UGBA 196 Final

how should you reduce healthcare costs

increase your deductible

two most important factors that determine FICO score

payments are on time over time, debt to credit ratio

how to avoid credit card late fees

get it in by 5pm (5 days before for mail, 2 days before for online)

what should you do in the case of credit card theft?

contact issuer/bank and close it/open a new one, within two days you only can pay $50, 3-60 $500, after that all of it

should you apply an extra payment to the principal or interest?

principal

prepaid cards

card not linked to any account; secure way to carry money, but come with lots of fees (inactivity, loading the card up, etc.)

short term vs. long term capital gain

under (individual tax rate) vs. over 12 months (20% for high income, 15% for lower)

what does your interest on a credit card consist of?

variable rate and go to rate

go to rate

interest rate you are charged on unpaid credit card balances after the introductory rate ends

variable rate

interest rate that moves up and down based on benchmark interest rate not controlled by the lender, common for credit cards

defined pension plan

benefits are defined by employer using a formula that considers factors such as length of employment and salary history

compounding

earning interest on your interest; amount of time it takes money to double

proprietorship (people, death, liability, form)

owned by one person, this person dies = business dies, unlimited personal liability, file Schedule C with Form 1040

initial public offering

the first time a corporation sells a stock to the public

minimum criteria for credit score

at least 6 months of history, one account, one account reported by lender, no indication that you are dead

when should you not buy mutual funds?

before the year-end distribution is made to avoid taxes on the money

what happens to interest when a partner dies?

up to the point of death, interest is on their own return, the other partner(s) are responsible for the rest

what factor is most important to avoid risky investment?

diversification

what is the most important factor in determining in whether an investor pays more for a stock in the future?

earnings per share

P/E ratio

price of share divided by earnings per share

dollar-cost averaging

investing a set amount of money in shares of a stock on a regular time schedule regardless of the price of shares at the time, mathematically by doing this you will buy more shares at lower prices than higher prices

mutual fund

professionally managed portfolio consisting of stocks, bonds, other investments divided into shares

closed-end mutual fund

functions like an ETF, set amount of shares in an IPO, might be above or below NAV, lower fees than OEF

open-end mutual fund (shares, how they're traded, based on, fees, one more)

Pooled investment portfolios open to anyone with money to make an offering, prospectus (mission/strategy) fees are high

ETF

tracks an index (like S&P 500), trades like a stock, instant diversification

does an ETF have higher or lower fees than a mutual fund?

lower

sector index fund

similar to ETFs but instead of tracking an index they track stocks in a specific industry like energy, utilities, etc. ; shares of the stocks are traded on open market

corporation (charter, liability, dividends)

chartered by state, limited liability, dividends distributed to shareholders

what will be the biggest expense in your lifetime?

taxes

earned income

all the all the wages you make (wage, tip, salary, bonuses, commissions, royalties)

unearned income (6)

income from assets (taxable interest, alimony, business profit, capital gains and losses, pension receipts, certain tax refunds)

what voids a contract? (4)

fraud, mental incompetence, misrepresentation, duress during violence/coercion

cooling-off period

time where you can reject a contract after signing

consideration

mutual obligation to perform contract, something of value is to be exchanged

types of contracts

unilateral, bilateral, multilateral

revenue vs. earnings

amount of money the company makes by selling its product or service vs. profit the company makes after all costs of goods sold, expenses, taxes, depreciation, amortization and interest are paid

fiduciary duty

financial advisors must always put the interest of their clients first

kiddie tax

applies to the amount of your child's unearned income that exceeds $2100, your marginal tax rate applies

buying on margin

borrowing money from a broker to purchase more stock

bid

highest price a buyer is willing to pay

ask/offer

the lowest price at which a seller is willing to sell

market order

the best available price at that instant in time for an immediate execution or filling of an order, to buy pay the ask, to sell sell at bid

limit order

the specific price you set at which you are willing to either buy or sell a stock, does not limit losses

bond

interest bearing security obligating the issuer to pay the holder a specified amount of interest for a specified period of time and then repay the bondholder the face amount of the bond, usually $1000 per

corporate bond vs. municipal bond

interest on corporate bonds tax deductible for corporation, not bondholder/you can exchange for stock vs. interest tax free and sometimes state tax free too

what happens to bond values when interest rates go up?

they go down

credit repair company

advertise their services to consumers who need help with their credit but charge lots of fees

