Section 2 Flashcards
(98 cards)
1
Q
A regulated investment company receives special tax treatment from the IRS
A
A regulated investment company receives special tax treatment from the IRS.
2
Q
Clients with traditional IRAs must start withdrawing their funds no later than age 70 1/2.
A
Clients with traditional IRAs must start withdrawing their funds no later than age 70 1/2.
3
Q
A teacher who invests funds in a 403(b) Tax Sheltered Annuity has no tax basis (zero), since 100% of the invested funds are before tax dollars, so upon distribution, all is taxable.
A
A teacher who invests funds in a 403(b) Tax Sheltered Annuity has no tax basis (zero), since 100% of the invested funds are before tax dollars, so upon distribution, all is taxable.
4
Q
Funds invested in a non-qualified annuity are after tax dollars and constitute the client’s tax basis. Upon distribution, only the earnings are taxable above the tax basis.
A
Funds invested in a non-qualified annuity are after tax dollars and constitute the client’s tax basis. Upon distribution, only the earnings are taxable above the tax basis.
5
Q
Public school teachers and employees of religious and charitable institutions and hospitals are all eligible for 403B Tax Sheltered Annuities, but not students of a state university.
A
Public school teachers and employees of religious and charitable institutions and hospitals are all eligible for 403B Tax Sheltered Annuities, but not students of a state university.
6
Q
In order to open an IRA funded by a mutual fund, the client must complete a new account form plus an IRA adoption agreement form.
A
In order to open an IRA funded by a mutual fund, the client must complete a new account form plus an IRA adoption agreement form.
7
Q
A prospectus is required when selling variable annuities, variable life insurance and/or mutual funds.
A
A prospectus is required when selling variable annuities, variable life insurance and/or mutual funds.
8
Q
The rights of an employee to pension plan benefits is called vesting.
A
The rights of an employee to pension plan benefits is called vesting.
9
Q
Deferred compensation plan benefits are not taxable until received by the employee.
A
Deferred compensation plan benefits are not taxable until received by the employee.
10
Q
Participants in a Deferred Compensation Plan may lose their money if the firm they work for goes broke - remember, deferred compensation plans are not vested, so employees are considered to be general creditors.
A
Participants in a Deferred Compensation Plan may lose their money if the firm they work for goes broke - remember, deferred compensation plans are not vested, so employees are considered to be general creditors.
11
Q
Early withdrawal from an IRA - before age 59 1/2 will result in tax as ordinary income plus a 10% penalty.
A
Early withdrawal from an IRA - before age 59 1/2 will result in tax as ordinary income plus a 10% penalty.
12
Q
A teacher who contributes to a tax-qualified annuity has a zero tax basis since the entire amount contributed was with before tax dollars.
A
A teacher who contributes to a tax-qualified annuity has a zero tax basis since the entire amount contributed was with before tax dollars.
13
Q
A non-qualified plan may be structured to favor certain individuals, since ERISA compliance is not required.
A
A non-qualified plan may be structured to favor certain individuals, since ERISA compliance is not required.
14
Q
A TSA (403B) plan may be written for nurses at a private hospital.
A
A TSA (403B) plan may be written for nurses at a private hospital.
15
Q
On a Keogh plan, you must cover all your full-time employees, over age 21 who have been employed for at least one year.
A
On a Keogh plan, you must cover all your full-time employees, over age 21 who have been employed for at least one year.
16
Q
Voluntary, after tax contributions to a qualified plan distributed to employees are not taxable since they
are treated as a return of capital.
A
Voluntary, after tax contributions to a qualified plan distributed to employees are not taxable since they
are treated as a return of capital.
17
Q
Students at a state college are not eligible for tax-deferred annuities, however, professors and staff are.
A
Students at a state college are not eligible for tax-deferred annuities, however, professors and staff are.
18
Q
529 plans vary by state.
A
529 plans vary by state.
19
Q
The maximum contribution allowed by any one person into a 529, all at once, is 5 times the current year’s gift tax exclusion.
A
The maximum contribution allowed by any one person into a 529, all at once, is 5 times the current year’s gift tax exclusion.
20
Q
529 plans may be set up for anyone.
A
529 plans may be set up for anyone.
21
Q
The amount contributed to a 529 is in after tax dollars.
A
The amount contributed to a 529 is in after tax dollars.
22
Q
The earnings of a 529 plan are free from federal income tax if the proceeds are used for higher educational expenses.
