CFP Review Flashcards

Question

What is the additional deduction amount for individuals 65+ and/or blind filing single?

Answer 1

$1,850 and it is doubled if they are both blind and over 65

Answer 2

$1,500 and it is doubled if they are both blind and over 65

Answer 3

Act Honest Act in client best interest Avoid conflict of interest Act in a positive manner Maintain client privacy Excercise Care

Answer 4

Duty of Care Duty of Loyalty Duty to follow client instructions

Answer 5

Understand client's financial circumstance Identify goals Analyze the current course of action Develop Financial Planning recommendations Present Financial Plan Implement Financial Plan Monitor Financial Plan

Answer 6

90 days and 5 years

Answer 7

Consumption + Investment + Government + Net Exports

Answer 8

demand responds little to price change

Answer 9

Risk Avoidance Risk Reduction Risk Transfer Risk Retention

Answer 10

Self 3850 Family 7750

Answer 11

55+ $1,000

Answer 12

20 or more

Answer 13

Cannot exceed 102% of cost paid by employee and employer

Answer 14

Nursing home care (highest), Assisted Living Facility

Answer 15

Blindness and Inability to walk

Answer 16

2 ADLs or Cognitive impairment

Answer 17

Under Option A, the death benefit remains level through the life of the policy. This means the amount your beneficiaries will receive upon your death does not change over time, assuming no loans or withdrawals are made against the policy value.

Answer 18

Death benefit is face amount plus cash value

Answer 19

FV = (what is the amount needed on day one of retirement) N = years from retirement until death i = 1 + ROR/ 1 + Inflation PV = solve for PV of AD PV + FV = funds needed

Answer 20

Solve 2 PV calculations! (Beg mode) PMT = Enter payment client wants to receive each year N = enter years of retirement until death FV = 0 [Always 0 they will die with no money left] i = ROR - Inflation / 1 + Inflation PV = Solve for PV of AD FV = PV of AD from step one [how much money will i need in the future] N = same from step 1 i = no inflation calculation just ROR PV = solve for PV PV1 + PV2 = Solution

Answer 21

Traditional Profit sharing 401(k) ESOP Stock Bonus Plan

Answer 22

Money Purchase Pension Plan Target Benefit Plan

Answer 23

3 year cliff 2-6 graded

Answer 24

Money Purchase Plan Target Benefit Plan

Answer 25

5 year cliff 3-7 year graded

Answer 26

3 year cliff

Answer 27

33k total (22,500 + 7,500 + 3,000)

Answer 28

Mutual Funds and Annuities

Answer 29

Multiple owners with an individual interest

Answer 30

Two spouses with approval

Answer 31

Durable Power of Attorney

Answer 32

The donee will assume the donor's basis and holding period

Answer 33

FMV - basis / FMV - Gift Tax Exclusion = Gift tax ratio Gift tax Paid * Gift Tax Ratio = X Basis = X + Original Basis

Answer 34

Federal Reserve

Answer 35

Sp = Return of port - Risk free rate / Standard Deviation Sp = Rp - Rf / Op Appropriate when r2 is < .7

Answer 36

Measures risk-adjusted performance of manager Tp = Return of Port - Risk Free Rate / Beta Tp - Rp - Rf / Bp Appropriate when r2 is > .7

Answer 37

Expected Return = Risk Free + (market return - risk free) Beta Ri = Rf + (Rm - Rf)Bi

Answer 38

Measure used to evaluate portfolio managers r2 must be above .70 Alpha = Port Return - [risk free + (market return - risk free)Beta] ap = Rp - [Rf+(Rm - Rf)Bp]

Answer 39

15.3% with 12.4% SS and 2.9% Medicare

Answer 40

100% employer funded

Answer 41

When more than 60% of plan benefits or contributions is key employees

Answer 42

When inventory is involved of the average gross receipts over the last 3 years is greater than 29MM

Answer 43

Required to distribute all accounting income to beneficiaries in year earned May not have charitable beneficiary Cannot distribute principal during the tax year Have a personal exemption of 300

