1
Q
mental shortcuts that help people understand the world by using information that is easy to recall
A
Heuristics
2
Q
experiences and biases that can facilitate problem-solving and probability judgements
A
Heuristics
3
Q
Skills drive wins and bad luck drive losses
A
Overconfidence/Self-Attribution Bias
4
Q
natural human tendency to accept any information that confirms our preconceived position or opinion and to disregard any info that does not support that preconceived notion
A
Confirmation Bias
5
Q
if a client is looking for an assumption with unrealistic return assumptions
A
CFP professional would run projection with realistic return assumptions
6
Q
premium/dividend options, policy loans, ownership
A
info that should be gathered regarding LIFE INSURANCE
7
Q
Uber Is A Drunk Persons Immediate Motor-vehicle
A
Understand, Identify, Analyze, Develop, Present, Implement, Monitor
8
Q
Items of information that may be presented either orally or in writing
A
Material Conflicts of Interest
9
Q
CFP board will accept FINRA and/or SEC requirements for these policies
A
Privacy Policies
10
Q
act with honesty, integrity, competence, and diligence
A
CFP Professional must act under code of conduct
11
Q
act in client’s best interest
A
CFP Professional must act under code of conduct
12
Q
Exercise due care
A
CFP Professional must act under code of conduct
13
Q
avoid or disclose and manage conflicts of interest
A
CFP Professional must act under code of conduct
14
Q
maintain confidentiality and protect privacy of client info
A
CFP Professional must act under code of conduct
15
Q
act in manner that reflects positively on financial planning profession
A
CFP Professional must act under code of conduct
16
Q
QTP
A
Qualified Tuition Program
17
Q
QTP is a gift of
A
present interest
18
Q
UTMA is a gift of
A
present interest
19
Q
taxpayers will receive a tax credit based on 100% of first $2000 of tuition plus 25% of the next $2000. total max credit - $2500
A
American Opportunity Credit
20
Q
write down all numbers and clear calculator
A
3 Step Education Planning Questions
21
Q
compensatory damages paid out as single premium immediate annuity taxation
A
100% excludable
22
Q
2 quarters of economic decline
A
recession
23
Q
6 quarters of economic decline
A
depression
24
Q
consumers stop buying bc they have enough. business activity ages
A
Peak of Business Cycle
25
IRA contribution to ex-spouses is considered
deductible alimony (pre-2019)
26
in pursuing an easy money policy, fed does what?
buy securities
27
change the prime rate
commercial banks
28
fed actions may affect but does not set this
prime rate
29
in pursuing a tight money policy the fed may do what?
sell securities
30
determined in an auction by member banks
the Fed Funds Rate
31
these are bank-to-bank overnight borrowing when additional reserves are needed
Fed Funds
32
to qualify for this, a home-owner does NOT need own their home free and clear
reverse mortgage
33
projects the expected result of the next year or longer
Pro Forma Statement
34
must file this before taking series exams
U4
35
CFP designation requires you to do what if someone is selling without proper licenses
Notify all of the agencies
36
business address and background can be found where
ADV Part 1
37
compensation arrangements can be found where?
ADV Part 2
38
when agreeing to provide a plan to clients, what kind of legal exposure is a planner exposed to?
Contract Law
39
credit card liability if the card is loss is what amount
$50
40
this is granted to an agent by the insurance company
expressed authority
41
obligation of the agent to the principal, since they are a legal representative of the company (express)
loyalty
42
provides individuals who have been denied credit the right to know the reason for the denial
Fair Credit Reporting Act
43
federal bankruptcy law will protect these assets
Qualified plans
44
states will allow for a homestead exemption when this happens
bankruptcy
45
when purchasing a new home with mortgage, these increase
assets and liabilities
46
when purchasing a new home with a mortgage, this will remain unchanged
net worth
47
no longer deductible under TCJA if not used for home improvement
interest of a home equity loan
48
when advising only insurance companies, an advisor is exempt from filing as what?
RIA
49
registered reps, unless charging a specific fee for advice, who receive commissions, are exempt from what
registering as an advisor
50
$100+ million requires registration with whom?
SEC
51
unintentional tort
negligence
52
The Fed raises the discount rate it is doing what?
taking a tight monetary policy
53
good investment for conservative investor with a negative yield curve normalizing
T-Bonds or Treasury Bonds
54
if less than or equal to 1 month of expenses, is not used as part of the emergency fund
checking account
55
used to find out how much of an emergency fund is needed
fixed and variable expenses
56
if points are paid from cash/cash equivalents, points are not added to what?
the new mortgage balance
57
investment into this is a gift of present value to your children
UTMA
58
PITI
principle, interest, taxes, (homeowners) insurance
59
allows you to sell mutual funds
series 6
60
capital goods and consumer durable goods are most affected by which part of the business cycle?
recession
61
due to coordination rules, american opportunity credit and lifetime learning credit cannot be claimed when what has a distribution?
Coverdell ESA
62
PITI can be used as a deduction to what?
alimony payment
63
coincidental economic indicator
industrial production
64
issues Mortgage Backed Securities
Freddie Mac
65
credit card liability is covered under what?
