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Flashcards in 5 - Trading Equities & Retirement Plans Deck (154)
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1
Q

When a written trade confirmation must be given or sent to a customer

A

At or before the completion of the transaction (settlement)

2
Q

The capacity shown on a confirmation when the shares are sold from the inventory of the broker-dealer

A

Principal

3
Q

The capacity shown on a confirmation when the broker has arranged a trade between a buyer and seller

A

Agent

4
Q

Compensation charged when a dealer sells shares from inventory

A

Mark-up

5
Q

Compensation charged when a dealer purchases shares for inventory

A

Mark-down

6
Q

Compensation charged when a broker transacts an order on a client’s behalf

A

Commission

7
Q

Standard trading unit of equity securities

A

Round lot (100 shares)

8
Q

Order that is executed immediately at the current price, and has priority over all other orders

A

Market order

9
Q

An order that is entered to protect a profit or prevent a loss

A

Stop order

10
Q

Can be executed only at the specified price or better

A

Limit order

11
Q

When principal approval is required for a new customer account

A

At or promptly after the first transaction in the account

12
Q

Type of trading authorization granted to permit a third party to make trades but not withdraw cash or securities

A

Limited trading authorization

13
Q

Type of trading authorization granted to permit a third party to make trades and withdraw cash or securities

A

Full trading authorization

14
Q

Two types of custodial accounts established for minors

A

UGMAs and UTMAs

15
Q

Joint account that passes assets to remaining tenant at death with no probate

A

Joint tenancy with rights of survivorship (JTWROS)

16
Q

Type of account that passes assets by will to the heirs

A

Joint tenants in common (JTIC)

17
Q

Type of joint account that permits unequal ownership interests

A

Joint tenants in common (JTIC)

18
Q

Type of joint account that requires equal ownership interests

A

Joint tenancy with rights of survivorship (JTWROS)

19
Q

Type of account that authorizes registered representative to make trades on behalf of the customer

A

Discretionary

20
Q

Type of individual account that passes assets to a named beneficiary at death and avoids probate

A

Transfer on death (TOD)

21
Q

Three trading restrictions for custodial account

A

Short sales, uncovered options, margin accounts

22
Q

Prohibited practice of trading frequently to boost commissions

A

Churning

23
Q

The number of days a firm has to validate positions when an account transfer is requested

A

One business day

24
Q

The number of days a firm has to transfer the securities after the account has been frozen

A

Three business days

25
Q

Two order instructions that are not considered discretionary

A

Time and price

26
Q

Length of time mail can be held for customers that are traveling in the U.S.

A

2 months

27
Q

Length of time mail can be held for customers that are traveling outside of the U.S.

A

3 months

28
Q

Minimum frequency a statement must be sent to a customer in an inactive account

A

Quarterly

29
Q

Frequency with which account statements are sent to customers in an active account

A

Monthly

30
Q

Minimum frequency statements are sent to customers if penny stocks are held in the account

A

Monthly

31
Q

When a principal must approve an order ticket

A

Promptly after execution

32
Q

The number of days after account opening a firm has to furnish a copy of the account record to the customer

A

30 days

33
Q

Two required documents for opening a corporate account

A

Corporate charter and corporate resolution

34
Q

Account charge that is appropriate only for persons who engage in moderate to active trading

A

Fee-based

35
Q

Account charge that is appropriate for persons who engage in little trading activity

A

Commission

36
Q

Accounts that provide a group of services such as asset allocation and portfolio management, and are generally available through investment advisors

A

Managed accounts

37
Q

Document that must be obtained when opening a partnership account

A

Partnership agreement

38
Q

An individual who is charged with prudently managing a custodial account to achieve the stated investment objectives

A

Fiduciary

39
Q

Series of steps that a firm must follow at the death of an individual account owner

A

Cancel all open orders, freeze the account, await instructions

40
Q

The party that can buy, sell or liquidate securities in an UGMA account

A

Custodian

41
Q

When assets transfer to the donee in an UGMA account

A

Age of majority

42
Q

The Social Security number on an UGMA account form

A

The minor’s

43
Q

Documents that can confirm identity of a new customer as specified by a firm’s Customer Identification Program

A

Unexpired driver’s license or passport

44
Q

The organization that maintains a list of known or suspected terrorists that must be checked when a firm verifies a new customer’s identity

A

US Treasury (Office of Foreign Assets Control – OFAC)

45
Q

The frequency that customer account information must be updated

A

Every 3 years

46
Q

Frequency that privacy notices must be provided to customers after account opening

