Generally, creation of a formal irrevocable trust into which thedonor (as grantor of the trust) places property that is subject to thetrust Aka CRT 2 types: 1. CRUT Charitable Remainder Unitrust(5-50% of each year’s current value, up to 20 years) 2. CRAT Charitable Remainder Annuity Trust (5—50%, calculated on the initial value of the property)
These plans allow individuals to invest pre-taxand provide tax-deferred earningsTraditional IRA401(k) plans, other than Roth403(b) plans, other than Roth457 deferred compensation plans
Sum of capital appreciation (or losses) on the principal andThe income earned on an investment over a specified periodTax implications: Tax rate applied to gains from capitalappreciation is often lower than those applied to gains throughinvestment
Match the concept Capital Gain Profit earned when sold Like Kind Exchange Original value Principal Selling Prices exceeds Purchase Price Rate of Return 1031Realized Capital Gain Annual Profit or Surplus
• Individually Provided (IRAs, cash values of Life ins, nonqualified annuities, savings)• Social Security – guaranteed income floor, available at age 62 Retired Worker’s Benefits - equal to worker’s primary insurance amount (PIA) at age 65-67. Spouse of Retired Worker (50% of retired worker’s PIA) COLA tied to CPI• Employer-Provided Retirement Plans Qualified pension plans Profit-sharing plans Savings Plans
Dollar Cost Averaging Systematic investing of the same amount of money in the same stock or group of stocks over a period of time Investing in the same volume of stock or group of stocks over a period of time, regardless of the changing share prices Diversifying the bond and CD portions (fixed income) of an investment portfolio by staggering the maturity dates of instruments. Systematic investing of the same amount of money in the same stock or group of stocks over a period of time, regardless of the changing share prices A&BRight Answer: D Systematic investing of the same amount of money in the same stock or group of stocksover a period of time, regardless of the changing share prices
Method used to estimate needed retirement income based on apercentage of expected final average earned income. 60-80% because 1. Taxes usually decline 2. Certain work related expenses may end or reduce 3. Home-ownership expenses may decline if mortgage debt is eliminated 4. Support for dependent children may have ended 5. Senior discounts (Go AARP) 6. General expenses may decline as the aging individual become less active/more sedentary
Laddering Diversifying the bond and CD portions (fixed income) of an investment portfolio by staggering the maturity dates of instruments in the portfolio
The apportioning of investments amongcategories of assets
A category of hybrid funds that areRequired to maintain a fixed weighting (assets allocation)of stocks, bonds, and perhaps money market instrumentsMay enable investors to implement an asset allocation strategythrough the purchase of one mutual fund, rather than severalfunds or other assetsAKA Life-Cycle Fund
Inflation RiskDefault RiskInterest Rate RiskLong term bond investors minimize these risks compared toreal estate and stock investments
Meets Section 7702 IRC via1. Cash value accumulation test • A test that limits cash value relative to death benefit.2. Guideline premium and cash value corridor test • A test that limits premiums paid relative to the death benefit.
Match the stock concept Growth Stock Undervalued Penny Stock Not tied to economic cycles Defensive Stock Faster than general Economy Cyclical stock Trades at <$1 Value Stock Industrical producers
A 403(B) is a qualified retirement plan that foremployees of local, state, or federal governmentsand agencies. TRUE or FALSE?Real Answer:A 403(b) PLAN IS A TAX FAVORED RETIREMENT PLAN FOREMPLOYEES OR CERTAIN NONPROFIT ORGANIZATIONS
The development and implementation of strategies designed toreduce, change the timing of, or shift income tax liabilities
The use of legal methods to reduce oreliminate taxes e.g. Shifting assets to children, Charitable remainder trusts, investing in tax free munis, using normally taxable distribution from nonqualified deferred annuities to pay charges for long-term care insurance tax- free, and taking qualified distribution from a Roth IRA
Tax planning strategy that enable taxpayerto delay the recognition of income for taxpurposes e.g. 401 (k) plans, IRAs, Deferred annuities
• A dividend paid by a U.S. corporation, a corporation incorporated in a U.S. possession , a foreign corporation located in a country eligible for certain U.S. tax treaty benefits, or a foreign corporation whose stock can be readily traded on an established U.S. tock market and which meets applicable holding period requirements.
Deduction = Amount that reduces an individual’sincome subject to tax.
Gain realized on the sale of a capital asset held for one year or less In contrast a long term capital gain is a capital asset held longer than 1 year.
Adjusted Gross IncomeFunctions as the base amount on which certain limits arecalculated (floors for medical expense, mortgage interest,personal casualty/theft losses, and miscellaneous itemizedexpense deductionsDetermines charitable contribution limitations
Property owned at deathLife Insurance on the Decedent’s lifeJoint Tenancies (gross estate of first joint owner to dieincludes ½ of the value of property jointly held or the fullvalue of a property jointly held with someone other than aspouseGeneral Powers of Appointment –Property held by thedecedent with a general POA Annuities, Revocable Transfers, Transfers taking effect at death, Transfers within 3 years of death
Meets statuatory definition of life insurance in IRC butFails to meet the seven pay testDoes not affect death benefits but living benefits lose preferential taxtreatmentPremiums in 1st 7 years exceed sum of net level premiums that would havebeen paid if the policy provided for paid-up future benefits