Consumer Credit Protection Act
66
FHA mortgages are guaranteed by whom?
Federal Govt
67
if a loss is fortuitous and accidental it is this
an insurable risk
68
which term refers to the legally binding arrangement that explains the basic promise of the insurance company?
the insuring agreement
69
under this, the insurance company promises to pay for the loss if the loss should result from covered perils
the insuring agreement
70
an owner of a wild animal has this if someone should get hurt by the animal
absolute liability
71
underwriter uses the following info in the uw process
info from broker, physical exams, investigations
72
is a cause of a loss
peril
73
is a condition that may create the loss from a given peril
hazard
74
basic forms of perils: WHARVES/FLT
Windstorm, Hail, Aircraft, Riot, Vandalism, Vehicles, Explosion, Smoke, Fire, Lightning, and Theft
75
renters policy that does not cover structures
HO4
76
homeowners section II coverage addresses what?
Liability and Medical payments
77
these exclusions are typically found in a owners policy: OPEN WIF
Ordinance of law, Power failure, Earthquake, Neglect/Nuclear hazard, War, Intentional loss, Flood
78
this is only covered by auto insurance when the insured is at fault
Bodily injury/property damage (BI/PD)
79
legal judgement obtained - liability limits =
amount covered by umbrella insurance
80
liability limit of umbrella policy - coverage in force =
amount insured must pay
81
provides coverage when basic liability is adequate, inadequate, and provides broader coverage than basic policies
umbrella insurance
82
This type of group medical insurance may allow to seek out-of-network providers
PPO
83
when an employee drops health coverage for Medicare, the family may do this
elect COBRA for 36 months
84
covers approved expenses not paid by medicare
medigap
85
these parts of medicare cover diagnostic tests
Part A and Part B
86
a patient must cover the first 3 of these while on medicare
pints of blood
87
these two clauses are included riders in disability policies
presumptive disability coverage and the continuance provision
88
this rider is less expensive than a non-cancelable provision
guaranteed renewable
89
ONE of the dividend option that increases the death benefit each year
one-year term insurance
90
this non-forfeiture option COULD impose a delay
cash surrender value
91
provides a minimum interest rate but not a guaranteed cash value
universal life insurance
92
this NOT a provision, feature, or option of a whole life policy
Insurance Company Rating
93
when surrendering a contract taxable amount is found by adding this back in and subtracting this out
add loan value, subtract premiums paid
94
life insurance contracts purchased before 1988 are not affected by this rule
MEC rules
95
meets requirements of a LI contract, entered into on or after 6/21/88, and fails to meet 7-pay test
MEC
96
dividends from a MEC contract become taxable when they are what?
received in cash, or like cash (reduce premium/pay off policy loan)
97
if you buy a policy from someone you are the insured on, and pay only the basis, what is the taxable gain?
no gain
98
how are life and disability insurance premiums deducted in an entity purchase or cross purchase agreement
not deductible
99
In a buy-sell arrangement, disability benefits paid to whom are received income tax free
corporation (entity purchase) and beneficiary (cross-purchase agreement)
100
a disabled owner will owe what at the sale of his business interest
capital gains tax
101
these group policies offer conversion features
life and health
102
these group policies do not offer a conversion feature
STD and LTD
103
an employer may deduct premiums paid into this group benefit
group life insurance
104
this amount is tax free in group life insurance
$50,000
105
these are examples of what: cash option, reduction of premiums, accumulated w interest, one-year term, paid-up additions
Dividend Options
106
these are examples of what: cash option, reduced paid-up, paid up term
Non-Forfeiture Options
107
group life insurance can only be converted to what
a permanent life insurance policy
108
Medicare Part A benefits are subject to these two things?
deductible and co-payments
109
this rider is only allowed as long as SSDI payments are not being received
SIS rider
110
a partial disability rider is called what?
a residual disability rider
111
replacement value x coinsurance =
insurance required
112
[(insurance carried/insurance required) x loss] - deductible =
amount paid by insurance carrier
113
once an independent leaves college they must get what kind of insurance in their state of residence
Personal Auto Policy
114
will there be coverage under a PAP for someone using their car for business?
no
115
these would be paid under workers comp laws?
total permanent disability, rehab benefits, occupational disease
116
this type of life policy can lower effects of premium rating with good investments
VUL
117
when a question asks if someone should CONSIDER something, what should you not consider?
if they can afford all the coverages
118
Split Dollar life insurance is not a key person benefit but an
employee benefit
119
in a split dollar policy, how does the employer get reimbursed for the premiums
Through a collateral assignment arrangement
120
in a salary continuation plan, if benefits are paid to the employee in the form of a bonus, how are benefits received?
tax-free or excluded from income tax
121
what kind of policy can not deduct the premiums but exclude the benefits from its gross income
Business Overhead Expense (BOE)
122
This employee benefit is not paid tax-free
employer paid sick pay benefits
123
payout = monthly income x 12 x years of income
(basis / payout) x monthly income =
Annuity Exclusion Ratio
124
if you change from full-time to part-time, and lose one benefit, you may qualify for this benefit
COBRA
125
this benefit allows for the employer to take a deduction, and the benefit is included in the employees taxable income. benefit is received tax free by employee
Section 162 Bonus
126
what part of a building's value cannot be used to assess an insurance claim
the land
127
what pays for medical expenses without any limitations on time or amount?
