Investment Vehicle Characteristics Series 65

penalty for not making correct RMD

25%

As a rule, loans from a 401(k) plan must be repaid within how many years?

5

Which plan does not allow a catch-up contributions for individuals who are at least 50 years old?

529 plan

Periodic reports of investment companies

All investment companies must file annual financial reports with the SEC (audited balance sheet and income statement) In addition shareholders must be sent financial information semiannually

Based on the SECURE Act 2.0, an individual who is 73 on November 15, 2023, has an IRA's first required minimum distribution date of

An individual's first required minimum distribution (RMD) is due by April 1 of the year after turning 73.

Distributions from which of the following can be rolled over into an IRA?

Assets from any qualified corporate plan or from another IRA may be rolled over into an IRA.

What is the tax penalty for the withdrawal of money from an IRA before age 59½?

Early withdrawals from an IRA are subject to a tax penalty amounting to 10% of the taxable portion of the distribution.

Excess contributions to an IRA

Excess contributions are taxed at 6% per year for each year the excess amounts remain in the IRA.

Your client's wife retired as a third grade teacher in 2019. She was covered under the school system's 403(b) plan. If she resumes employment with a corporate employer, and that new employer has a 401(k) plan, is she entitled to defer RMDs from the 403(b) plan past the regular age 73 date?

RMDs may be deferred only from the plan sponsored by the current employer. The rule is that you can only defer RMDs in the plan of the employer where you are currently employed.

Employee contributions to a 401(k) plan are subject to what kinds of taxation?

Social Security taxes federal unemployment taxes

Who safeguards the securities held in a mutual fund's portfolio?

The custodian The Investment Company Act of 1940 requires that investment companies employ the services of a commercial bank as custodian to hold and safeguard the physical assets (cash and investment portfolio) of the fund.

Traditional IRA income and capital gains

The income and capital gains earned in the account are tax deferred until the funds are withdrawn. If a distribution is taken before reaching age 59 1/2, it is subject to income tax plus a 10% penalty, not instead of (in lieu of) the taxes.

What is the name of the bond document that states the issuer's obligation to pay back a specific amount of money on a specific date?

The indenture

Yankee Bond

U.S. dollar-denominated bond issued by a non-U.S. entity inside the United States

When comparing a time deposit account and a demand deposit account, you would expect

a higher rate of interest paid on the time deposit account.

One of the likely consequences of a rating downgrade on a bond is

a reduction in the market price of the bond. If the rating agencies downgrade the quality of a bond, potential investors will look to compensate for the increased risk by demanding a greater yield on the issuer's bonds. This will inevitably result in a lower bond price.

Not a derivative

a share of stock

Forward contracts

are not exchange traded and are not standardized unlike futures

A REIT and a direct participation program are similar because they both

are operated by a centralized management. A REIT may not pass through losses to its investors, and it is not a limited partnership. A DPP cannot be easily traded in the secondary market.

401(K) Plan

is a type of defined contribution plan An employee's elective deferrals are made with pre-tax dollars. Earnings on the contributions to a 401(k) accumulate on a tax-deferred basis.

If an individual makes a withdrawal from her IRA at age 52, she pays no penalty tax if she

is disabled

Par value

represents how much a bond will be worth at the time of the bond's maturity.

An investor is long stock in a cash account and does not expect the price to change in the immediate future. His best strategy to generate income may be to...

sell a call. Selling a call against a security will generate additional income (the premium).

Covered call writing is a strategy where an investor

sells a call on a security he owns to reduce the volatility of the stock's returns and to generate income with the premium.

Puts are ITM

strike price above market price right to sell at a price above market price gives the option intrinsic value

Calls are ITM

strike price below market price

Traditional IRA RMD

the RMD for traditional IRAs in 72/73

IRA withdrawals

withdrawals can be made after 59.5 without penalty

Lum-sum distributions from a 401(K)

are still subject to taxation as ordinary income but do avoid the 10% penalty

Early IRA distributions for higher education costs

avoids early distribution tax penalty

A distribution from an IRA taken in equal annual amounts over the owner's life

avoids the 10% premature distribution penalty even if started before age 59½.

Net asset value per share for a mutual fund can be expected to decrease if

the fund has made dividend distributions to shareholders. If dividends are distributed to shareholders, the fund's assets will decrease and value per share will fall accordingly. Appreciation of the portfolio and dividends paid to the portfolio will increase the value. If issuers have made distributions to the portfolio, the net asset value will increase. Net redemptions have no effect on the net asset value, because the money paid out is offset by a reduced number of shares outstanding.

One of your clients has recently turned 73 and has questions about RMDs. The client has a traditional IRA, a rollover IRA, and 401(k) plans from two previous employers. When computing the RMDs,

the RMD from each IRA is computed and may be made from one or both of them the RMD from each 401(k) is computed and must be paid from that 401(k)

A client has made both tax-deductible and nondeductible contributions to a traditional IRA. When distributions are taken from the IRA,

they are taxed on a pro rata basis (in proportion) The portion of the distribution that is nontaxable must be prorated with amounts that are taxable. For instance, if the individual contributed $2,000 in after-tax amounts and $8,000 in pre-tax amounts, a distribution of $5,000 would be prorated to include $1,000 after-tax and $4,000 in pre-tax assets.

Mrs. Beech, age 52, as the sole survivor of her mother, recently inherited, among other assets, an IRA. After receiving a distribution of the account's assets, she dutifully rolled over 100% of the account value into a new rollover IRA. As a result, Mrs. Beech

will have to declare the entire IRA value as ordinary income When an IRA is inherited, other than from a spouse, the only way to avoid a reportable distribution is to do a trustee-to-trustee transfer. Because Mrs. Beech received the distribution, the normal rollover rules do not apply. However, Mrs. Beech will not have to pay the 10% penalty tax.