CFP Final Exam Random
how much are IRAs exempted from bankruptcy till
$1 million dollars. other retirement accounts are exempt at any dollar amount.
Candidate conduct is presumed to be unacceptable and will bar certification if
- two or more personal bankruptcies (with one bankruptcy, CFP board posts notice of bankruptcy for 10 years from date of notification - revocation or suspension of a nonfinancial professional (real estate, attorney) license, unless administrative in nature. - suspension of a financial professional license, unless administrative in nature. - Felony conviction for nonviolent crimes, including perjury, within the last five years. - Felony convictions for violent crimes other than murder or rape that occurred more than five years ago.
What is the order for calculating major medical bills
1. Insured pays 100% of the deductible 2. Insured pays 20% coinsurance of the remaining amount up to stop-loss 3. Insured pays 0% above the stop loss or cap 4. Insured pays 100% of amounts above the policy maximum.
what do the three numbers represent in an auto policy 100/300/25
1. The maximum bodily injury coverage per person injured 2. The total for all persons injured 3. the coverage limit for property damage
what are the 7 steps in the financial planning process
1. Understanding the clients financial position 2. goal 3. Analyzing the clients current plan and where they are going 4. Coming up with the plan 5. Reviewing / presenting the plan with the client 6. implementing the plan 7. Maintain/monitor the plan
Chapter 7 bankruptcy
debts can be discharged through voluntary or involuntary liquidation once every 8 years. liquidation of everything and they put a hold on all of your debts
Securities Act of 1933
disclosure concerning new issues; requires registration with the SEC; provides for distribution of a preliminary prospectus and final prospectus to interested investors
Graduated-payment mortgage
Payments in first few years are lower than normal to accommodate a borrower whose income is currently low but is likely to rise over time.
Biweekly mortgage
Payments made every two weeks for half of the regular monthly amount; pays off more principal per year so that the mortgage is paid off faster with less total interest.
Balloon mortgage
Periodic payments are made for a long-term period, but large balloon mortgage payment (over a short duration, such as five years) must be either paid off or refinanced.
Medicare Part B
Physicians fees and outpatient services
Medicare part D
Prescription drugs
Loans for profit sharing plans
The lessor of $50,000 or 50% of the account balance. If the account is $20,000 or less it is the lessor of $10,000 or the account balance.
Maximum employer contributions to 401K plan
The maximum and employer can contribute to a 401K plan is: 1. Multiply owners salary by 25%. 2. calculate the employer matches by the Owners salary 3. subtract the 25% number by the matching numbers.
What is the Maximum benefit the insurer will pay for damage to a home
The maximum the insurer will pay is the face amount of the policy. if the dwelling is insured up to 80% of the replacement value. The insurer will pay all claims up to the face amount minus the deductible.
Inelasticity
When demand remains constant regardless of price changes. (it doesn't matter if the price of bread goes up or down people are still going to buy it)
parol evidence rule
a written contract is deemed to be the final agreement of the parties, and evidence of prior agreements that were not included in the writing cannot be used to change the final written agreement.
how to solve for duration
Divide the weighted present value of the future cash flows by the price of the bond
EGADIM
E Establish the Relationship G Gather Information Goals A Analyze the Data D Develop the plan I Implement M Monitor
Exclusion Ratio/amount for fixed and variable annuity
Fixed annuity: Investment in the contract/Expected return Variable annuity Investment in the contract / annuitant's life
Medicare part A
Hospital care skilled nursing care, hospice care, and home health care.
Does buying an asset with cash increase or decrease net worth
it does not decrease net worth because assets go up by an equal amount
VA and FHA mortgage
loans guaranteed by the U.S. government that often allow lower down payments and may carry lower interest rates.
Defined benefit plan rules
you must work 10 years with an employer to earn the full benefit. The full benefit for 2022 is $245,000. Every year you work less than 10 years is reduced by 10%. so if you only worked for 6 years you would reduce your benefit by 40% which would be $147,000.