workers comp
128
following are not jeopardized by this:
transfer to insured
transfer to partner in partnership
transfer to a corp in which insured is shareholder or officer
transfer pursuant to divorce decree
Transfer for Value
129
uninsurable risk is covered under which principle?
adverse selection
130
what should a client do if they want advice on taking a job that has unlimited potential losses
reject the contract
131
any degree of negligence on the part of the injured party does not defeat the claim but is used in some manner to mitigate damages payable
comparative negligence
132
any negligence on the part of the injured party defeats the claim
contributory negligence
133
will homeowners insurance cover no damage to the home but damage to the yard?
no
134
not on employer health plan at time of separation
don't qualify for COBRA
134
this type of policy is part of a life insurance company's general account (not WL)
Universal Life
135
this is limited but covered by medicare if it is specifically in your house
Home Health Services
136
current yield exceeds yield to maturity
bond selling at a premium
137
Yield to Call - Yield to Maturity - Current Yield - Nominal Yield (annual coupon rate) (YMCA)
Discount Bond Ladder
138
Nominal Yield (annual coupon rate) - Current Yield - Yield to Maturity - Yield to Call
Premium Bond Ladder
139
Purchased at face value, can declare interest annually or at redemption, interest is subject to fed income tax
Series EE bonds
140
Not Guaranteed by US Govt
Collateral Mortgage Obligations (CMOs)
141
cannot claim exclusion for EE bonds unless child is dependent (and not subject to phaseout)
Grandparents
142
these trade on major exchanges and may be open-end or closed-end funds (mostly open-end)
ETFs
143
Which type of investment can ALWAYS be purchased at NAV?
no-load balanced mutual fund
144
shares are purchased and redeemed directly with the issuer
Open-End Fund and No-Load Balanced Mutual Fund
145
provides low correlation to US Stock Funds
International Funds
146
When a put is higher than what the stock is selling for
Put has intrinsic value
147
cannot have this when it comes to intrinsic value
negative intrinsic value
148
when a call is lower than what the stock is selling for
call has intrinsic value
149
provides even lower correlation than an international fund
emerging markets fund
150
if something negatively correlates with current stock holdings what will that do to the corvariance?
The covariance decreases
151
negative moving correlation doesn't equal
negative covariance
152
zero-coupon bonds are calculated using how many periods?
semi-annual periods
153
[ending value(w margin) - (beg value(w/o margin) + margin interest) - beg value(w/o margin)] / beg value(w/o margin)
holding period return with margin interest
154
what is not a factor of the DDM (dividend discount model)?
gross earnings of the company (look at the equations)
155
a bond's duration and its maturity are what?
positively correlated
156
stock earnings x P/E Ratio =
a stocks intrinsic value
157
price above an intrinsic stock value
stock is overpriced
158
price below an intrinsic stock value
stock is underpriced
159
dividend / closing price =
stock's daily yield
160
(return on market - risk-free rate) x Beta
stock risk premium
161
what is the most important consideration to the Markowitz efficient frontier?
Risk
162
theory that presumes to identify the top of a bull market and bottom of a bear market
Dow Theory
163
indicates how the portfolio manager performed relative to a benchmark or index
Alpha
164
to identify a promising stock within a particular sector, in what way is a financial ratio useful?
several ratios across the same industry
165
current assets / current liabilites
current ratio
166
if an investor wants to immunize a bond portfolio, what is immunization most likely to reduce?
interest rate risk
167
this can be used to immunize a bond from loss of principal due to interest rate risk
duration
168
passive investment strategy
DCA
169
passive investment strategy
buying an index fund
170
active investment strategy
mutual fund switching
171
active investment strategy
market timing
172
total cost of investment / average share price by total number of shares
finding basis using average cost method
173
when a factor is zero the factor has no impact on the return because it is expected is what theory?
Arbitrage Pricing Theory (APT)
174
Binominal options pricing is what kind of model
Valuation (Black-Scholes)
175
quantifies the risk/return relationship of a single security
Security Market Line (SML)
176
specifies the relationship between the risk and return on a portfolio
Capital Market Line (CML)
177
with a low R2 what becomes significant
standard deviation
178
a holder of all bonds is exposed to which 4 risks?
interest rate, reinvestment rate, market, and purchasing power
179
which efficient market hypothesis suggests insider traders can beat the market
semi-strong form
180
corporate issues try to sell bonds when?
before interest rates rise
181
corporations most likely to issue new bonds when
previous bonds are selling at a premium, interest rates are expected to rise, and interest rates have fallen
182
this feature allows a bond holder to redeem the bond at par, even when price goes lower
bonds with put features
183
bonds that do well during declining interest rates
long-term bonds
184
can buy this, if you are bullish on the stock and missed the price you want to buy at
buy a call at price wanted
185
no-load funds still have this
management expenses
186
income / current market value =
current yield
187
profit / total contract price =
gross profit % for installment sale
(multiply gp% by installment sale for LTG calculation)
188
can provide both leverage and reasonable hedge against inflation
Equity REIT
189
annual coupon rate / current price of bond =
current yield
190
total bond price / # of bonds purchased =
current bond price
191
use alpha when what is over 60?