Answer 44

Are not required to make distributions May have charitable beneficiary May distribute principal during the tax year Personal exemption of $100

Answer 45

Testamentary Living Revocable Irrevocable

Answer 46

Number of partners and/or shareholders

Answer 47

weighted average of the present value of future cash flows of a bond always stated in years always shorter than maturity

Answer 48

The lower of YTM and YTC which is the YTW

Answer 49

🔺P / P = -D[🔺y/1+y]

Answer 50

A Section 2503(b) trust, also known as a Qualifying Minor's Trust or Mandatory Income Trust, is an irrevocable trust established for the benefit of a minor child or other beneficiaries. It is named after Section 2503(b) of the Internal Revenue Code, which allows an exception to the general rule that only gifts of present interests qualify for the annual gift tax exclusion. Here are the key aspects of a Section 2503(b) trust: Income distribution: The trust must distribute all income earned at least once a year to the beneficiary, but there is no requirement to distribute the principal 1 . Irrevocable: Once the trust is formed, a beneficiary named, and assets transferred to the trust, it cannot be altered or ended 1 . Tax rules: For federal gift tax purposes, transfers to a Section 2503(b) trust are treated as present interest gifts that qualify for the annual gift tax exclusion 1 . Income tax savings: There may be substantial income tax savings if the beneficiary is not subject to the kiddie tax 1 . Estate tax savings: The assets in the trust, including any appreciation in their value, are not included in the grantor's estate 1 . Costs: Establishing and maintaining a Section 2503(b) trust involves costs, such as hiring an experienced estate planning attorney and potentially a professional trustee

Answer 51

Irrevocable trust Qualified personal residence trust Holds a persons residence Allowing them to live rent free for a specified time At the end of term home will pass gift tax free to trust beneficiaries

Answer 52

Qualified domestic trust Allows marital deduction for property placed in a special trust for the benefit of non citizen spouse

Answer 53

Form 1041 Form 1041 NR (trustee of foreign trust)

Answer 54

Accounts or notes receivable acquired in ordinary business Copyrights Inventory or property held for sale Depreciable property used in business

Answer 55

Personal business property such as furniture and computers

Answer 56

Realty property such as commercial buildings

Answer 57

Education expense Health Insurance Home buying

Answer 58

Qualified plans there is no penalty Traditional Roth, SEP, Simple IRA there is no exception

Answer 59

Grantor Retained Annuity Trust -Irrevocable trust -Minimizes Tax on large financial gifts -Grantor puts assets in a trust for a set period and the trust pays an annuity -Interest is taken on the value of the assets when trust is created any growth over the valuation is tax free - Reduces the size of grantors estate - When you establish a GRAT, you're effectively making a gift to the beneficiaries. The value of this gift is calculated based on the present value of the remainder interest

Answer 60

PITI / Gross Monthly Income Pass <= 28%

Answer 61

PITI + Monthly Consumer Debt / Gross Monthly Income Pass <= 36%

Answer 62

Monthly Consumer Debt / Monthly Net Household Income Pass <= 20%

Answer 63

Seamus purchased 350 shares of KAN which currently pays $225 of annual dividends. Dividends on the KAN shares are expected to grow 1.78% annually for the next three years. After three years, KAN dividends are projected to grow at 0.92%. Seamus has a required rate of return of 7.12%. Currently, KAN is priced at $10.45. Calculate the intrinsic value of KAN stock and determine whether it is undervalued or overvalued in relation to the market price. $10.29, overvalued $11.03, undervalued $9.03, overvalued $10.72, undervaluedYou correctly checked this. STEP 1: Calculate the dividend per share: $225 ÷ 350 = $0.6429 STEP 2: Calculate the end-of-year dividend for three-years at the 1st dividend growth rate: Year 1 0.6429 x 1.0178 0.6543 Year 2 0.6543 x 1.0178 0.6660 Year 3 0.6660 x 1.0178 0.6778 STEP 3: Calculate the stock valuation at Year 3 based on the new, constant dividend rate: V = 0.6778 (1.0092)0.0712 − 0.0092 $11.03 = 0.68400.062 STEP 4: Solve for the Net Present Value (NPV): Required Rate 7.12 I/YR Zero Entry 0 CF0 D1 0.6543 CF1 D2 0.6660 CF2 (D3 0.6778) + (V 11.03) = 11.7078 CF3 SHIFT, NPV 10.7162 or, $10.72