A
The earnings of a 529 plan are free from federal income tax if the proceeds are used for higher educational expenses.
23
Q
Coverdell ESA must be set up for a minor, under age 18.
A
Coverdell ESA must be set up for a minor, under age 18.
24
Q
The Coverdell ESA is funded with after tax dollars.
A
The Coverdell ESA is funded with after tax dollars.
25
The earnings in a Coverdell ESA are federally income tax free if used for education expenses.
The earnings in a Coverdell ESA are federally income tax free if used for education expenses.
26
Roth IRA contributions are always in after tax dollars.
Roth IRA contributions are always in after tax dollars.
27
You can have both an IRA and a qualified plan where you work.
You can have both an IRA and a qualified plan where you work.
28
You can have a qualified plan where you work and fund a Keogh if you also have self-employment income.
You can have a qualified plan where you work and fund a Keogh if you also have self-employment income.
29
Roth IRA “qualified distributions” are federally income tax free.
Roth IRA “qualified distributions” are federally income tax free.
30
Roth IRA distributions do not have to begin at age 70 1/2.
Roth IRA distributions do not have to begin at age 70 1/2.
31
You can continue to fund a Roth IRA, no matter your age, so long as you have earned income.
You can continue to fund a Roth IRA, no matter your age, so long as you have earned income.
32
Some clients will have an AGI too high to fund a Roth IRA.
Some clients will have an AGI too high to fund a Roth IRA.
33
The prospectus is a summary of the Registration Statement filed with the SEC.
The prospectus is a summary of the Registration Statement filed with the SEC.
34
Trading based upon insider information is not permitted and may result in both fines and jail.
Trading based upon insider information is not permitted and may result in both fines and jail.
35
A regular customer is entitled to examine a broker/dealer’s balance sheet.
A regular customer is entitled to examine a broker/dealer’s balance sheet.
36
You cannot share commission on mutual funds sales with a bank since the bank is not a member of FINRA. However, many banks have broker/dealer subsidiaries.
You cannot share commission on mutual funds sales with a bank since the bank is not a member of FINRA. However, many banks have broker/dealer subsidiaries.
37
The Insider Trading Act of l988 makes you liable for acts of others you give inside information to, to the extent of your profits and to the extent of your losses avoided, plus possible imprisonment.
The Insider Trading Act of l988 makes you liable for acts of others you give inside information to, to the extent of your profits and to the extent of your losses avoided, plus possible imprisonment.
38
The form sent to the client after the trade date, but before the settlement date, is called the confirmation.
The form sent to the client after the trade date, but before the settlement date, is called the confirmation.
39
Selling dividends is unethical because the dividend is already included in the price the client pays for the
stock.
Selling dividends is unethical because the dividend is already included in the price the client pays for the
stock.
40
SEC “Statutory Disqualification” means you cannot be affiliated with a broker/dealer in any capacity.
SEC “Statutory Disqualification” means you cannot be affiliated with a broker/dealer in any capacity.
41
You must register as an investment adviser when selling research reports or investment letters for a fee.
You must register as an investment adviser when selling research reports or investment letters for a fee.
42
The tax basis of a mutual fund share is stepped up or down to its fair market value at the decedent's death. Basis is assumed on gifts.
The tax basis of a mutual fund share is stepped up or down to its fair market value at the decedent's death. Basis is assumed on gifts.
43
The marginal tax rate is the tax rate on your last dollar of income. Sometimes referred to as the last dollar tax.
The marginal tax rate is the tax rate on your last dollar of income. Sometimes referred to as the last dollar tax.
44
Ordinary income tax is considered to be “progressive,” since the more you earn, the higher your tax rate.
Ordinary income tax is considered to be “progressive,” since the more you earn, the higher your tax rate.
45
This is the opposite of a “regressive” tax, such as a sales tax, which is the same for everyone regardless of
income level.
This is the opposite of a “regressive” tax, such as a sales tax, which is the same for everyone regardless of
income level.
46
Regressive taxes tend to penalize lower income persons, since the tax represents a higher percentage of their total income.
Regressive taxes tend to penalize lower income persons, since the tax represents a higher percentage of their total income.
47
A self-employed person with a Keogh plan MUST also cover their full-time employees who have worked there at least one year and are at least age 21. They MAY cover eligible employees who are at least 18.
A self-employed person with a Keogh plan MUST also cover their full-time employees who have worked there at least one year and are at least age 21. They MAY cover eligible employees who are at least 18.