R^2
192
to determine which stock is riskier, apply what measure of variability?
relative measure of variability
193
standard deviation / expected return =
coefficient of variation
194
lower coefficient of variation is what riskiness? higher coefficient of variation is what riskiness?
less risky / more risky
195
market risk - risk-free rate =
market premium
196
these explain the INTENT of a recent change in the tax law
Congressional Committee Reports
197
AGI > $150k
how is estimated tax paid?
110% of prior year's AGI or 90% of current years tax liability
198
AGI < $150K
how is estimated tax paid?
100% of prior year's AGI or 90% of current years tax liability
199
excluded from gross income
child support
200
pre-2019 this is deductible if paid and taxable if received
Alimony
201
this is only deductible up to investment income, ordinary dividends, and STCG
Margin Interest
202
multiply by this amount to get self-employment tax
.1413
203
only way to claim a casualty loss is by this?
Federally Declared Disaster
204
investment interest expense may be deductible up to what?
investment income amount
205
itemized deductions has been eliminated under what?
TCJA
206
qualified dividends are classified as what tax wise?
Cap gains shown on a 1040 (included as income)
207
this reflects current cost
FIFO
208
C Corporations must use this accounting method with gross receipts > $31m
accrual method
209
this type of corporation cannot utilize NOLs because they are already pass-through annual losses
S Corps
210
this type of corporation may not pass through losses to their shareholders
C Corp
211
initial investment and personal loans make up what when invested into an S Corp
Basis
212
dividends to shareholders is reported on what tax form?
1099
213
if trust income is used to satisfy a grantor's legal support obligation, the trust income will be tax to whom?
the grantor
214
what percentage are you allowed to deduct for a first year cost recovery deduction?
20%
215
modification is considered a renovation, which is an improvement, and eligible for what?
Depreciation
216
when a renovation is an improvement, and eligible for depreciation, the cost is added to what?
Basis
217
FMV of property received - Adjusted Basis of selling property =
Realized gain
218
lessor of the realized gain or boot received
recognized gain
219
FMV of property received - (realized gain - recognized gain) =
Adjusted basis of property received or Substitute basis
220
when you sell a primary home, and if falls under the exclusion amount, this tax form is filed?
no tax forms needed when exclusion is applied
221
$50K is treated as ordinary loss for single
$100k is treated as ordinary loss for married
Section 1244 stock
222
anything in excess of Section 1244 stock ordinary loss is considered what?
Capital loss
223
1031s are available only for what?
real property
224
Qualified private-activity muni bond interest, property tax itemized deduction and excess % depletion over property's adjusted basis are all what for purposed of AMT?
add-back items
225
cost depletion is not what for AMT?
a preference item or add back item
226
publicly traded partnership and cannot offset passive income
Master Limited Partnership (MLP)
227
losses from this allow deductions without respect to income limitations
General Partner in an Oil and Gas working interest
228
Active Participation phaseouts
$150K
229
this produces phantom income that is not received until the bond matures
STRIPS
230
this expense is no longer deductible for prospects
entertainment expenses
231
this business structure gives limited liability and allows for losses up to investment basis
S Corp
232
Oil and Gas must be invested as a what to deduct losses against passive income?
General Partnership
233
basis of newly acquired shared will be increased by disallowed loss in what rule?
The Wash Sale Rule
234
what is a very unsuitable investment for an UTMA account due to its phantom income?
STRIPS
235
LTCG property is limited to what amount of AGI for a charitable deduction for FMV?
30% of AGI
236
paying a mortgage payment to an ex-spouse that owns the house is considered what?
a tax-deductible payment
237
Section 179 expense is deductible up to what?
Business income amounts
238
required to pay what on all MEC policies that withdrawal cash
ordinary income and 10% penalty
239
Losses in an S Corp are only allowed up to this?
Basis
240
under 59.5, if an annuity is annuitized, what does not apply?
10% under 59.5 penalty
241
excess earnings passed through from an s corp are treated as what? and not subject to this?
K-1 investment income. not subject to self-employment tax
242
retirement payments are in which mode?