Answer 64

1 - IM / 1 - MM x Stock price Calculate for commission if need be Commission / Shares purchased = Commission per share

Answer 65

Net Unrealized Appreciation is the difference between the original cost basis (the price initially paid) of an employer's stock and its current market value, when that stock is held in a tax-deferred account like a 401(k). NUA becomes relevant when you distribute employer stock from your retirement plan, such as a 401(k). Instead of rolling over the stock into an IRA, you transfer it into a taxable account. When you transfer the stock, you pay ordinary income tax only on the cost basis, not on the stock's current market value. The NUA, or the appreciation of the stock, isn't taxed until you sell the stock. And when you do sell, it's taxed at long-term capital gains rates, which are generally lower than ordinary income tax rates. For NUA to apply, the distribution generally needs to be a lump-sum distribution, meaning the entire balance of your account must be distributed in one tax year, and it usually must occur in the year you leave your employer.

Answer 66

This is the replacement cost at time of loss - depreciation

Answer 67

🔺P/P = -D [🔺y/1+y] D= duration 🔺y = change in rates y = yield

Answer 68

100-150k MAGI

Answer 69

The lessor of 50k or 1/2 the account

Answer 70

- A type of irrevocable trust - Provides income to a charity for a set period - Remaining assets go to non-charitable beneficiaries - Serves as an inflation hedge - Addition of assets permitted at anytime Used when GST is a concern

Answer 71

-A type of irrevocable trust -Provides a fixed annuity to a charity for a set period -Remaining assets then pass to non-charitable beneficiaries -Used when interest rates are lower

Answer 72

A type of charitable trust Combines contributions from multiple donors Provides income to donors, with remainder to charity A Pooled Income Fund is a type of charitable trust that combines the contributions of multiple donors into a single investment fund. Here's a summary of how a Pooled Income Fund works: Charitable trust: It is a trust established and maintained by a qualified nonprofit organization, allowing donors to make tax-deductible gifts and receive income for life Pooled contributions: Donors' assets are pooled together and invested as a mutual fund, with each donor receiving a proportionate share of the fund's income Income distribution: The fund's income is distributed to the donor and/or named beneficiaries during their lifetimes, and upon the last beneficiary's death, the remaining assets are transferred to the designated charity Tax benefits: Donors can receive an immediate partial tax deduction, avoid capital gains tax on appreciated assets, and reduce their estate taxes and probate costs

Answer 73

-A type of irrevocable trust -Provides fixed annual payments to the donor -Remainder goes to charity -Not to exceed 20 years of life -Larger transfer to the charity and a greater reduction on estate tax

Answer 74

-A form of irrevocable trust -Provides variable annual payments to the donor -Remainder goes to charity -Not to exceed 20 years -Income payments 5-50% trust value -Highly appreciated asset and is seeking diversification without triggering capital gains

Answer 75

Designed for top executives that exceed limits available through qualified plans A type of employer-sponsored deferred compensation Not subject to ERISA guidelines Offers tax deferral benefits Unlike qualified plans, there is no limit on the amount of income that can be deferred under an NQDC plan.

Answer 76

The lessor of: realized gain net boot received

Answer 77

- A special catch-up contribution rule for employees nearing retirement. - Applicable in the three years prior to the normal retirement age - Allows doubling the standard contribution limit. - Not available if using the age 50+ catch-up contribution.

Answer 78

.9235 X SE Income = Y Y (.153) = SE Tax

Answer 79

Rule 204-3 under the Investment Advisers Act of 1940, commonly referred to as the "brochure rule," generally requires every SEC Registered Investment Adviser to deliver to each prospective advisory client a written disclosure statement, or "brochure", describing the adviser's business practices and educational and business background. To comply with the brochure rule, an investment adviser may deliver Form ADV, Part 2B.