48
A corporate officer who also works as a self employed consultant on weekends is eligible for a Keogh plan.
A corporate officer who also works as a self employed consultant on weekends is eligible for a Keogh plan.
49
Contributions to a Roth IRA are never tax deductible.
Contributions to a Roth IRA are never tax deductible.
50
Donors to Coverdell ESAs are not subject to any income requirements, although there are earned income
limitations.
Donors to Coverdell ESAs are not subject to any income requirements, although there are earned income
limitations.
51
Taking cash surrender on a deferred annuity at age 65 would have much greater immediate tax implications than would annuitizing the contract over your lifetime.
Taking cash surrender on a deferred annuity at age 65 would have much greater immediate tax implications than would annuitizing the contract over your lifetime.
52
A cash dividend used by an investor to buy more shares is taxable in the year of the distribution.
A cash dividend used by an investor to buy more shares is taxable in the year of the distribution.
53
A capital gain will result when an investor buys a U.S. Government T-bond and later on sells it for more
than he paid for it.
A capital gain will result when an investor buys a U.S. Government T-bond and later on sells it for more
than he paid for it.
54
Unrealized appreciation (paper profit) is not taxable.
Unrealized appreciation (paper profit) is not taxable.
55
R/Rs may invite their pre-qualified accredited investors to a seminar discussing the merits of purchasing a private placement of Variable/Universal life insurance.
R/Rs may invite their pre-qualified accredited investors to a seminar discussing the merits of purchasing a private placement of Variable/Universal life insurance.
56
An investor in a Muni bond mutual fund has received both dividends and capital gain distributions over a period of time which he automatically reinvested. If he exchanges his shares for shares of another fund in the same family, the IRS will treat the transaction as both a sale and a purchase. (remember, Muni capital gains are taxable)
An investor in a Muni bond mutual fund has received both dividends and capital gain distributions over a period of time which he automatically reinvested. If he exchanges his shares for shares of another fund in the same family, the IRS will treat the transaction as both a sale and a purchase. (remember, Muni capital gains are taxable)
57
‘Selling dividends’ is a violation of the FINRA’s Rules of Conduct.
‘Selling dividends’ is a violation of the FINRA’s Rules of Conduct.
58
The definition of an Investment Adviser includes anyone who prepares and sells research reports for a
fee.
The definition of an Investment Adviser includes anyone who prepares and sells research reports for a
fee.
59
The Securities Exchange Act of 1934 regulates brokers, dealers, agents and the stock exchanges.
The Securities Exchange Act of 1934 regulates brokers, dealers, agents and the stock exchanges.
60
Regulation D regarding private placements prohibits any advertising.
Regulation D regarding private placements prohibits any advertising.
61
You could set up 529 College Savings Plans for your 35 year old sister and her children to help them with their college expenses.
You could set up 529 College Savings Plans for your 35 year old sister and her children to help them with their college expenses.
62
You can contribute to a 529 College Savings Plan and name yourself as beneficiary.
You can contribute to a 529 College Savings Plan and name yourself as beneficiary.
63
There are no income limitations on making contributions to a 529 College Savings Plan.
There are no income limitations on making contributions to a 529 College Savings Plan.
64
Required Minimum Distribution rules apply to Traditional IRAs, but NOT Roth IRAs.
Required Minimum Distribution rules apply to Traditional IRAs, but NOT Roth IRAs.
65
Required Minimum Distribution (RMD) rules require that participants begin withdrawals on a Traditional IRA no later than April 1st of the year after they turn age 70 1/2.
Required Minimum Distribution (RMD) rules require that participants begin withdrawals on a Traditional IRA no later than April 1st of the year after they turn age 70 1/2.
66
Under RMD rules, there is a 50% IRS penalty levied upon the amount that should have been withdrawn, but wasn’t.
Under RMD rules, there is a 50% IRS penalty levied upon the amount that should have been withdrawn, but wasn’t.
67
Contributions to a Roth IRA may be withdrawn at any time without tax or penalty.
Contributions to a Roth IRA may be withdrawn at any time without tax or penalty.
68
On a Roth IRA, ‘qualified’ (tax and penalty free) distributions may be made if the participant has been in the IRA at least five years AND they are paid out after age 59 1/2, due to death or disability, OR for first time homebuyer expenses (up to $10,000).
On a Roth IRA, ‘qualified’ (tax and penalty free) distributions may be made if the participant has been in the IRA at least five years AND they are paid out after age 59 1/2, due to death or disability, OR for first time homebuyer expenses (up to $10,000).