Begin Mode
243
SSA; Single; Over $25k; Over $34k
50% tax; 85% tax
244
SSA is generally available to a spouse before 60 when this is the case
widow or widower has a child "in care"
245
Defined Benefits annual contributions limit
Actuarially determined (no limit)
246
DB plans are based on this amount of compensation
$350k
247
Max annual BENEFIT in 2025 for a DB plan
$280K
248
forfeitures in a money purchase plan may be used to do what 2 things?
reallocate to remaining participants or reduce company contributions
249
Max amount of retirement benefit in a target benefit plan
value of the participant's account value at retirement
250
Defined Benefit formula that factors both service and salary in determining participant's pension benefit
Unit Benefit Formula
251
vesting schedule for high turnover top-heavy plans
3-year cliff
252
vesting schedule for top-heavy plans that want to retain employees
2- to 6- year graded
253
Defined Benefits integrated with SSA, permitted disparity amount
lessor of benefit base or 26.25%
254
two or more businesses that are treated as a single employer for certain benefits and retirement plans
affiliated service group
255
what is allowed when 1. loan is secured by residence for which the loan is made and 2. participant is not a key employee
loan interest from a plan loan would be deductible
256
substantially equal payments
72T
257
distributions used to pay medical insurance premiums after separation from employment
exception to IRA 10% early withdrawal penalty
258
Muni-bonds in an IRA
unsuitable
259
circumstances that allow a roth to be closed without adverse consequences
Roth has been maintained for 5yrs
owner turns age 59.5
260
allows for the maximum contribution of $70k but is subject to mandatory annual contributions
Money Purchase Plan
261
in what plan do 415 limits apply, new employees can join if employer has no more than 25 employees, max '25 deferral is $23,500, all contributions 100% invested?
SARSEP
262
In what plan are contributions not subject to FICA and FUTA
SEP
263
allows for 23,500, employer contributions and profit sharing contributions, as well as catch-up contributions
uni-401(k)
264
this type of plan is subject to PBGC insurance programs
Defined Benefit Plans
265
entity or regulation imposes extensive reporting and disclosure requirements on DB plans
ERISA
266
distribution due to separation from service at age 55
exempt from 10% penalty
267
pension plans must name who as a beneficiary?
Spouse
268
QDRO's only apply to what?
qualified plans (not IRAs)
269
in relation to NQ deferred Comp plan, what must occur for the employee to be taxed on the benefits
constructive receipt of funds
270
What must trigger a constructive receipt due to a merger or acquisition
Rabbi Trust
271
This DC plan is a better pension option for "young", "successful", and "retain key employees"
Money Purchase Plan
272
Sole Prop Owner who wants to contribution 15% to Keogh or SEP
multiply by 12.12%
273
Sole Prop Owner who wants to contribution 25% to Keogh or SEP
multiply by 18.59%
274
retirement plan for company that has part-time employees, employees under 21 and minimal expenses to setup and maintain
SEP
275
SIMPLE plans are subject to what?
FICA and FUTA
276
Allows for a deceased spouse rollovers in looking for distribution before 59.5 while retired
Qualified Plans
277
Contributions to this NQDC plan are deductible to the employer and not subject to bankruptcy or creditors of employer
Secular Trust
278
a substantial risk of forfeiture avoids what?
constructive receipt
279
No risk of forfeiture is known as what?
constructive receipt
280
use of a company lodge on the weekend is
taxable
281
you can deduct investment interest expense up to what?
investment income
282
this type of investment is creditor protected
variable annuity
283
participation in a money-purchase plan is made available when?
21 years old and 1 year of full service (1000hrs)
284
if a plan is deemed "top heavy" what must an employer do to fix it?
make corrective distributions representing the greater of 3%...
285
subject to probate when decedent is an owner (bc of stock)
corporation
286
if a client wants LI to pay final bills and expenses, how should the bene be titled?
to the estate of the insured
287
claim for an income refund not yet received is included in a decedent's what?
probate estate
288
what debts are deductible from the gross estate?
gift taxes payable, debts (i.e. credit cards), interest due
289
taxable gifts are not included in what?
taxable estate
290
taxable gifts are added to what to get what?
taxable estate to get tax base
291
when 5 or 5 power is given, when is it included in the estate of the income bene?
when they haven't taken their 5 or 5 right for the year
292
remember, LI is included in what of a decedent?
Gross Estate
293
a lapse of general power will typically subject the holder to what?
a gift tax liability
294
what is caused when exceeding the annual gift exclusion of $19k ($38k with splitting)
taxable gift
295
an individual can gift $14,009,000 in a year without creating a what?
federal gift tax ($19k annual exclusion is included)
296
This is not added back in to find the taxable estate
GSTT paid
297
what form is federal estate tax filed on?
Form 706
298
what form is federal gift tax filed on?
Form 709
299
this finds assets once someone dies and moves the assets into a trust at death
Pour-over Will
300
Gifts at death are included in a decedents what?
Gross Estate
301
this accounts for the income to the beneficiary as well as the corresponding deduction for the trust
Distributed Net Income (DNI)
302
a 2503(b) trust is a gift of what?
future interest
303
in a 2503(b) trust, how are the income and principal distributed?
principal is not required to be distributed, income distributions are mandatory
304
What do you have to realize with an appreciated asset, in a bargain sale?
Capital Gains
305
CLAT's are typically earmarked for what?
Large Donations
306
FMV Charitable deduction
30% of AGI
307
if you do a charitable deduction of FMV, and 30% is less than the current FMV, what are you able to do?
carry over the deduction to subsequent years
308
Basis Charitable deduction
50% of AGI
309
a tax-deductible fund that can make distributions to support young talented individuals enhance their abilities
Private Foundation
310
this charitable gifting technique does not require a minimum annual distribution
CLUT
311
These charitable gifting techniques require a 5% distribution
CRAT, CRUT, and family foundation
312
retaining a life estate does what to a donor when deceased?