Twisting
the act of inducing or attempting to induce a policy owner to drop an existing life insurance policy and to take another policy that is substantially the same kind by using misrepresentations or incomplete comparisons of the advantages and disadvantages of the two policies.
when are incentive stock options (ISO) taxed as long-term capital gains?
when the options and shares are held for at least two years from the date of grant and at least one year from the date the options is exercised.
when do you have to start taking RMDs
when you reach age 72 (70 1/2 if you reach 70 1/2 before January 1, 2020)
Estate tax exclusion amount for 2022
$12.06 Million
what is the max you can contribute to a 403B plan?
$20,500 and if your over 50 you can contribute an extra $6,500 and if you have worked for the company for over 15 years you can contribute an extra $3,000.
How much does SIPC insure
$500,000 with a $250,000 maximum on cash. and it only protects against losses of cash and securities left with brokerage firms that fail.
Exemptions for registering as an RIA
- Intrastate clients only and provide no advice on national exchange-listed securities. - Insurance company clients only - 15 clients or less in 12 months - venture capital fund clients only - a foreign advisor with no U.S office and manages less than $25 million or has 15 clients or less - charitable organizations and plans - commodity trading advisors - private fund advisers with less than $150 million - advisers to small business investment companies (SBICs)
Unacceptable conduct that will always bar an individual from becoming certified
- felony conviction for theft, embezzlement, or other financially based crimes. - felony conviction for tax fraud or other tax related crimes. - revocation of a financial professional license, other than for non payment of renewal fee. - felony conviction for any other violent crime within the las five years.
A person must generally register as an RIA if they satisfy all parts of the three-prong test which are
1 In the business.. 2 of providing advice about securities... 3 for compensation The ABC Advice, Business, Compensation
The Consumer Credit Protection Act (Truth in Lending Act) asks what questions
1 Lender must inform borrow of the "true" annual percentage rate 2 Disclose the cost of any credit life insurance 3 Include a 3-day right of rescission in any contract using the borrower's home as collateral 4 Maximum garnishment of 25% of take-home pay for unpaid debts 5 The maximum liability for lost or stolen credit cards is $50
RIA registration state vs SEC
1 less than $100 million under management - register with the state 2 over $100 million under management - register with the SEC
What is the savings amount that the client should have
10%-12%
max contribution for Simple 401K
Max = 14,000 for regular plus $3,000 for catch up contribution for a total of $17,000
As a rule of thumb, it is best if consumer debt does not exceed
20% of income
consumer debt payment should not exceed
20% of net income
Sam Peterson wants an additional $24,000 per year income after his retirement. Sam can earn 8% interest. How much will he need to invest to reach his goal?
24000/.08 = 300,000 This is the capital conservation model
what is the recommended monthly housing costs
28%
what is the ratio for monthly mortgage payment should not exceed
28% of gross income
how many years after death can you count life insurance policies gifted and gift taxes paid after death?
3 years.
Time to report convictions of a DUI
30 calender days
Time to appeal a DEC decision
30 days
What is the monthly payment on all debt should not exceed
36%
time to report a change in address
45 days
maximum term suspension to use the CFP marks
5 years
simple 401K rules for contributing to employees
A dollar-for-dollar match up to 3% of pay or a 2% non-elective contribution for each eligible employee
Parol Evidence Rule
A substantive rule of contracts under which a court will not receive into evidence the parties' prior negotiations, prior agreements, or contemporaneous oral agreements if that evidence contradicts or varies the terms of the parties' written contract.
