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Series 6 > vocab 4 > Flashcards

vocab 4 Flashcards

1
Q

May a firm conduct its annual compliance meeting via webcast?

A

Yes, provided participants have the ability to have questions answered on a timely basis.

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2
Q

Whose Social Security number is listed on a custodial account? (UTGM)

A

The minor’s

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3
Q

Hank is a 71-year-old who has a Roth IRA. What penalty is assessed if Hank has failed to begin taking distributions?

A

There is no penalty, since Roth IRAs do not have RMDs.

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4
Q

May an 85-year-old continue to contribute to a Roth IRA?

A

Yes, provided she has earned income.

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5
Q

What is the maximum annual IRA contribution for a 58-year-old who only has investment income?

A

$0, since he has no earned income

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6
Q

How much may a married couple earning $325,000 contribute to a Roth IRA?

A

$0, since the couple’s income exceeds the income threshold

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7
Q

What is the typical cost basis for a participant in a qualified retirement plan?

A

$0, since these plans are typically funded pre-tax.

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8
Q

Distributions from a qualified plan are taxed at __________________ rates.

A

at ordinary income

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9
Q

May clients invest in an out-of-state 529 plan?

A

Yes. Clients may choose to invest either in-state or out-of-state.

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10
Q

In an non-qualified annuity, how is a single distribution taxed?

A

Earnings first (LIFO)

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11
Q

What technique can be used to roll assets from one annuity into another without taxation?

A

A 1035 Exchange

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12
Q

Is switching between annuity sub-accounts taxable?

A

No

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13
Q

In a non-qualified annuity, how is a return of capital taxed?

A

Tax-free, since it is part of the client’s basis

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14
Q

What is the SEC-mandated period for advertising the yield of a money market fund?

A

7 days

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15
Q

What is the SEC-mandated period for advertising the yield of a bond fund?

A

30 days

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16
Q

For how long must mutual fund advertisements be kept on file?

A

Three years (but easily accessible for the first 2 years)

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17
Q

Must a photocopied magazine article on mutual fund investing be filed with FINRA?

A

No. Independently prepared reprints need not be filed, but must be approved by a principal.

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18
Q

May an aunt set up a 529 plan for her niece?

A

Yes. The donor is not required to be a parent.

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19
Q

True or False: Unrealized gains in a mutual fund are taxable.

A

False. Unrealized gains (paper profits) are not taxable.

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20
Q

May a person contribute to her own 529 plan?

A

Yes

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21
Q

Are variable life policies subject to IRS early withdrawal penalties?

A

No, but variable annuities would be subject to the penalty.

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22
Q

John turns age 70 1/2 in December. When must he begin the RMD from his IRA?

A

April 1 of the following year

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23
Q

Who disburses checks for capital gains distributions to mutual fund shareholders?

A

The transfer agent, who is typically the paying agent as well

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24
Q

What is waived for a first-time homebuyer in the event of an IRA distribution?

A

The penalty is waived, however, taxes are still levied.

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25
Q

May a firm advertise a hedge fund being offered through a Reg. D private placement to the general public?

A

No. This is prohibited.

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26
Q

Is there an income threshold for 529 College Savings Plan contributors?

A

No. There are no income limits imposed for these plans.

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27
Q

May a Series 6 registered person engage in option trades?

A

No

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28
Q

Which federal law created the SEC?

A

The Securities Exchange Act of 1934

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29
Q

Which federal law governs the registration of RRs and their firms?

A

The Securities Exchange Act of 1934

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30
Q

Which federal law governs the registration of new issues?

A

The Securities Act of 1933

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31
Q

Are CMOs exempt from registration under the Securities Act of 1933?

A

No. CMOs are corporate securities that must be registered.

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32
Q

What may an RR say upon passing her Series 6 exam?

A

She may state that she is registered with FINRA. Remember that registration does not imply expertise.

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33
Q

True or False: Interest and dividends are considered earned income.

A

False. They are considered unearned income. Wages, salary, and tips are earned income.

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34
Q

Is default possible on a municipal offering?

A

Yes. Only U.S. Government issues are considered free of default risk.

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35
Q

What is a specific risk that may be attributed to a GNMA fund?

A

Prepayment risk. This is the risk that mortgages may be paid off early.

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36
Q

What is Subchapter M?

A

A section of the IRS Code that defines regulated investment companies (conduit/pipeline theory).

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37
Q

The ___________ bears the investment risk in a defined benefit plan.

A

employer

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38
Q

The ___________ bears the investment risk in a defined contribution plan.

A

employee

39
Q

The new issue market is also known as the __________ market.

A

primary

40
Q

What is the tax implication of a person-to-person gift of $100,000?

A

Tax-free to the recipient, but any amount in excess of $13,000 per year is taxable to the donor

41
Q

What is the tax implication of a policy loan on a life insurance policy?

A

The loan is not taxed, but interest is charged on the outstanding balance.

42
Q

What is the tax implication of the death benefit on a variable annuity?

A

Any amount above the contract’s basis is taxable to the beneficiary.

43
Q

May an RR disclose Series 6 examination content to his supervisor?

A

No. Disclosure of exam content may invalidate the result.

44
Q

A mutual fund shareholder’s tax liability is reported on Form _______.

A

1099.

45
Q

What is the maximum annual tax loss that may used against ordinary income?

A

$3,000. Any remaining balance must be carried forward.

46
Q

Bill has unrealized losses of $10,000. How much may he claim in the current tax year?

A

Zero. Unrealized losses do not count for tax purposes.

47
Q

Is the death benefit of an annuity included in the estate of a deceased client?