Medicare A taxes

- 2.9% payroll tax on all earned income, no salary cap, 1.45% by employer and 1.45% by employee
- additional .9% on income over 200k for singles and 250k for couples

Medicare B taxes

3.8% investment surtax on high-income earners

how is Medicare D paid for?

financed 25% by monthly premiums from the insured and 75% by taxes

what is your interest rate based on?

lowest of your three credit scores

Social Security payroll tax & cap

12.4% of all earned income up to a maximum salary cap of 118,500, 6.2% is paid by the employer and 6.2% is paid by employee

leverage

using borrowed funds to buy something (if it goes up in value, you benefit)

depreciation

gradual loss of value as something wears out

W-4 form

lets your employer know how many exemptions (dependents) you wish to claim (more exemptions = less withholdings)

gift card

now they can't expire until 5 years

three major credit reporting agencies

Equifax, Transunion, Experian

California state disability plan coverage

mandatory state disability plan, paid for by employee through payroll deductions

premium or discount selling bond

the amount above vs. below face value that a bond is valued at

default rate of interest (percent, what causes it/stops it)

28-35%, 60+ days late in making minimum payment, on time payments for 6 months stops it

are social security/medicare contributions tax deductible?

no

over the limit fee

can't be greater than how much you exceed limit, cap is $39

what is the number one rule for buying stocks?

do not borrow money to buy them

grace period

statements mailed 21 days before payment due date, no charges prior to this day

where are card payments in excess of minimum applied?

balance with highest interest rate

credit card mandatory warnings

late payment, minimum payment, 30 day warning of account closure

credit card promotional rate rule

must be at least 6 months

first year of credit card fees rule

must not exceed 25% of credit limit

credit cards under 21 rule

need cosigner and permission to increase credit limit

credit card statement rules

show how many months to pay off balance, how much to pay to be debt free in 3 years, toll free credit counseling

good/above average dividends

provides a yield greater than the interest rate in a 10-year treasury bond

are bonds a good thing to own during inflation?

no

Medicare A

all seniors get it, major items such as hospital, skilled nursing, home health care, hospice, and blood transfusions

how is Medicare A paid for?

free for seniors, paid by employees through taxes

Medicare B

optional/means tested, benefits are the same regardless of what you pay per month, eligible benefits include the doctor, outpatient services, physical exams, and cardiovascular and diabetes screening

how is Medicare B paid for?

paid by the insured/3.8% investment surtax on high-income earners

Medicare D

optional/means tested, prescription drug plan provided only by private insurance companies

which parts of medicare are means tested?

b & d

current yield

annual interest payment divided by market price of a bond

yield to maturity

how much you will be paid in the future if you hold the bond to maturity in terms of percent

how often is interest on credit cards calculated?

daily

IRA (taxes, age)

tax sheltered account for retirement investing, contribution is tax deductible, must be under 70 1/2 to contirbute

what is the maximum amount per year you can put into an IRA?

$5500 for under 50, $6500 for over

roth IRA (4)

put money in after paying taxes, no deduction, you can take money out tax-free, can contribute at any age

wash sale

you cannot declare a loss on a security if you purchase the identical security within 30 days before or after the sale

short sale

market value of house is below the loans

what three parties contribute to 401K?

you, the employer, and the US

rule of 72

- estimates how long it will take for money to double
- how many years?: 72/interest rate
- interest rate?: 72/# of years you want to double your money in

vesting

what you will actually own and be able to take with you of your employer's contribution if you quit/are terminated/retire

cliff vesting

employer sets aside money in 401K account, but you don't get it unless you work for a certain period of time (max 3 years)

graded vesting

you get a percentage of the money each year (as long as 5 years

what is tax deductible when you buy a house?

mortgage interest, points/origination fees from closing, property taxes

homeowner's insurance

package policy including damage to property and liability

four types of homeowner's insurance

structure of home, personal belongings, liability, living expenses

MSRP

manufacturer's suggested retail price, dealer's starting point

REIT

real estate investment trust, mutual funds for real estate

three types of REITs

equity (own and operate real estate), mortgage (finance property), hybrid

who manages IRA account? (5)

banks, savings and loan, credit union, brokerage firm, or mutual fund

who manages an REIT account?

a company

Health Care Reform Act (5)

no pre-existing condition denial, free preventative services, no lifetime limit, kids on plan until 26, coverage cost basis

triple net lease

in addition to rent, tenant is responsible for property taxes, insurance, maintenance, repairs, utilities, electricity, etc

workman's compensation

provides coverage for any work-related injury/illness, prevents employees from suing

who pays for workman's compensation?

the employer

who pays for disability insurance?