69
On a Traditional IRA, it is the 10% premature distribution penalty that is waived for first time homebuyer expenses, not the taxes.
On a Traditional IRA, it is the 10% premature distribution penalty that is waived for first time homebuyer expenses, not the taxes.
70
Mutual Fund dividends may be taxed at long term capital gain rates or as ordinary income, as determined by the fund.
Mutual Fund dividends may be taxed at long term capital gain rates or as ordinary income, as determined by the fund.
71
100% of an investor’s short term capital gain is taxed at the investor’s tax bracket. For example, if an investor had a short term capital gain of $1,000, the entire $1,000 would be taxable as ordinary income. If he was in a 25% tax bracket, $250 would be the tax due.
100% of an investor’s short term capital gain is taxed at the investor’s tax bracket. For example, if an investor had a short term capital gain of $1,000, the entire $1,000 would be taxable as ordinary income. If he was in a 25% tax bracket, $250 would be the tax due.
72
An Investment Adviser managing a mutual fund, hedge fund or private fund must register federally with the SEC.
An Investment Adviser managing a mutual fund, hedge fund or private fund must register federally with the SEC.
73
An Investment Adviser with $100,000,000 or more in assets under management must register federally with the SEC.
An Investment Adviser with $100,000,000 or more in assets under management must register federally with the SEC.
74
An Investment Adviser managing less than $100,000,000 in assets must register at the state level.
An Investment Adviser managing less than $100,000,000 in assets must register at the state level.
75
Form U-5 must be amended with address changes for a period of two years after it was first filed.
Form U-5 must be amended with address changes for a period of two years after it was first filed.
76
Once a person files a Form U-5 they have two years to reapply with another firm without having to re- test. After two years they must take the necessary examinations again.
Once a person files a Form U-5 they have two years to reapply with another firm without having to re- test. After two years they must take the necessary examinations again.
77
Non-cash compensation, such as a sales contest, is allowed if the rules are followed.
Non-cash compensation, such as a sales contest, is allowed if the rules are followed.
78
The non-cash compensation arrangement must be based on the total production of associated persons with
respect to all investment company or variable product securities distributed by the member.
The non-cash compensation arrangement must be based on the total production of associated persons with
respect to all investment company or variable product securities distributed by the member.
79
Non-cash compensation rules require that the credit received for each investment company or variable contract security must be equally weighted.
Non-cash compensation rules require that the credit received for each investment company or variable contract security must be equally weighted.
80
Allowable Traditional IRA investments include: fixed-dollar retirement annuities, variable retirement annuities, bank certificates of deposit, mutual fund shares, gold and silver coins, gold bullion, real estate and self-directed brokerage accounts.
Allowable Traditional IRA investments include: fixed-dollar retirement annuities, variable retirement annuities, bank certificates of deposit, mutual fund shares, gold and silver coins, gold bullion, real estate and self-directed brokerage accounts.
81
Products not permitted to fund IRAs are life insurance contracts and collectibles such as stamps, artwork, antiques and precious gems.
Products not permitted to fund IRAs are life insurance contracts and collectibles such as stamps, artwork, antiques and precious gems.
82
A member may conduct a non-cash contest that includes the sales of mutual funds, variable annuities, and new assets under management so long as all three product categories are included and the contest is based upon total production and no preferential credits are given. The non-cash award must be calculated on the basis of the equal weighting requirements of FINRA Rule 2320 and NASD Rule 2830.
A member may conduct a non-cash contest that includes the sales of mutual funds, variable annuities, and new assets under management so long as all three product categories are included and the contest is based upon total production and no preferential credits are given. The non-cash award must be calculated on the basis of the equal weighting requirements of FINRA Rule 2320 and NASD Rule 2830.
83
Whether a sales contest is sponsored by a broker/dealer or its parent life insurance company, FINRA Rule 2320 requires that the sales contest include all variable products distributed by the member.
Whether a sales contest is sponsored by a broker/dealer or its parent life insurance company, FINRA Rule 2320 requires that the sales contest include all variable products distributed by the member.
84
Sales contest rules do not apply to the sales of fixed insurance products.
Sales contest rules do not apply to the sales of fixed insurance products.
85
FINRA Rule 2320 prohibits an associated person from accepting non-cash compensation.
FINRA Rule 2320 prohibits an associated person from accepting non-cash compensation.