What is the difference between the fair market value and the strike price (bargain value) of ISA stock treated as tax wise
AMT adjustment upon exercise
Medicare part C
Advantage pans - health plan options
Who has an exemption from registration status of the investment advisers act of 1940
Advisors whose only clients are insurance companies
Exceptions for registering as an RIA
Bank, Teach, accountant, broker, lawyer, engineer, publisher of financial materials, government securities adviser
Does appreciation increase or decrease net worth and assets
Increases assets and net worth
FDIC insurance in the amount of $250,000 covers what separate accounts
Individual, joint, retirement, business, irrevocable trust, testamentary trust, and retirement plans. (custodial accounts are allocated to the beneficiary's individual ownership. Revocable trust accounts are allocated to the beneficiary's individual ownership interest)
Fixed annuities
Invested in insurers general account Insurer bears investment risk guaranteed minimum interest rate upon annuitization income payments are fixed suitable for conservative investors
Variable annuities
Invested in subaccounts upon annuitization income payments may vary contract owner bears investment risk suitable for more risky investors
Does paying off liabilities with cash increase or decrease net worth
It does not increase net worth because assets decline by an equal amount
Dodd-Frank Wall Street Reform and Consumer Protection Act
Lenders must verify if a potential borrower can be reasonably expected to repay their loan. Lender cannot execute a refinance unless it benefits the borrower. After losing their jobs, homeowners who are unable to pay may qualify for up to $50,000 in loan assistance. Banks must retain at least 5% of risky loan exposure on their books. Made FDIC limit permanent at $250,000. Changed the definition of an accredited investor: (1) $1 million of net worth exclusive of a personal residence (reviewed every 4 years), (2) single income of at least $200,000 per year, or (3) married with minimum income of $300,000 per year.
what do S&L (thrift institutions) focus on?
Mortgage loans over shorter term assets
Life Insurance purchased after June 21, 1988
Must satisfy the 7 pay test or otherwise be considered a modified endowment contract, with withdrawals on a LIFO basis, earnings taxed first, with an additional 10% IRS premature withdrawal penalty if under 59 1/2 then tax free return of capital.
Section 1244 Stock
Receives favorable ordinary loss treatment on first $50,000 of loss on sale of stock by original owner during the tax year for singles, $100,000 for married filing jointly, with any additional loss taxed as a capital loss subject to $3,000 offset against ordinary income
Equity indexed annuity
Returns linked to an equity index guarantees a minimum return (floor) allows market participation while minimizing downside risk
What is the tax credit for startup expenses of a SEP or SIMPLE plan
Tax credit is 50% of the first $1,000 expenses that can be taken the first three years. Secure act permits a startup credit up to the greater of $500 or $250x number of rank and file employee participants up to $5,000 for three years.
What is the formula for Taxable yield
Tax free yield / 1 - Marginal Tax Bracket
how are ISOs (incentive stock options) considered long term gains
The options and shares must be held for at least two years from the date of grant and at least one year from the date the option is exercised.
is there a bargin element to NSO (nonqualified Stock Option)? and how are they taxed?
There can be a bargin element to NSOs and they are taxed as ordinary income once exercised if there is a bargin element. if there is no bargin element they are either taxed as long term or short term gain and not income because there is no bargin element.
Section 2032A Special Use Valuation
This allows properties to be valued based on their current use, instead of their highest and best use.
what is the 50/40 test
This test applies only to defined benefit plans and requires the lesser of 50 employees or 40% of all ELIGBLE employees to be covered by the plan. (generally an eligible employee is one who is at least 21 and has worked at the company for a year.)
how much can you contribute to a SEP IRA as an employee/owner
You can contribute 25% of your net earnings. up to a maximum of $61,000.
what is the value of stock for estate tax purposes if the person dies on a weekened or day that the market is closed
You have to take the average of the high and low stock price for the day before death and the day after. (if the number of days before is different from the days after the date of death you have to do a weighted average to find the price.) look at question 14.16
what is an adjusted taxable gift
a Gift made by an individual after 1976 that is not included in the gross estate.