Keeps it in the donor's gross estate
313
Non-US citizen's that die in the US are still entitled to this, but not this?
Lifetime exclusion amount / marital exemption
314
private annuities create what?
phantom income
315
GRAT has fixed income for how long?
for a specified number of years
316
GSTT is paid by the trustee at the time of distribution is known as what?
A taxable termination
317
when someone is no longer a skip person, what happens to GSTT
No GSTT is due because there is no longer a skip person to gift to
318
this can only be used for REAL PROPERTY held in conjunction with a farm, ranch or closely held business
Special Use Valuation (2032A)
319
If a decedent has stock that declared a dividend but not paid it, this is considered what?
Income in Respect of a Decedent (IRD)
320
without a will
intestate
321
trust that provides surviving spouse w stream of income that will be paid for life yet also qualifies the property for the marital deductions
QTIP
322
irrevocable trust established to receive assets that are disclaimed by spouse
Disclaimer Trust (non-martial trust)
323
These trusts can have an ascertainable standard provisions?
QTIP, Bypass (non-martial), Life Insurance Trust
324
this intra-family estate technique can be used in conjunction with a Personal Service Corporation
Family Limited Partnership
325
this estate technique allows for discounted gifting and retained control of an asset
FLP
326
this technique pays a FIXED % to a non-charitable bene annually
CRUT
327
which charitable technique creates income without having the grantor create and maintain a trust?
Pooled Income Fund (PIF)
328
a decedent wants his kids to receive part of his property upon his spouse's death
Bypass Trust
329
a decedent wants his spouse to determine who will benefit from the assets passed on
Martial Trust (A)
330
Fed Gift Tax return is not required unless gifts exceed $19k to any one donee for gifts of?
Present Interest
331
Pure life annuity distributions are what when the annuitant dies?
removed from the estate
332
retirement plans permitted to offer 401(k) provisions
profit sharing and stock bonus plans
333
business is included in what at an owner's death
gross estate/probate
334
children pay FICA tax unless their parents own a what?
S Corp
335
this has tax-exempt income, not tax-deferred
private activity muni-bonds
336
Premiums can count as what towards an ex-spouse?
Alimony
337
Premium payments don't show what?
incidents of ownership
338
variable annuity doesn't get this and is subject to what when an annuitant passes?
no step-up in basis/subject to income tax
339
gifting shares to a charity in a charitable contribution can eliminate what?
capital gains
340
Systematic Risk has PRIME
Purchasing power risk, reinvestment rate risk, interest rate risk, market risk, exchange rate risk
341
Beta is what kind of risk
Systematic Risk only
342
Brokerage CDs have what because they are traded?
Interest Rate Risk
343
Annual Interest in Dollars / Bond Price =
Current Yield
344
What instrument do you pay taxes on the interest paid, and the principal that accrues, but principal is added to basis since not paid out?
Treasury Inflation-Protected Securities (TIPS)
345
These bonds are adjusted for Inflation AND Deflation
TIPS
346
This is a MBS and purchases a pool of FHA/VA loans. Is guaranteed by the Govt
Ginnie Mae (GNMA)
347
This type of muni bond is the riskiest of muni bonds
Revenue Bond
348
Risks associated with Corporate and Muni Bonds:
DRIP: Default (Credit), Reinvestment, Interest Rate, Purchasing Power
349
Treasury Bonds only have RIP
No default risk, but Reinvestment, Interest Rate, Purchasing Power
350
(Par / Conversion Price) x Current Stock Price =
Conversion Value
351
at least 50% of dividends received are tax excluded when what?
A corporation treasurer buys preferred stock
352
can trade options on this
ETFs
353
gross rental receipts +nonrental income = potential gross income - vacancy losses - operating expenses (excludes interest & depreciation) =
Net Operating Income (NOI)
354
NOI / capitalization rate =
intrinsic value
355
this is bad for mortgage REITs
inflation
356
which investment provides maximum leverage and maximum hedge against inflation?
improved land
357
An investor who exercises a LEAP option and then sells the shares will be subject to what?
Short-term Capital gains rates
358
qualified purchaser
at least $5M in investments
359
Risk-Adjusted Return. To standardize for risk, do this:
Divide specific fund's realized return by its beta coefficient
360
FV; -1 PV; N; solve for I/YR
Geometric Mean Formula
361
which govt bonds are only subject to IP of RIP?
EEs and STRIPs (bc they bear no interest)
362
High Coupon = what kind of duration
Low Duration (inversely related)
363
in a bond portfolio, what should you do to minimize the investment risk
immunize the portfolio
364
This is a deposit in any foreign bank that is denominated in dollars
A Eurodollar
365
These are riskless and sold up to $1M denominations
T-bills
366
GNMAs are subject to what kinds of risk?
interest rate and reinvestment rate risk
367
GICs are NOT subject to this kind of risk bc it falls on the insurance company
Interest rate risk
368
How much of a REIT can come from securities like GNMAs?