Answer 80

Deposit type institutions

Answer 81

A contract is express if it arises from the language, either oral or written, of the parties. Since both parties in the transaction verbally agreed to the sale price, Susanna and Eliza entered an express contract.

Answer 82

Qualification Criteria for Businesses: - Earned $1 million or less in previous tax year, OR - Had 30 or fewer full-time employees during the previous tax year. Credit Limits: - 50% of eligible expenditures. - Applies to amounts over $250, up to a maximum expense of $10,250. - Maximum available credit: $5,000 per year. Eligible Expenditures Include: - Removing barriers, - Providing interpreters or other methods of making services accessible, - Specific equipment purchases or modifications.

Answer 83

The blockage rule attempts to value gifts of large blocks of stock based on the price the property would bring if the stock were liquidated in a reasonable time in some way outside the usual marketing channels.

Answer 84

UGMA - only holds financial assets such as stocks and bonds UTMA - flexibility in terms of assets that can be held Both UGMA and UTMA accounts are subject to the same tax treatment. The first portion of unearned income is tax-free, the next part is taxed at the child's tax rate, and income above that threshold is taxed at the guardian's rate. This is known as the "kiddie tax." UGMA- Child gains control at age 18 UTMA - Age termination at 21 or 25 17k gift tax applies / Counted as student asset

Answer 85

A SCIN is a financial instrument used in estate planning where a seller extends a loan to a buyer in the form of a promissory note with installments. The unique feature of a SCIN is that if the seller (lender) dies before all payments are made, the remaining debt is automatically cancelled. This tool is often used to transfer wealth to the next generation, as any unpaid portion of the asset's value is forgiven at the seller's death, potentially avoiding estate taxes. SCINs typically carry higher interest rates to compensate for the risk of early cancellation. They require careful structuring to comply with tax regulations and reflect the seller's life expectancy.

Answer 86

Public/ Private Cash 60%/30% LTCG FMV 30%/20% LTCG Basis 50%/30% Ordinary Income 50%/ 30%

Answer 87

Use related allows you to tax the highest tax dedication Use unrelated uses the lessor of the Basis or FMV as the deduction amount

Answer 88

7.65% SS tax $160,200 income limit for SS tax 1.45% taxed on unlimited income

Answer 89

40. Earned at 4 credits per year / 1 per quarter. 1/4 credit earned for each $1,640 of earned income

Answer 90

Retirement - for works 62 and older with 40 credits Disability Benefits - For adults 18 or older who cant work due to physical or mentally disability that is expected to last 12 months or result in death. Survivors Benefits - For family members of deceased workers who qualified for social security

Answer 91

MFJ Over 32K 50% Over 44k 85% Single Over 25K 50% Over 34k 85% MFS 85%

Answer 92

A - Dwelling B - Structures (typically 10% of A) C - Personal Property (typically 50% of A) D - Loss of use (typically 20% of A)

Answer 93

Chapter 7 - Liquidation (individuals and businesses) Chapter 13 - Repayment (individuals) Chapter 11 - Reorganization (Businesses)

Answer 94

Under the excess method, the maximum excess contribution rate for compensation above the compensation threshold is the lesser of: 2x the base contribution rate or the base contribution rate plus 5.7%.

Answer 95

70 1/2 and 100k The term "QCD" does not directly refer to a specific concept in the context of retirement plans or tax law. However, based on the search results, it is possible that you are referring to a Qualified Charitable Distribution (QCD), which is a type of distribution from an Individual Retirement Account (IRA) that can be made directly to a qualified charity. Here's a summary of a Qualified Charitable Distribution: Purpose: A QCD is a distribution from an IRA that is paid directly to a qualified charity, allowing the IRA owner to satisfy their required minimum distribution (RMD) and potentially reduce their taxable income Eligibility: To qualify for a QCD, the IRA owner must be at least 70½ years old, and the distribution must be made directly from the IRA to the qualified charity Tax benefits: A QCD is not included in the IRA owner's taxable income, which can help reduce their tax liability, especially if they do not itemize deductions Limitations: The maximum annual QCD amount is $100,000 per person, and the distribution must be made directly from the IRA to the charity Qualified charities: The charity must be a 501(c)(3) organization, and donor-advised funds, private foundations, and supporting organizations are not eligible recipients of QCDs

