margin outline

Initial margin requirement

·        A.k.a. Reg T requirement

·        Amt customer must deposit when borrowing to buy stock

·        Deposit 50% of market price when buying or selling short

Long margin account,long account

·        Debit balance, remaining balance after Reg T paid

·        Pay interest for borrowing

Short margin account,short account

·        Short stock

·        Customer doesn’t own stock

·        Customer has to borrow stock to short stock

·        Credit receipt=Credit balance=Deposit $ + proceeds

margin outline

Federal Reserve Board (FRB) a.k.a The FED

·        Creates margin rules

·        Margin: customer borrows $ or stock

·        Regulation T, a.k. Reg T: Fed rule about broker/dealers giving credit/stock for customer purchases

·        Decided which stocks can be bought on margin

·        Listed stocks can be bought on margin

·        NASDAQ NMS stocks can be bought on margin

·        Some unlisted over the counter OTC stocks can be traded on margin

·        DO NOT NEED TO KNOW MARGIN REQUIREMENTS

·        Reg T, broker/dealers give credit to customers to buy stock

·        Reg U, banks give $ to customers to buy stock, to members of b/d firm who buy for account of firm

Reg T

·        When customers pay for purchase

·        Amount customer must pay for purchase

·        50% down for stock and bonds

·        b/d must follow regulations

·        b/d make sure payments made

margin agreement

·        a.k.a customer agreement

·        fill out before client can buy/sell

·        has lending authorization and hypothecation agreement

settlement date/trade date

·        NOT TESTED

retirement plan outline

Individual retirement account (IRA)

·        For individuals with income from working

·        Account at broker/dealer or insurance company

·        Income must be earned

·        Working person with non-working spouse can put away $ into separate IRA account for spouse

·        Max: less of $5,500 or 100% of earned income for year

·        If person has other retirement assets, IRA contribution amount decreases

·        No collectibles in IRA or bought for IRA

Different contribution amounts for

·        a)single person with/without another retirement plan

·        b) married people-with or without another retirement plan

·        c)married people-with/without a retirement plan

no retirement plan

·        single person or married person can put in $5,500 per year or $6500 if age 50 or above

·        single making $59,000 or less, marries making $95,000 or less WITH plan can do $5500 per year $6500 if age 50 or above

·        single making >$59,000, <$69,000 or married making >$95,000 or <$115,000 WITH plan can do a partial tax deductible contribution

·        single making >$69,000 WITH plan or married couple >$115,000 WITH retirement plan for both CAN NOT make tax deductible contribution

·        married making $178,000-$188,000 with one WITHOUT plan and one WITH plan may make full-tax deductible contribution for person without retirement plan

·        married making >$188,000 one WITH plan, both WITH plan-can NOT make tax deductible contributions

·        if income over limit + have retirement plan, max contribution can be made, not tax deductible

·        married couple with nonworking spouse can contribute for spouse under same rules as working spouse

·        married couple-one works, one does not work, working spouse with plan contributes, not tax deductible for either

·        put in $ after tax, voluntary, already taxed, part of cost basis-no tax at withdrawal

·        individuals<max limits can put in whole income but can not put more than they make

·        each person must have their own IRA and pay taxes on it when they retire

·        6% penalty for overpayment,taxed every year until taken out

·        IRAs taxed on appreciation + penalties when they apply

·        Person can rollover $ from trustee to new trustee once per year

·        When person leaves job, must rollover money from company plan to IRA in 60days

·        Banned-income averaging

An investor has contributed $40,000 to an IRA over the last 20 years. The account is now worth $120,000. Any withdrawal from the IRA by an investor who is 65 will be taxed as which of the following?

·        All ordinary income

·        Made with pretax $

·        Appreciation tax deferred

·        Whole amount is ordinary income

·        Taxes were not paid on income originally

Roth IRA

·        Taxpayer Relief Act of 1997 created Roth individual retirement accounts

·        $ put in is after tax $

·        10% Penalty if withdraw before 59.5

·        First dollars-contributions with Roth IRA

·        First dollars traditional IRAs + annuity-appreciation

·        High income limits-$127,000 for individual, $178,000 for married couple

·        If individual or spouse WITH retirement plan with employer, there is NOT a lower amount that can be put in

·        Max contribution: less of $5,500 or 100% of earned income, $6500 if 50 years old+

·        50+ years old can put in $6500 if under income limit

·        If person WITH >1 IRA account total contributions can be $5500/year or $6500/year if 50+

·        Don’t have to withdraw funds at 70.5 years old

·        10% penalty, withdraw before 59.5 years

·        If under 59.5, Withdraw regular contributions with no tax penalty

·        If under 59.5, withdraw rollover contributions with income tax and penalty charge

·        If under 59.5 earnings taxes as ordinary income

 

Roth IRA uses

·        Account must be 5+ years

·        Higher education

·        Medical expenses

·        Buying first time house

·        Withdrawal taxed as ordinary income

 

Coverdell education savings plans

·        To pay for kid’s college costs

·        Individual + client can donate up to $2000/year

·        Principal and earnings distribution tax free for education expenses

Expenses

·        Tuition

·        Books

·        Supplies

·        Equipment

·        Room and board-school’s charge or $2500 if student is off campus

·        New beneficiary needed-when kid turns 30, either used up $ or transfer to a younger kid within 30 days

·        10% penalty: Non-education use of distributions

·        Maximum contribution does NOT include rollover Savings plan amounts

·        Can NOT contribute once kid is 18 years old

Which of the following are similarities of a Coverdell ESA and a traditional IRA?

