General Principles Flashcards by Helene Rude

What are the maximum mortgage ranges for FHA loans?

Govt guarantees mortgages via FHA insurance for low-middle income individuals. Max mort ranges b/w $489K - $1.15M so you can’t use it for a very large mortgage

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Savings Strategy: What %age recommended?

5-8% gross (specific monthly amt); pay yourself first

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Can material conflicts of interest be presented orally or in writing?

Orally is ok, but writing recommendedW

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What must be presented to clients in writing (5)?

(TDBank-FP)
1. Terms of Engagement
2. Disciplinary Notifications
3. Bankruptcies (but 1 wouldn’t DQ from CFP)
4. Fees
5. Privacy

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FDIC Ownership Categories (4)?

Individual
Joint
Revocable Trust (per BENEFICIARY in the trust!)
Retirement (IRA/KEOGH) - but only for (4) covered account types (not stock, bond, MF, etc.)

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College & Retirement Funding: what value to use for “I”?

Inflation: College inflation for college, or regular for retirement

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Total Debt Ratio? (Formula and Recommendation)

Monthly CURRENT Debt/Monthly INCOME

Current Debt: Rent, Mortgage & Credit Card

Recommendation: <= 36% Gross (inclusive of 401K)

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What types of bank accounts are covered by (not titling) FDIC?

1) Cash
2) Checking
3) MMDA (MM Deposit Acct; NOT MMMF)
4) CDs

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What is the housing ratio calc and recommendation?

PITI/GROSS Income

<=28%

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What are the (3) components or expenses are added together to calculate how much $ your emergency fund?

a) Fixed Expenses
b) Variable Expenses
c) Property Taxes

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Is UTMA/UGMA part of student assets for EFC?
Is 529 part of student or parent’s assets for EFC?

UTMA -> YES
529 -> Student NO but Parent = YES
(Remember, 529 can be allocated to someone else but UTMA can’t)

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What are the (4) steps to become an IAR under under 1940 Act?

1) Align with B-D
2) File U-4
3) Pass licensing exams
4) CRD # assigned

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How does FDIC coverage work on IRA accounts?

How does it work for trusts?

All IRAs in ONE PERSON’s name are aggregated and covered to $250K (titling doesn’t matter)

Trusts are by named beneficiary

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Do you use begin or end mode for mortgage payment calcs?

END; even though they’re paid on the 1st they’re actually paid in arrears

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Can individual stocks and bonds be in a Coverdell?

Yes

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What is QTP a synonym for?

529

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What is the calculation for RoR (Real Rate of Return)?

[(1+return / 1+inflation) - 1) * 100]

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What are you solving for when you’re using CFj (uneven cash flows)?

NPV or IRR (Dollar Weighted Return)

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How do you know if an investment is good based on the NPV?

If it’s positive b/c that means it’s returning more than the RoR. If it’s negative it’s returning less than the RoR and if it’s zero it’s returning exactly the RoR.

For uneven cash flow calculations, if the same number repeats for ten years, how do you handle that?

Use Nj (10 GOLD Nj - AFTER you enter the amount with CFx) to show that the value entered goes on for ten straight years (instead of entering it one by one).

What is the second step of the college funding calculation (the first one is to figure out the FV of one year of college based in today’s dollars)?

How much do you need on the first day of college to fund the next four years?

You are solving for PV; use BEGIN MODE and the FV from step 1 as the PMT, N=4 and I is the RoR (but using the college inflation rate if available). That is the amount of money you need when your kid starts college.

What is the third step of the college planning calculation?

From step one you know the cost of one year of college in today’s dollars, and from step 2 you know the full amt needed on the first day of college.

Step 3 either helps you know how much to put away each year (solve for PMT) or how much you need to put away today (PV) using the total amount needed from step 2 as the FV, and the flat rate of return (not adjusted).

What are the four college funding strategies during the funding years?

UGMA/UTMA (watch for kiddie tax)

529/QTP

Coverdell

EE Bonds (can’t be in UGMA b/c owned by parents; int is tax free if used for qual ed exp). NOT COMPLETED GIFT b/c in parent’s name!! PHASEOUTS!!

During college, what are the grant/loan options for wealthy families?

PLUS: Parent Loans

During college, what are the grant/loan options for POORISH (<= $70K) families?

PooriSSh: Pell Supplemental Ed Opp Grant Stafford

What are the (4) sources of funds that can be used during college (but not to cover the same expense twice!!)?

1. 529: If savings can be used for anything, if tuition pre-pay then only tuition 2. Coverdell 3. AOC: Max $2500 ($2000 + 25% next $2K) Only 1st (4) years PER STUDENT MAGI Tuition and Fees only No drug convictions!! 4. LLC: $2000 max - ANY EDUC, MAGI, PER TAX RETURN (1/family)

What are other less traditional funding sources for college?

2503(c), UGMA/UTMA, gifts, earnings, etc.

What are graduate funding options?

Fulbright, Stafford, 529, Coverdell

Which college funding option is unavailable to a student with a felony drug conviction?

AOC

What can 529 prepaid plans be used to pay for?

Tuition ONLY; no R&B

What type of parents select 529 prepaid vs savings?

Prepaid is the choice for more risk averse people.

Why would someone set up an UGMA/UTMA (or 2503c) to fund college?

Someone who thinks THEY can invest better than the state 529 plan

How/when does a 529 plan impact EFC?

When it's in the parent's name; it's owned by the parent but that's part of FAFSA. If owned by the grandparent or another adult then it's not on FAFSA.

Can a trust make a 5-year catchup contribution to a 529?

What can a Coverdell cover that a 529 can't?

K-12 uniforms, computers, after school pgms, internet. One acct/student = IRREVOCABLE GIFT

How is kiddie tax calculated?

0-1300 = 0 1301-2600 = 10% (if ltcg/QTD = 0 b/c rate=10%) Above 2600 = Parent's rate For EARNED income, $1300 or earned $ + $450 up to std deduction is tax free

What (4) parental assets are excluded from EFC/FAFSA and how long is the lookback (how many years tax returns submitted)?

1. Small business owned by parents 2. IRA 3. LI CV 4. Parent's House 2 years

What's the diff b/w Discount, Prime, and Fed Funds rate (and who sets them)?

Discount: Set by Fed; price to borrow from Fed Fed Funds: Bank-Bank borrowing; set by Fed Prime Rate: Rate to bank's best clients (bank sets)

What is form CRS?

Part 3 of ADV; simplified version for firm-firm comparison by clients

What is the rough AGI cutoff for Pell, Stafford and Supplemental Grant?

<= $70K

Is selling away illegal?

No, but it's rare that compliance is ok with it. Not illegal but rarely allowed.

Which has a higher priority - emergency fund or life insurance (in CFP land)?

Emergency fund

What are basis points?

1/100th of 1%

What is a K-1 for?

Passthru income/losses: Limited/Gen Partnerships LLC if they adopt partnership rules and are multi-member S-Corps Trusts/Estates

Rules for 529 to ROTH rollover (4):

Lifetime limit of $35K, but annual contr limited by annual Roth limit (e.g.: 7500) 529 > 15 years old Contributions > 5 years old Beneficiary = same as for 529

When is a CFP a fiduciary (and when not)?

When providing financial advice or planning, but NOT at a BBQ.

What type of bonds can be used to save for college? Where can they NOT live and why?

EE bonds but they can't be in UGMA/UTMA because they're only good for qual tuition expenses if in the parents' name (but then they can't be in UG account).