Individuals / Investment

Question 1

what investment is considered the lowest risk

Answer 1

municipal bonds issued by states and local municipalities

Question 1

Max amount can contribute to an IRA

Answer 1

lesser of earned income or 7,000 (over 50, can add extra 1,000)

Question 2

distributions from a traditional 401K plan are…

Answer 2

fully taxable as ordinary income

Question 3

roth 401K are …

Answer 3

not taxable, only taxable it is a nonqualified roth dist.

Question 4

requirements for qualified roth distribution

Answer 4

59.5 years old or older, must have been in this 401 for five years

Question 5

nonsystematic risk

Answer 5

unique to a certain industry or company also known as business risk - investors can protect against this by just diversifying investments … examples include default risk and management risk

Question 6

systematic risk

Answer 6

affects the entire system - currency risk, inflation risk, and sociopolitical risk

Question 7

educational savings plan (section 529)

Answer 7

has no guarenteed benefits because it is invested in the stock market

Question 8

section 529 QTP is funded by…

Answer 8

gifts and limited to annual gift tax exclusion

Question 9

coverdell education savings account

Answer 9

separate edu savings account set up - contributions are nondeductible and only $2,000 per beneficiary (any level of education)

Question 10

US series EE savings bonds

Answer 10

interest income from these savings bonds is tax exempt to use for college related fees (higher education)

Question 11

student loans

Answer 11

another option that must be repaid over time

Question 12

subsidized stafford loans

Answer 12

need based - loan is made by the dept of education and offers flexible repayment options - loan pays while they are in school

Question 13

unsubsidized stafford loans

Answer 13

not need based, student is responsible for all interest that accumulates (student can have both type of loans)

Question 14

federal pell grants

Answer 14

do not have to be paid back because it is a grant not a loan

Question 15

federal supplemental educational opportunity grants

Answer 15

grants given to low income undergrad students to cover college costs

Question 16

scholarships and fellowships and tuition reducations are…

Answer 16

tax exempt if student is pursuing degree, funds are not payment for services provided, and funds are spent solely on college education

Question 17

control risk: avoidance

Answer 17

taken to remove the risk.

Question 18

control risk: reduction

Answer 18

taken to reduce the severity of the risk to an acceptable amount

Question 19

control risk: retention

Answer 19

taken to absorb all risk internally and not transfer any risk to an insurance company

Question 20

control risk: transfer

Answer 20

taken to reduce the severity of the risk by transferring or sharing risk (usually with an insurance company)

Question 21

low severity and low frequency

Answer 21

risk retention

Question 22

high severity and low frequency

Answer 22

risk transfer

Question 23

low severity and high frequency

Answer 23

risk reduction

Question 24

high severity and high frequency

Answer 24

risk avoidance

Question 25

return of investment

Answer 25

sales price - cost / cost

Question 26

after tax rate of return (ATRR)

Answer 26

ROI x (1-tax rate given)

Question 27

living trust

Answer 27

legal document used in estate planning that designates a trustee and provides instructions for the distribution of assets after the death of the person - it bypasses the probate process and makes transfer of assets smoother

Question 28

automatic transfer of assets

Answer 28

assets that are designated payable on death or transfer on death, automatically to person named beneficiary

Question 29

beneficiary designations

Answer 29

designed to ensure someone is in charge of saying who gets what assets following the death

Question 30

estimated tax payment rule

Answer 30

if you owe over $1000 must pay 90% of current year or 100% of prior year tax liability

Question 31

allowed in calculating AMTI

Question 32

if dependent has earned income over 1300, then standard deduction =

Answer 32

earned income + $450 ***ignore unearned income - cannot go over the standard deduction of $14,600

Question 32

what is always added back for AMT for individuals

Answer 32

interest income from bonds

Question 33

annual exclusion for gifts only applies to

Answer 33

present value interest, not future

Question 34

Rental Real estate rule for losses

Answer 34

Typically not deductible against nonpassive income, but if you materially participate then you get exemption up to $25,000 - phased out for AGI of 100k-150k for .5 per dollar. So subtract .50 cents x amount over 100,000 and subtract that from $25,000 exclusion amount.

Question 35

Life insurance proceeds are often used for:

Answer 35

paying the estate tax upon death of the insured

Question 36

passive activity losses can only offset

Answer 36

passive activity income

Question 37

passive activity income

Answer 37

you dont materially participate

Question 38

any losses in excess of at risk amount are:

Answer 38

suspended and carried forward without expiration and deductible against future income

Question 39

Calculate after tax rate of return on potential investment

Answer 39

Return on Investment = Investment price - cost / cost : ATRR = ROI - (1-tax rate)

Question 40

How much can you contribute to an IRA

Answer 40

lesser of earned income or $7000 - over 50 can do additional $1000

Question 40

Max taxable estate to yield no tax liability

Answer 40

$13,610,000

Question 40

How to calculate what is taxed at parents marginal rate

Answer 40

Gross unearned income - 1300 standard deduction = taxable income - $1300 income that is taxed at childs rate = remaining that is taxed at parents rate

Question 41

which asset is most heavily weighted in determining eligibility for student financial aid

Answer 41

a custodial acount owned by the student

Question 42

charitable contribution deduction equals

Answer 42

lesser of FMV at date you donated or the selling price for charity

Question 43

subsidized stafford loans are based on

Answer 43

student financial need

Question 44

unified transfer tax:

Answer 44

a merger of the estate tax and the federal gift tax

Question 45

annuity contract - how much income is included in year 1

Answer 45

years x 12 months = total months ; purchased annuity / total months = amount per month that is not taxable ... lastly multiply by months it applies to and subtract from total annuity payment in year one

Question 46

incentive stock options rules

Answer 46

gives employee right to purchase stock at discount; cannot own more than 10%, exercise price cannot be less than FMV of stock at grant date, can exercise up to $100,000 ISOs in a year

Question 47

employee stock purchase plans

Answer 47

allows employees to purchase company stock at discounted price - no more than 5% owner, exercise price cannot be less than 85% of FMV of stock when granted or exercised - no more than $25,000 per year