Elasticity
a measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants. When demand is price elastic, a price decrease increases total revenue. (luxury goods. when a ferrari goes down in price more people want to buy it)
Sarbanes-Oxley Act of 2002
addresses accounting fraud and financial disclosures
Maloney Act of 1938
allows for the formation of self-regulatory organizations to police the securities industry under the supervision of the SEC; the NASD (now called FINRA) came from this Act
When filling for bankruptcy how much does an IRA have to be in order to be exempted
an IRA can be up to $1 Mill before it is exempted in bankruptcy
prenuptial agreement
an agreement made by a couple before they marry concerning the ownership of their respective assets should the marriage fail.
how is the bargin element of an ISO treated tax wise
as an AMT adjustment upon exercise.
Chapter 11 bankruptcy
intended for businesses, individuals, and partnerships whose financial problems may be solvable if the bankrupt parties are given some time and guidance to manage their financial obligations. A reorganization plan is worked out between the debtor and the creditors.
Securities Act Amendments of 1975
called for a competitive national system for trading securities; led to the abandonment of fixed brokerage commission rates
Deferred annuities purchased before August 14, 1982
can withdraw contributions tax-free under FIFO method
Securities Investor Protection Act of 1970
created SIPC to protect investors when brokerage houses went bankrupt
Chapter 12 Bankruptcy
intended for family farmers with regular income whose debts are not more than $10,000,000. The farmer is given a three-year period to work out financial difficulties through the implementation of the approved plan.
Investment Advisors Supervision Coordination Act of 1996
eliminates the need to register with the SEC if managing less than $30 million (in July 2011, changed to $110 million by the Dodd-Frank Act)
Securities Exchange Act of 1934
focuses on trading of existing securities; created the SEC; requires 10-K reports; gave the SEC control over securities exchanges and later, the over-the-counter market.
Deferred income annuitites
guarntee income for life or certain period of time future income start date selected at issuance elected income start date may be any time after first contract year and generally up to age 85 must annuitize before age 85
what happens if a home is not covered up to 80% of value? Formula To determine what the insurance company will pay for the replacement of your home if you do not have the required 80% coverage requirement
if the home is not covered up to 80% then you have to use this formula. (actual Coverage / Required coverage) x Replacement cost - deductible (if there is one). To calculate the required coverage you need to multiply the 80% times the value of the home.
a family pays $5,000 down for a new car, taking out a loan of $20,000 for the balance of the purchase price. The stock the family owned appreciated by $10,000 what is the effect on the familys net worth
increase of $10,000
Does Retaining income increase or decrease net worth
increases assets and net worth
Chapter 13 Bankruptcy
intended for individuals with full-time jobs or regular incomes who are in financial difficulty. The petitioner seeks a reduction of debts, an extension of time to pay debts out of future earnings, or both through a plan developed to satisfy creditors.
In mortgage financing, a point is
one percent of the loan amount
Keogh Profit sharing plan contributions
plan allows you to contribute up to 25% of compensation or $61,000 for 2022 Contribution % for on employee formula Plan contribution % / 1+Plan contribution %
International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001
prohibits terrorists from using funds held in U.S. financial institutions for illegal activities
Insider Trading and Securities Fraud Enforcement Act of 1988
prohibits use of inside information in securities purchases and sales
what is the formula for Expected return for a stock with a dividend growth rate?
r = (D0 (1+g) /P)+g
Gramm-Leach-Bliley Act of 1999
requires companies to give customers the option to not have their information shared with unrelated third parties; repealed Glass-Steagall Act
The Bankruptcy Reform Act of 2005
requires individuals seeking bankruptcy protection to receive a briefing that outlines the opportunities for credit counseling and budget analysis. The law makes qualified plans, including SEP-IRAs and SIMPLE IRAs, exempt properties in all states, with an unlimited amount.
Investment Company Act of 1940
requires registration of investment companies with the SEC
what is the phase out range for IRA's if you are an active participant in your employees profit sharing plan.
single $68,000-$78,000 married $109,000-$129,000