A

Annually

47
Q

Protects a profit or limits a loss in a short stock position

A

Buy stop order

48
Q

Protects a profit or limits a loss in a long stock position

A

Sell stop order

49
Q

Orders that are entered below the current market price

A

Buy limits, sell stops and sell stop limits

50
Q

Orders that are entered above the current market price

A

Sell limits, buy stops and buy stop limits

51
Q

Order that is to be executed immediately in its entirety

A

Fill-or-Kill

52
Q

Order that is to be executed immediately; partial execution is acceptable, remainder is canceled

A

Immediate-or-cancel

53
Q

Execute the entire order or none of it; does not require an immediate fill

A

All-or-none

54
Q

Price-weighted index of 30 “blue chip” U.S. stocks of industrial companies

A

Dow Jones Industrial Average

55
Q

Capitalization-weighted index of 500 stocks, regarded as the standard for measuring large-cap U.S. stock market performance

A

S&P 500

56
Q

Used in anticipation of a breakout of the level of resistance

A

Buy stop order

57
Q

Used in anticipation of a breakout of the level of support

A

Sell stop order

58
Q

Upon receipt of an ACAT form, a firm must verify the account positions within

A

1 business day

59
Q

A pattern day trader effects 4 or more day trades within a

A

5 business day period

60
Q

Customers must receive a copy of new account form every

A

36 months

61
Q

Order ticket must be filled out prior to

A

order execution

62
Q

Customers must be given a copy of new account form within

A

30 days of account opening

63
Q

If traveling internationally, customer mail can be held for

A

up to 3 months

64
Q

The party that can buy, sell or liquidate securities in an UGMA account

A

Custodian

65
Q

When assets transfer to the donee in an UGMA account

A

Age of majority

66
Q

The Social Security number on an UGMA account form is that of

A

The minor

67
Q

Category of retirement plans with tax deductible contributions

A

Qualified

68
Q

Retirement plan category that can make non-deductible contributions on a discriminatory basis

A

Non-qualified

69
Q

Annual IRA catch-up contribution amount allowed for individuals 50 and over

A

$1,000

70
Q

Age at which distributions from an IRA may begin without penalty

A

59.5

71
Q

In a traditional IRA account, age at which distributions must begin to avoid penalties

A

72

72
Q

Amount of IRA insufficient distribution penalty

A

50% of amount that should have been withdrawn

73
Q

Amount of IRA early distribution penalty

A

10% of amount distributed (plus ordinary income)

74
Q

Five events prior to age 59 1/2 that will not trigger an IRA early distribution penalty

A

Death; disability; 1st time home purchase; education expenses for taxpayer, spouse, child or grandchild; medical premiums for unemployed; and excess medical expenses

75
Q

Two examples of ineligible IRA investments

A

Collectibles and life insurance

76
Q

Three investment practices that are prohibited in IRA accounts

A

Short sales of stock, speculative options strategies, margin account trading

77
Q

Time limit allowed for completion of an IRA rollover

A

60 days

78
Q

Number of IRA trustee to trustee transfers allowed in one year

A

No limit

79
Q

Tax status of contributions made to Roth IRAs

A

After tax

80
Q

Tax status of distributions from Roth IRAs

A

Non-taxable

81
Q

Withholding tax that applies when an individual receives a distribution of assets from an employer-sponsored qualified plan prior to age 59 1/2.

A

20%

82
Q

Permit after-tax contributions of $2,000 per student for children under age 18

A

Coverdell Education Account (Education Savings Account)

83
Q

Age at which funds from Coverdell accounts must be distributed or rolled into an ESA for another family member

A

30

84
Q

Federal tax status of contributions made to Section 529 plan

A

After-tax

85
Q

Tax advantage available for 529 plan contributions in many states to state residents

A

Contributions to 529 plan sponsored by that state are tax deductible on state tax returns

86
Q

Type of small business retirement plan in which IRAs are set up by employees to receive employer contributions

A

Simplified employee pension plans (SEPS)

87
Q

Taxation that applies to a lump sum withdrawal from an IRA account at age 55

A

Ordinary income + 10% penalty

88
Q

Retirement plan for self-employed persons, unincorporated businesses or professional practices

A

HR-10 plan (Keogh plan)

89
Q

Penalty for excess contributions made to an IRA account

A

6%

90
Q

Qualified plan available to employees of non-profit organizations; funded by elective employee deferral

A

403(b) (TSA plan)

91
Q

Type of qualified plan that promises a specified benefit at retirement

A

Defined benefit

92
Q

Type of defined contribution plan that allows employee pre-tax contributions which may be matched by employer contributions up to a certain percentage

A

401(k) plan

93
Q

Federal regulation that specifies guidelines for private sector and certain union plans

A

Employee Retirement Income Security Act (ERISA)

94
Q

Schedule that identifies employee entitlement to pension benefits, based on years of service

A

Vesting schedule

95
Q

ERISA clause that specifies impartial treatment for eligible employees

A

Non-discrimination clause

96
Q

ERISA-defined employee eligibility requirements for plan participation

A

21 years of age; one year of full time service, minimum of 1000 hours

97
Q

ERISA criteria for qualified corporate retirement plans

A
  1. Eligible to all employees 21 years old with at least one year of service and who work full time.
  2. A vesting schedule.
  3. Nondiscrimination, a uniform formula to determine employee benefits
98
Q

ERISA Section 404

A

Requires retirement plan trustees (fiduciaries) act in the best interest of the plan participants and beneficiaries and invest prudently (i.e. in a diversified manner). Trustees can delegate investment choices to an investment advisor.