Answer 96

Judgment, decree, or order for a qualified retirement plan to pay child support, alimony, or marital property rights to an alternate payee

Answer 97

make to high standards of competency and ethics

Answer 98

Collaborative process Maximize a clients potential for meeting life goals through financial advice

Answer 99

Services and Products - Orally/Writing (initially) How the client pays - Orally/Writing (initially) How you and others are compensated - Orally/Writing (initially) Public discipline and bankruptcy - Orally/Writing (within 90 days) Material conflicts of interest - Orally/Writing (initially) Written Privacy Policies - Writing (initially) Referral compensation agreement - - Orally/Writing (initially) Other Material Information - - Orally/Writing (initially) "See How People Can Determine Proper Regulations On Omissions." See: Services and Products How: How the client pays Harry: How you and others are compensated Publically: Public discipline and bankruptcy Conflicts: Material conflicts of interest With: Written Privacy Policies Referring: Referral compensation agreement Information: Other Material Information

Answer 100

Income (from all sources) ➖exclusions Gross Income ➖Deductions FOR AGI AGI ➖ Deductions FROM AGI (greater of standard deductions, itemized, or qualified business income deduction) Taxable Income ✖️ Tax rate Gross Tax ➖ Tax Credit Final Tax Due

Answer 101

Alimony HSA IRA SEP/SIMPLE/Qualified SE Tax SE Health Insurance

Answer 102

Itemized or Standard Unreimbursed Medical Expenses above 7.5% SALT Tax Limit 10k Interest Paid Gifts to charity (remember limits) Casualty and Theft Losses (must be a federal disaster, Lessor of FMV or basis 10% AGI threshold) 🧙🏽 M edical expenses S A L T G ifts I nterest C asulty and loss

Answer 103

Gross estate value reduced Reduced estate tax + GSTT

Answer 104

50k/5 years

Answer 105

401(k) and 403(b) Traditional and ROTH IRA's do not allow loans only early withdrawals within certain circumstances

Answer 106

Fully Deductible

Answer 107

up to 25k if 1. active participant 2. ownership of 10% or more phaseout range 100k-150k 50% of excess AGI over 100k

Answer 108

Lessor of 265k or the compensation averaged over the three highest consecutive earning years

Answer 109

Ratio Test: To pass, the percentage of benefiting NHCEs must be at least 70% of the percentage of benefiting HCEs.

Answer 110

Wasting assets such as patents, annuities and installment notes are valued on date of death If asset is sold before AVD the date the asset is sold is used

Answer 111

Long term custodial care

Answer 112

Skilled nursing care following hospitalization

Answer 113

2000 of education expenses 25% of the next 2000 education expenses Per student

Answer 114

Purchase Power Risk Reinvestment Risk Interest Rate Risk Market Risk Exchange Rate risk

Answer 115

FMV of a life insurance policy

Answer 116

Retirement Income Social security and retirement benefits Investment Dividends Interest Income Non employee Compensations

Answer 117

Interest and Dividend Income Profit and Loss from Business Capital Gains Self employment tax Extension to file Estimated Tax for individuals

Answer 118

The lessor of 100% of the participants compensation or 66k

Answer 119

if an individual contributes to multiple 401(k) plans, the total contribution to all plans must not exceed these limits

Answer 120

Definition: 529 Forward Funding refers to the strategy of making a large, lump-sum contribution to a 529 college savings plan upfront, often utilizing the gift tax exclusion. Gift Tax Exclusion: As of 2023, the IRS allows a special election for 529 plans where individuals can contribute up to five years' worth of gifts in one year without triggering gift taxes. This means an individual can contribute up to $85,000 (5 x $17,000 annual exclusion for 2023) and a married couple can contribute up to $170,000. If the gift tax exclusion increases the ADDITIONAL amount may be added to the super fund

Answer 121

HMO stands for Health Maintenance Organization. It is a type of health insurance plan that provides healthcare services through a network of providers. Members must choose a primary care physician (PCP) who coordinates all care and makes referrals to specialists within the HMO network. Emphasizes preventive care and wellness. Typically offers lower premiums and out-of-pocket costs but less flexibility in choosing healthcare providers compared to other plans like PPOs. Out-of-network care is usually not covered except in emergencies.

