firm element CE is an annual requirement.

100
Q

FINRA maintains information regarding RRs on the _______ system.

A

CRD (Central Registration Depository)

101
Q

For how long may an RR leave the financial services industry without having to requalify?

A

2 years

102
Q

May a Series 6 registered person engage in the sale of closed-end funds?

A

Only if the product is being sold in a primary (new issue) distribution.

103
Q

May a Series 6 registered person engage in the sale of individual stocks or bonds?

A

No. Series 6 RRs may only sell packaged products, such as mutual funds and annuities.

Series 6 (5 decks)

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