99
Q

ERISA Section 404(c)

A

404(c) of ERISA permits a retirement plan trustee to delegate investment responsibility to the plan participants for their own accounts (typically in a 401(k) plan). Participants must have:

  1. investment selection,
  2. investment control, and
  3. adequate communication
100
Q

What is the penalty for excessive IRA contributions?

A

6% penalty on the excess contribution

101
Q

Category of retirement plans with tax deductible contributions

A

Qualified

102
Q

Retirement plan category that can make non-deductible employee contributions on a discriminatory basis

A

Non-qualified

103
Q

Annual IRA catch-up contribution amount allowed for individuals 50 and over

A

$1,000

104
Q

Age at which distributions from an IRA may begin without penalty

A

59 1/2

105
Q

In a traditional IRA account, age at which distributions must begin to avoid penalties

A

72

106
Q

Amount of IRA insufficient distribution penalty

A

50% of amount that should have been withdrawn

107
Q

Amount of IRA early distribution penalty

A

10% of amount distributed (plus ordinary income tax)

108
Q

Five events prior to age 59 1/2 that will not trigger an IRA early distribution penalty

A

Death; disability; 1st time home purchase; education expenses for taxpayer, spouse, child or grandchild; medical premiums for unemployed; and excess medical expenses

109
Q

Two examples of ineligible IRA investments

A

Collectibles and life insurance

110
Q

Three investment practices that are prohibited in IRA accounts

A

Short sales of stock, speculative options strategies, margin account trading

111
Q

Time limit allowed for completion of an IRA rollover

A

60 days

112
Q

Number of IRA trustee to trustee transfers allowed in one year

A

No limit

113
Q

Tax status of contributions made to Roth IRAs

A

After tax

114
Q

Tax status of distributions from Roth IRAs

A

Non-taxable

115
Q

Withholding tax that applies when an individual receives a distribution of assets from an employer-sponsored qualified plan prior to age 59 1/2.

A

20%

116
Q

Type of small business retirement plan in which IRAs are set up by employees to receive employer contributions

A

Simplified employee pension plans (SEPS)

117
Q

Taxation that applies to a lump sum withdrawal from an IRA account at age 55

A

Ordinary income on earnings + 10% penalty

118
Q

Retirement plan for self-employed persons, unincorporated businesses or professional practices

A

HR-10 plan (Keogh plan)

119
Q

Penalty for excess contributions made to an IRA account

A

6%

120
Q

Qualified plan available to employees of non-profit organizations; funded by elective employee deferral

A

403(b) (TSA plan)

121
Q

Type of qualified plan that promises a specified benefit at retirement

A

Defined benefit

122
Q

Type of defined contribution plan that allows employee pre-tax contributions which may be matched by employer contributions up to a certain percentage

A

401(k) plan

123
Q

Federal regulation that specifies guidelines for private sector and certain union plans

A

Employee Retirement Income Security Act (ERISA)

124
Q

Schedule that identifies employee entitlement to pension benefits, based on years of service

A

Vesting schedule

125
Q

ERISA clause that specifies impartial treatment for eligible employees

A

Non-discrimination clause

126
Q

ERISA-defined employee eligibility requirements for plan participation

A

21 years of age; one year of full time service, minimum of 1000 hours

127
Q

An IRA rollover must be completed within

A

60 days

128
Q

Distributions from tax deferred annuities are

A

100% taxable

129
Q

A retirement plan requiring the services of an actuary to determine annual contributions

A

Defined benefit plan

130
Q

The penalty that applies if funds are withdrawn from an annuity before age 59 1/2.

A

10% penalty on earnings

131
Q

Number of IRA rollovers permitted each year

A

One

132
Q

An employee’s pension payments are based on his salary and length of service. He does not bear the risk of the pension being affected by market performance. He is enrolled in a

A

defined benefit plan

133
Q

Define:

defined benefit plan

A

A type of retirement fund that pays out a set benefit upon retirement. A pension is an example of a defined benefit plan.

134
Q

Define:

defined contribution plan

A

A retirement plan where there is no guarantee of value upon retirement. Usually investment choices are controled by the employee. A 401(k) plan is an example of a defined contribution plan.