UP TO 15%
369
Daily limit on a futures contract refers to max permissible what?
increase or decrease relative to settlement price the previous day
370
first year mortgage payments are mostly what?
interest payments
371
Standards of Conduct owed to a client
Duty of Loyalty, Duty of Care, Integrity, Competence, Diligence, Disclose and Manage Conflicts of Interest, Professionalism
372
Uninsured Motorist protection is what?
Liability Protection
373
These are covered by 'other than collision' for auto policies
Flood, Earthquake, and contact with animal
374
This benefit is solely funded by the employer
Health Reimbursement Account (HRAs)
375
A business may deduct a limited amount of interest on these types of policies limited to this amount?
Key Employee policies/up to $50K
376
Dying within three years of a transfer, even if to a qualified transfer of value of person, does what?
include life insurance policy in your gross estate
377
Income from collectibles is what, and must be reported as what?
A hobby, and reported as miscellaneous income (sch 1)
378
Qualifying dividends are taxed as what?
Capital Gains
379
Non-qualifying dividends are taxed as what?
Ordinary Income
380
This implies over $25M in revenue, therefore it can used which tax reporting methods
"Large Group"/ accrual or hybrid
381
Prior to 2018 NOLs were allowed for what business?
Estates, Self-Employed and Corporations
382
NOLs after 2018
not allowed to look back. Can carry forward
383
1244 stock loss is what? Anything pass that is what?
ordinary loss/capital loss
384
how much 1244 ordinary loss can be taken?
$50k single/$100k married
385
Losses cannot be taken on what?
The sale of a personal residence
386
pre-2019 alimony and this are deductible to the payor spouse
separate maintenance agreements
387
Foundations are what type of charities
Private Charities
388
for a self-employed individual, what health expenses can you and can you not deduct?
A spouse's medical and both yours and spouses LTC. Medicare Part B is not deductible
389
Private activity Muni Bond Income / property tax
preference item / add back item
390
Section 179 allows you to what?
Fully deduct the cost in the same year
391
If there is a complex issue and this is an option, what should you recommend a client do?
Hire an Attorney
392
a qualified adoption expense
travel to a foreign country to adopt
393
SSA; Married; Over $32k; Over $44k
50% taxable/85% taxable
394
what plan would an employer use to retain key young employees, simple to administer and explain, and requires stable cash flow to profit to make fixed contributions
Money Purchase Pension Plan
395
what plan benefits older employees, contributions are determined by an actuary, but the retirement benefit is determined by the participant's account balance?
Target Benefit Pension Plan
396
What is also known as a CODA?
401(K) Plans
397
What plan should be used if a company wants to broaden ownership of its stock?
ESOP
398
The difference between the employer's cost basis and market value at lump-sum distribution to the employee
Net Unrealized Appreciation (NUA)
399
15yrs of service, $3k catch-up provision
403(b)
400
Only non-DC or non-DB plan that can be integrated with Social Security
SEP
401
Withdrawal of Converted Roth Assets no penalty
59.5 OR 5-yr holding
402
Withdrawal of Roth Earnings no tax or penalty
59.5 AND 5-yr holding
403
ISOs are sold in the same calendar year as ISOs were exercised
taxable compensation and subject to FICA and FUTA
404
ISOs are sold within 12 months of exercise but following calendar year
ordinary income and NOT subject to FICA/FUTA
405
corporation does not ordinarily get a tax deduction for this? But would get a deduction when it becomes this?
ISO/NSO
406
lesser of base or 5.7% (DC Plans)
Permitted Disparity (Social Security Integration)
406
Ratio percentage test HCE vs NHCE
% of HCE covered x Ratio % test = amount of NHCE that must be covered (or flip side amount that can be excluded)
407
can make plan loans
All Qualified Plans and 403b
408
may not sponsor 403b programs
Government Entities
409
May not sponsor 457 programs
Churches
410
UBTI
Unrelated Business Taxable Income
411
In what NQDC plan must a participant not have greater rights than unsecured creditors
Rabbi Trust
412
In a DC plan, to make a max SS wage base using excess percentage
take the percentage given for max excess and subtract it by 5.7%
413
No income phaseout for IRA when primary retirement plan is this. Makes IRA this.
457/deductible
414
NQDC is only available when?
C Corps
415
These employees cannot get widow's benefits for this, and receive their pension benefits
Railroad Employees
416
What retirement plan could cause phantom income?
ESOP
417
How can you eliminate phantom income in an ESOP? If this is done, what happens to stock?
Rollover to IRA and 72T distributions eliminate phantom income. Stock losses NUA status
418
Allows employer to elect a 1% match in no more than 2 years of any 5 year period
SIMPLE IRA
419
This is a qualified plan that is protected from creditors
Simple 401(k)
420
DOL will not terminate a plan for being what? And it has to follow what rules?
Top Heavy/will stay qualified but have to follow top heavy rules
421
DB Plan fully funded with life insurance
412(e)3 or 412(i)
422
W2 shows not an active participant in a profit sharing, what is allowed?
deductible IRA contributions
423
What is most important when evaluating a client who inherits money to determine RMD needs?
Age
424
On distribution from an ESOP, must recognize employer's basis as what?