A

Yes. Additionally, any amount over the cost basis may be taxable to the beneficiary.

48
Q

Are loans taken against variable life insurance policies taxable?

A

No, but the policyholder is charged interest on the loan.

49
Q

If a spouse dies, what can be done with his IRA assets?

A

The assets may be combined with those of the surviving spouse.

50
Q

Who funds a 529 plan?

A

The donor

51
Q

Who is eligible to contribute to a 403(b) plan?

A

Public school teachers. Military academy instructors are not eligible.

52
Q

Name the four categories of professionals that would not be considered investment advisers?

A

Lawyers, accountants, teachers, and engineers provided the advice given is incidental to their profession. (Remember L, A, T, E)

53
Q

When withdrawing from a qualified plan, how is the distribution taxed?

A

The entire withdrawal is taxed, since these plans are normally funded pre-tax and have a zero cost basis.

54
Q

What is included in the cost basis of a mutual fund client?

A

Original investment + reinvested dividends and capital gains

55
Q

Who can charge a client for securities-related advice?

A

Only registered investment advisers. Remember, BDs charge a commission for executing trades, not for advice.

56
Q

A client bought stock at $20 which has appreciated to $25. If the stock is gifted, what is the recipient’s cost basis?

A

$20. The cost basis on a gift is the lower of the purchase price or the current value.

57
Q

If an RR receives information about a new company from someone in the research department of his BD, what must be done?

A

The RR must report the analyst’s disclosure to his manager. This could be a case of insider trading.

58
Q

How may a client avoid the 10% tax penalty on premature distributions from an IRA?

A

The client may begin to receive a series of identical distributions (often called annuitizing an IRA).

59
Q

For a mutual fund to issue shares publicly, what is the minimum net worth requirement?

A

$100,000

60
Q

Under which federal law are firms, RRs, and exchanges registered?

A

The Securities and Exchange Act of 1934

61
Q

True or False: Zero coupon bonds would be a suitable recommendation for college funding.

A

True, especially since clients may want to avoid stock market risk.

62
Q

Who is subject to The Insider Trading Act?

A

Anyone who misuses material non-public information

63
Q

True or False: Contributions made to qualified retirement plans are tax-deductible.

A

True

64
Q

What is the tax treatment of the distributions made by qualified retirement plans?

A

They are entirely taxed at ordinary income rates, since these plans have a zero cost basis.

65
Q

True or False: Contributions made to non-qualified retirement plans are tax-deductible.

A

False. The contributions are non-deductible.

66
Q

True or False: Earnings generated in a non-qualified retirement plan are tax-deferred

A

True

67
Q

What is the tax treatment of distributions made by non-qualified retirement plans?

A

Since contributions are made after-tax, only the earnings portion is taxable at ordinary income rates.

68
Q

How are income distributions from a bond mutual fund taxed?

A

At ordinary income rates

69
Q

What are some of the possibilities for avoiding premature distribution penalties in IRAs?

A

Death or disability of the owner, education expenses, first-time home buyer, or annuitization of distributions

70
Q

457 plans are used by ________ government employers.

A

local

71
Q

Are life insurance death benefits taxable?

A

No. Death benefits are received tax-free.

72
Q

What is the maximum annual contribution to a 401(k)?

A

$17,000

73
Q

What is the maximum annual contribution to a 403(b)?

A

$17,000

74
Q

What is the maximum annual contribution to a 457?

A

$17,000

75
Q

May an RR and a client share in an account?

A

Yes, with firm approval and provided the sharing in gains and losses is proportionate to their investment.

76
Q

If a client refuses to provide certain information, may the account still be opened?

A

Yes, although name and address are required

77
Q

May a wife enter trades in a husband’s account?

A

Yes, with written third-party authorization.

78
Q

The New Issue Rule covers what new issues?

A

All equity IPOs

79
Q

True or False: BDs and their employees may buy shares of equity IPOs from the syndicate.

A

False. They are considered restricted.

80
Q

Besides BDs and their employees, who else is restricted from purchasing equity IPOs?

A

An employee’s immediate family if materially supported by, or sharing household with, the employee

81
Q

Define painting the tape.

A

Traders effecting transactions back and forth to create a misleading appearance of activity

82
Q

Define correspondence.

A

Written/electronic communication sent to existing clients and/or less than 25 prospective clients within a 30-day period

83
Q

The Telephone Consumer Protection Act (TCPA), allows calls from ________ to ________ local time of the called party.

A

8:00 a.m. to 9:00 p.m

84
Q

Investment companies must send financial statements to customers every ____ months.

A

6

85
Q

What amount of an investment company’s Board of Directors must be independent/unaffiliated?

A

A majority

86
Q

What are the three different types of investment companies?

A

1) Face Amount Certificate Companies 2) Unit Investment Trusts (UITs) 3) Management Companies

87
Q

True or False: Mutual fund shares may be purchased and sold in the secondary market.

A

False. Mutual funds are always considered new issues and are bought and sold through the fund.

88
Q

Mutual fund shares have loan value after they have been owned for ____ days.

A

30

89
Q

What terms are synonymous with a mutual fund’s Net Asset Value (NAV)?

A

Bid price or Redemption price

90
Q

What price is paid for closed-end management company shares?

A

Market price plus a commission

91
Q

Are breakpoints available when investing in UITs?

A

Yes

92
Q

True or False: Variable annuities are subject to registration requirements of the Act of 1933 and sold by prospectus.

A

True

93
Q

What are some of the alternative names for a fund’s underwriter?

A

The sponsor, distributor or wholesaler

94
Q

Which federal law created the NASD?

A

The Maloney Act of 1938

Series 6 (5 decks)

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