135
Q

Define:

ERISA

A

A law passed by Congress that governs qualified corporate retirement plans. According to ERISA, for a plan to be qualified and eligible for tax-deductible contributions, it must be offered to all full-time employees with at least 21 years of age and one year of service with the employer. The plan must also have a vesting schedule.

136
Q

Define:

non-qualified corporate retirement plan

A

A corporate retirement plan, such as a deferred compensation or payroll deduction plan, that is not required to meet strict ERISA guidelines. Instead, companies have the flexibility to choose which employees are offered to participate in the plan. Because these plans are discriminatory, they do not allow deductible contributions. Instead, after-tax contributions are made, which grow tax-deferred, and when distributions are taken, only the growth is taxed as ordinary income.

137
Q

Define:

profit-sharing plan

A

A type of qualified, defined contribution corporate retirement plan that allows
companies to contribute to their employees’ retirement based on the companies’ profits. Because these plans are qualified, they allow for tax-deductible contributions.

138
Q

Define:

required minimum distribution

A

Requires the owner of a traditional IRA to begin minimum withdrawals specified by IRS rules from the account by April 1st following the individual’s 72 birthday.
Any shortfalls in this distribution are penalized with a 50% tax on the under-distribution amount.

139
Q

Define:

rollover

A

The process of an investor moving their retirement funds from one custodian to another. In a rollover, the individual takes possession of the funds and from that point has 60 days to move the funds to the new custodian or else it may be considered a distribution and taxes and penalties may apply.

140
Q

Define:

Roth IRA

A

A type of IRA that requires after-tax contributions, but allows the assets in the plan to grow tax-free. Distributions from the plan are also completely tax-free as long as the assets have been in the plan for at least five years and withdrawals do not begin prior to age 59 1/2. Only individuals who have income below a certain threshold are allowed to contribute to a Roth IRA.

141
Q

Define:

Transfer

A

Occurs when an individual moves their retirement plan from one custodian to another. Because the individual does not take possession of the funds, there are no potential tax consequences or penalties.

142
Q

Define:

money purchase plan

A

A type of defined contribution retirement plan where each year the employer contributes a specified percentage of the employee’s compensation to the plan.

143
Q

What does the acronym ERISA refer to?

A

ERISA stands for Employee Retirement Income Security Act.

It defines what types of plans may be considered qualified plans for the purposes of retirement planning.

144
Q

What does it mean for a plan to be “qualified”?

A

Qualified plans allow the investor to contribute to the plan prior to taxes being taken out of their paycheck. This means they have a lower gross income, which is good for tax purposes, but it also means they have never paid taxes on those contributions to the retirement plan.

145
Q

What are the tax characteristics of an ERISA plan?

A
  • Contributions are made with pre-tax dollars
  • The earnings grow in the plan tax-deferred
  • All distributions are taxed as ordinary income
146
Q

What are the tax characteristics of a non-qualified corporate plan?

A
  • Contributions are made with after-tax dollars
  • The earnings in the plan grow tax-deferred
  • When distributions are taken from the plan, only the growth is taxed as ordinary income
147
Q

What is the maximum contribution in an IRA Account?

A

Currently the cap on contributions is $6,000 per year for those under age 50 and $7,000 for those over 50 (referred to as a catch-up contribution)

148
Q

Up until what date may a prior year contribution be made to an individual’s IRA?

A

Individuals may make IRA contributions until April 15th of the following year, i.e. an individual can contribute for 2018 until April 15th of 2019.

149
Q

Before what age and at what rate are early withdrawals from a traditional IRA penalized?

A

Before 59 1/2, early withdrawals are penalized at 10%.

150
Q

When do mandatory distributions begin from a traditional IRA?

A

Mandatory distributions from an IRA must begin on the April 1st of the calendar year following an individual’s 72nd birthday.

151
Q

What is an IRA rollover and how often can they occur?

A

Whan an employee leaves an employer with assets in a qualified plan, that employer may choose to do nothing and keep those funds in the employee’s plan while retaining ownership, or they may choose to move their qualified dollars from the 401(k) to an IRA. This is called a Rollover and it can happen once per year.

152
Q

Can an IRA hold any type of asset?

A

No

IRAs are limited to holding regular securities such as stocks, bonds, and annuities, and can also hold precious metals. They cannot hold art, raw commodities, land, real estate or insurance policies.

153
Q

What is the age for mandatory distributions in a ROTH IRA?

A

Unlike Traditional IRAs, Roth IRAs do not have a mandatory age distribution.

154
Q

Can anyone contribute to a Roth IRA?

A

No, only individuals below a certain income threshold can contribute to a Roth IRA. This is because a Roth provides unique tax benefits as the earnings and growth are completely tax-free as long as the individual takes distributions after age 59.5 and the money has been in the plan for at least five years.