·        Earning accrue tax deferred in both

·        Withdrawals must start before a certain age in both the Coverdell ESA and the traditional IRA

·        Coverdell ESA contributions-not tax deductible

·        Coverdell-withdrawals by 30 years old, traditional IRA withdrawals by 70.5 years old.

·        Traditional IRA and Keogh can have tax deductible contributions

Qualified Tuition Plans-529 plan a.k.a qualified tuition program

·        Economic Growth and Tax Relief Reconciliation Act of 2001 provides an incentive for investors to put $ into college savings plan

·        Federal tax exempt distributions

·        Est. under IRS

·        $ after tax

·        Don’t pay gross income tax when withdraw

·        Can do 5x the gift tax free amount first year, no gifts for five years after that

·        Any age can put $ in plan

·        Can withdraw $ at any age

·        Est. by states as a trust

·        Managed by investment advisor firm

·        Tax exempt if beneficiary lives in state of plan

·        States decide tax treatment, beni’s of  state’s plan, beni’s of outside state’s plan, who can invest, what investments are available in plan, max-total amount of contributions that can be made to plan, do not guarantee investments except some special cases

·        Contributors, owners of account until $ taken out

·        Change beni to somebody outside family, earnings are taxed as income to beni

·        Contributor to plan can’t pick investments

·        Only cash can be put in

·        Contributor can set up plan for relatives

·        Beni can be changed

·        States decide who can contribute

·        After tax contributions-grow tax deferred

·        10% penalty if not for higher ed, Withdraw $, withdrawal/distribution taxed as income to contributor/beni

·        Contributions, a fift

·        State and estate tax benefits if 529 for paying tuition within your state

·        No 10% penalty if death or disability of beni

What is the maximum contribution that can be made in any one year to a 529 college savings plan without a single contributor without a single contributor incurring a gift tax?

·        5x the gift tax free amount

·        Can’t contribute for five years after 5x gift made

Higher education expenses

·        Tuition

·        Fees

·        Books

·        Supplies

·        Room

·        Board-must be half time students, must be reasonable

·        Special needs expenses

retirement plan outline

Self employed defined contribution retirement plan

·        Aka HR-10 retirement plan

·        A.k.a Keogh plan

·        Contributions must be $ from earned income

·        Self employed: The less of $51,000 per year or 100% of earned income

·        Cannot hold gold,diamonds, coins, antiques

·        Contributions are tax deductible

·        Earnings accumulate tax-deferred

Trustee/custodian

·        oversee account

·        comply with IRS rules

Plan for employee

·        25% of employee’s salary or less

·        Self employed people must contribute for their employees if they want to use plan for their account

·        Vesting in one year

Retirement plan features

·        Withdraw in lump sum-average over 10 years

·        Withdraw at intervals-like annuity pay out

·        IRA rollover into 401k

·        401k rollover into IRA

·        1035 exchange,transfer insurance product into another insurance product or annuity

·        Annuity can NOT be exchanged for insurance policy

·        Pension plans don’t invest in municipal bonds, already tax deferred

·        If employee leaves before one year, $ goes into pot for other employees

·        If employees leave after partial/full vesting they can take $ when leave or take money later, pay income tax or roll into IRA or other tax qualified plan in 60 days

·        Transfer from one trustee to another,allowed to roll money over once per year

·        Same trustee, can move $ from one investment to next investment within same company

What is the maximum contribution a self-employed individual can make to a self-employed defined contribution plan?

·        $51,000

·        Self-employed defined contribution plan a.k.a. HR-10 plan a.k.a. Keogh plan

·        Can do $51,000 or 100% of income whichever is less

·        Employee of self-employed person can contribute up to 25%

ERISA

·        Employee  retirement income security act of 1974

·        Purpose-employers protect $ interests of employees retirement/pension plans

·        How to monitor retirement plans

·        Trustee must put $ in low risk investments

·        Reports to IRS

·        Reports for employees of contribution amounts and earnings

·        ERISA covers corporations

·        ERISA does not cover federal government or municipalities

Which of the following is covered by ERISA?

·        The investing policies of pension plans by private employers

·        Protect employees so pension plans aren’t raided in corporate takeover

·        Makes trustee financially responsible

403b retirement plan

·        For tax exempt organization such as church, school, charitable foundation, nonprofit corporation

·        For teachers, church employees, nurses

·        A.k.a. tax sheltered annuity plans

·        Employees make voluntary contributions

·        Plan set up with bank or financial institution

·        Can be through mutual fund companies, insurance companies

·        Employees put in part of their salary up to limit

·        Contributions-pre tax, tax deductible to employee

·        Withdraw, pay-out-taxed as ordinary income

·        Can rollover into IRA if employee leaves

Which of the following can contribute to a 403b plan?

·        Nonprofit employees