86
Non-cash credits may be given to registered representatives based on gross dealer concession so long as the contest meets all of the requirements of the FINRA rules 2320 and NASD Rule 2830, including the equal weighting requirement. The amounts of non-cash credits for representatives based on dealer concessions must be equally weighted among different funds.
Non-cash credits may be given to registered representatives based on gross dealer concession so long as the contest meets all of the requirements of the FINRA rules 2320 and NASD Rule 2830, including the equal weighting requirement. The amounts of non-cash credits for representatives based on dealer concessions must be equally weighted among different funds.
87
NASD Rule 2830 permits contributions by a member to a non-cash arrangement of a non-member, such as a bank, provided that the arrangement conforms with the criteria in NASD Rule 2830, including the total production and equal weighting requirements.
NASD Rule 2830 permits contributions by a member to a non-cash arrangement of a non-member, such as a bank, provided that the arrangement conforms with the criteria in NASD Rule 2830, including the total production and equal weighting requirements.
88
FINRA Rule 2320 and NASD Rule 2830 require that registered representatives only accept compensation from the member with whom they are associated unless, among other things, an interpretive or no-action letter specifically permits such an arrangement.
FINRA Rule 2320 and NASD Rule 2830 require that registered representatives only accept compensation from the member with whom they are associated unless, among other things, an interpretive or no-action letter specifically permits such an arrangement.
89
An offeror may conduct and pay for a training and education meeting for registered representatives of unaffiliated dealers that sell the offeror’s products so long as neither the attendance at the meeting nor the payment for the meeting is pre-conditioned on the achievement of a sales target, and approval from the member is obtained prior to the meeting.
An offeror may conduct and pay for a training and education meeting for registered representatives of unaffiliated dealers that sell the offeror’s products so long as neither the attendance at the meeting nor the payment for the meeting is pre-conditioned on the achievement of a sales target, and approval from the member is obtained prior to the meeting.
90
NASD Rule 2830 prohibits conditioning attendance at a training or educational meeting held by an offeror on the achievement of a sales target or any other incentive.
NASD Rule 2830 prohibits conditioning attendance at a training or educational meeting held by an offeror on the achievement of a sales target or any other incentive.
91
A member firm may reimburse its associated persons for the expenses of their guests that attend training and educational seminar. An offeror may not.
A member firm may reimburse its associated persons for the expenses of their guests that attend training and educational seminar. An offeror may not.
92
The non-cash compensation rules apply to any associated person, including officers and managers of members, if they receive directly or indirectly, such compensation in connection with the sale and distribution of variable contracts or investment company securities.
The non-cash compensation rules apply to any associated person, including officers and managers of members, if they receive directly or indirectly, such compensation in connection with the sale and distribution of variable contracts or investment company securities.
93
FINRA Rule 2320 prohibits members and associated persons of members from receiving compensation from an offeror in the form of securities of any kind.
FINRA Rule 2320 prohibits members and associated persons of members from receiving compensation from an offeror in the form of securities of any kind.
94
An associated person is allowed to receive stock or stock options of the member’s parent company as compensation.
An associated person is allowed to receive stock or stock options of the member’s parent company as compensation.
95
Insurance company wholesalers may receive stock options of the insurance company’s parent holding company as compensation as the specified production levels are in compliance with the equal weighting and total production requirements of Rules 2320 or 2830.
Insurance company wholesalers may receive stock options of the insurance company’s parent holding company as compensation as the specified production levels are in compliance with the equal weighting and total production requirements of Rules 2320 or 2830.
96
An offeror may provide a registered representative with business development and education enhancement items, provided that these items are not preconditioned on the achievement of a sales target.
An offeror may provide a registered representative with business development and education enhancement items, provided that these items are not preconditioned on the achievement of a sales target.
97
Gifts of a personal nature, such as wedding gifts or congratulatory gifts for the birth of a child, do not fall under FINRA rule 2320 and NASD Rule 2830.
Gifts of a personal nature, such as wedding gifts or congratulatory gifts for the birth of a child, do not fall under FINRA rule 2320 and NASD Rule 2830.
98
FINRA Rule 2320 and NASD Rule 2830 do not apply to promotional items of nominal value that display the offeror’s logo, such as golf balls, shirts, towels and pens.
FINRA Rule 2320 and NASD Rule 2830 do not apply to promotional items of nominal value that display the offeror’s logo, such as golf balls, shirts, towels and pens.