Answer 122

Years 1 and 2

Answer 123

DB Pension plans The 50/40 rule states the plan must benefit the lessor of 50 employees or 40% of the employees.

Answer 124

403(b) special catch up 3k age 50+ with 15 years of service (33k) total 457(b) plan 3K catch-up can not be combined with a 7500 catch up

Answer 125

Appreciation (FMV - Basis) ____________________________ = X Either: FMV or FMV - A.E. X (taxes paid) = y Basis + y = New Basis

Answer 126

Related: Two or more generations below donor Unrelated: 37 1/2 years younger than the donor

Answer 127

Inclusive - Tax Distribution/Tax termination Exclusive - Direct Skip

Answer 128

Under the excess method, the maximum excess contribution rate for compensation above the compensation threshold is the lesser of: 2x the base contribution rate or the base contribution rate plus 5.7%.

Answer 129

Net Income Amount (Includes a spouses W2 Income) 2 methods of 179 Net income amount with carryover 179 with the remain amount being depreciated

Answer 130

25% / 2 years

Answer 131

Gross Estate ➖ deductions Adjusted Gross Estate ➖Charitable giving ➖marital deduction Taxable Estate

Answer 132

No tax when option is granted No tax due at exercise Tax due when sold Subject to AMT (basis is exercise price) Bargain element not subject to taxation Must have qualifying disposition to get Capital Gains tax Two years from grant AND 1 year from exercise

Answer 133

No tax when option is granted In year of exercise Bargain Element (FMV - Strike) is taxed as compensation Employer claims deductions on compensation At sale the difference between sale price and basis is taxed at capital gains

Answer 134

Sets the tax floor for every tax payer You MUST pay this amount of tax, usually the regular tax liability is larger than the AMT If AMT amount is greater you can: Accelerate income into the AMT year Defer tax deductions until a regular tax year (why take a deduction in an AMT year when your already at the least amount you can pay in taxes)

Answer 135

10%+ ownership Involved in property management Up to 25k deductible 100k-150k Phaseout

Answer 136

85% (tax exempt income counts in the provisional income calculation) If married filing separate, there are no income thresholds of 50% and 85% you are taxed at 85% no matter what.

Answer 137

Marital Deduction Surviving spouse must include the property in their estate

Answer 138

Property that will end at a certain time (annuities ex.) This does not qualify for the marital deduction unless a QTIP is used

Answer 139

The FCBA is particularly nifty when it comes to unauthorized charges. If your credit card is lost or stolen and used to make unauthorized charges, your liability is capped at $50 per card. In many cases, credit card issuers even waive this fee.

Answer 140

up to 2k per return (20% of 10K worth of student cost) Unlimited years Available Per return

Answer 141

Available only for first 4 years of college up to 2k in tuition and 25% of the next 2k for a max of 2,500 in benefits available per eligible student Must be enrolled at least half time Tuition and fees only, no room and board`

Answer 142

The lessor of NII or amount over threshold 3.8% tax

Answer 143

A living will is a legal document that outlines an individual's end-of-life medical wishes, specifically detailing how they wish to be treated if they are unable to make decisions about emergency treatment. In a living will, individuals can specify which medical treatments or care they would want, which ones they would want to avoid, and under which conditions each choice applies. This document is distinct from a traditional will, which focuses on estate matters such as property distribution and financial assets. A living will is an essential component of advance care planning, allowing individuals to communicate their healthcare preferences in the event they are unable to do so themselves. It is often accompanied by other advance directives like a durable power of attorney for healthcare, which designates a person (healthcare proxy) to make medical decisions on the individual's behalf

CFP Review Flashcards

(213 cards)