Ordinary income
425
when reading a scenario question, I should do what?
look deeper into taxable impact of each option
426
Spouses get a step-up in basis on all of this kind of property in a community property state?
LTCG property
427
A remainder interest is a gift of what?
Future Interest
(Life estates)
428
These are appointed by a court?
Guardian and Conservator
429
A tainted trust is desirable for income tax purposes but a client doesn't want it for what? Why?
Estate tax purposes bc of double taxation
430
A tainted trust can be subject to double taxation if
Grantor has reversionary interest > 5% or beneficial enjoyment
431
2503(b), QTIP, QDT/QDOT, Dynasty
Simple Trusts
432
Income from a simple trust
must be distributed
433
Capital gains in a simple trust
an addition to corpus, and is taxed as such to the trust
434
Another term for HEMS
Ascertainable Standard
435
A Dynasty Trust is a gift of what? And therefore cannot what?
Future Interest. No annual exclusion
436
These are all subject to a minimum 5% distribution rule?
CRAT, CRUT, Private Foundation
437
Do not use this intrafamily transfer technique if property is subject to recapture.
Installment Sale
438
if the transfer is a direct skip, who pays the GST?
The transferor
439
If the transfer is a taxable distribution, who pays the GST?
The transferee
440
If the transfer is a taxable termination, who pays the GST?
The trustee
441
What type of business can use the Section 303 technique?
Closely held corporation
442
What kind of business must a property be in to use Installment 6166?
Sole Prop, Partnership, or Corporation
443
what are the best planning considerations for unmarried partners?
Revocable Trust or TIC
444
This is a good planning technique for nontraditional family members
GRIT
445
Property subject to this appointment is included in gross estate of decedent
general power of appointment
446
Property subject to this appointment is not included in the gross estate of decedent
special power of appointment
447
this is deductible from the gross estate to get the adjusted gross estate
unpaid federal gift tax
448
This is only available for husband and wife (married couple)
QTIP
449
this is considered a freezing technique for the gross estate
recapitalization
450
a business may be allowed to take this discount. it accounts for the risk that a company's value will decrease significantly. discount applies to the business's valuation which results in lower estate and gift tax
key person discount
451
income tax paid to the estate, the amount that the estate increases by, not the income tax liability is what?
deductible to the estate
452
living will and general powers of appointment are not what?
powers of attorney
453
HEMS money is only allowed to be used by whom?
person who has HEMS rights and does the withdrawing
454
residence can apply as this even when lifetime right is not transferred through trust. will provide lifetime occupancy.
terminable interest property
455
can do this at death? will allow corp stock basis to get a step-up and pay the dod value
installment sale at death
456
this business entities operate under conduit principle
LLC and Sole Prop
457
this is a good planning technique for married couples
bequeath as much as practical to a bypass trust to take advantage of exemption
458
this estate technique is usually used to preserve trust principal for the grantor's children
QTIP
459
these are choices for a non-us citizen to do when spouse leaves them a large estate
QDT or pay estate tax
460
this is generally not a minor trust
2503(b)
461
a gift of present interest and can continue on indefinitely
crummey trust
462
utma is not a trust but this is a trust for minor children
2503(c)
463
inherited appreciated property always gets what?
LTCG treatment
464
if a partnership is inherited, what post mortem technique should be used?
6166
465
the deferral of all income applies to what investment instrument?
I Bonds
466
what can make an option a LTG?
writing a hedged position (and holding underlying position long-term)
467
The 'y' is the change of a price of a bond calculation stands for what?
YTM
468
What business type with K1 income do you have to pay self-employment tax on?
General Partnership
469
FICA tax amounts and % (W2 earnings)
Social Security 6.2% up to $176,100.
Medicare 1.45% up to Infinity
470
what type of interest can be deducted without any limits?
sole proprietor loans
471
what tax section are intangibles amortized under?
section 197
472
boot received =
recognized gain
473
boot paid =
add to basis
474
basis from last property in a 1031 exchange is what?
carried over from last property
475
What are the 4 preference items for AMT?
intangible drilling costs, Private-activity muni bonds, oil and gas % depletion (not cost depletion), depreciation (not straight line)
476
What are the add back items for AMT?
ISOs, property state and city/income taxes, home equity indebtedness (as home improvement), itemized deductions
477
can you take a $3,000 capital loss as an active participant?
No. You can take a $25k loss with AGI under $150K from real estate activity
478
charitable donation of LTCG property deduction amounts?
30% of AGI for FMV
50% of AGI for basis
479
charitable donation of ordinary income property deduction amounts?
limited to basis
480
What are the different ways money can added in a DC plan?
Employee Deferral ($23,500)
Employee Contribution ($7,500 over 50)
Employer Match
Employer Contribution (25%)
Annual Additions ($70K limit)
481
Key Employee
> 5% owner
officer and compensation > $230K
> 1% owner and comp > $160k
481
Highly Compensated Employee (HCE)
> 5% owner or
any employee earning +$160K
482
Property that would have been community property except for the fact it was acquired while the couple was living in a noncommunity property state
Quasi-community property