Supplemental Security Income (SSI) through workers/employers

what determines interest on student loans?

linked to the interest rate on the 10-year Treasury note

equity

difference between the current market value of the property and what is owed on mortgages/debts

how do you get exempt from taxes on house sale profits?

live in the same house for two of the past 5 years, exempt up to 250,000 for singles, 500,000 for couples

term life insurance

death insurance, policy pays death benefit, many employers provide

whole life insurance

term insurance + savings component (cash value), greater cost than term insurance

financial goals of owning/renting property

Use rental income to help pay for mortgage, insurance, taxes, and maintenance while taking advantage of the tax benefits and the use of borrowed funds and leverage

when can you discriminate in renters?

when you are taking a boarder in your primary residence

are roth IRA contributions tax deductibe?

no

under what conditions can a spouse have a spousal IRA account?

if your spouse does not work, you can contribute $5500 to a spousal IRA for him or her which is also deductible

max contribution to spousal IRA

$5500

restricted share units/stock options

the right to buy a stock at a set price within a specified period of time to attract/retain/reward employees but if employee has not qualified by the length of service or meeting profitability goals/is terminated it means that shares are not yours

restrictions on adjusted gross income to meet in order to contribute to IRA

if 61000 < AGI < 7100 tax deduction is reduced, if > 7100 you can't deduct, married phase out at 98000 and no deductions over 118000

what type of investment can you own in your IRA account?

stocks, bonds, mutual funds, ETFs, sector funds, money market funds

what should you do when transferring money from an IRA to a 401K or vice versa?

don't touch the money in between

tax sheltered accounts (5)

roth IRA, IRa, 401k, roth 401k, HSA

can homeowner's insurance cover replacement cost of rebuilding a house?

yes

can homeowner's insurance cover living expenses?

yes

can homeowner's insurance cover code changes?

yes

can homeowner's insurance cover personal belongings?

yes

portability of 401k account

you can leave it in past plan, move to new plan, move to IRA, or take cash value

what is the difference between a 401k and roth 401k? (3)

roth 401k not tax deductible, roth 401k distributions are tax free, roth 401k has no minimum age

is the interest rate on federal student loans the same for ugrad/grad students?

no

laws for student loans

fixed rate for your school year, 4-8% for undergrad

how are laws for student loans changing?

higher payment cap, shorter repayment period, private loans

escrow

neutral third party that holds documentation/money and distributes once closed, fee for service

are the same tax benefits if you purchase a condo/apartment as those of buying a house?

no (apartment has no mortgage/property tax deductions)

if you make capital improvements on house, does that increase cost basis for tax purposes?

yes

is maintenance tax deductible on house?

only on rental property, not personal residence

what is title insurance?

guarantees clear ownership of property to buyers and lenders

real estate gives you opportunity for?

leverage

if you sell primary residence at a loss, is it a tax loss?

no

if you buy a house in foreclosure, fix it, and sell it 6 months later, is it short term or long term capital gain?

long term

what is the main benefit of life insurance?

to establish immediate estate

benchmark home loan

20% down, 30 year loan

foreclosure causes

failure to comply with loan agreement

forced sale

sale made without the consent of the owner of the property

lien

when a property becomes security for a payment of a debt, but the filer does not have the power to force sale/take possession

PMI & cost

private mortgage insurance, protects the lender from loss in the event of a default for the amount of the loan in excess of 80%, cost is 1% of the amount of the loan per year

under what circumstances do you need PMI?

if equity is less than 20% of purchase price

second mortgages

riskier additional loan against the same property, higher rate of interest and shorter term

if there are first and second mortgages and a house is sold, who gets paid what?

first must get paid off first

in residential property sale, who pays the real estate agent?

seller

are real estate commissions set by state department of real estate?

no, 6% but can be negotiated

single most important factor in buying a house

location

who pays for an inspection/maintenance?

buyer pays for inspection, seller pays for maintenance

how should you get the price down when buying a car?

waste the salesperson's time

who does a car salesperson represent?

dealer

best days to buy a car

last 2 days of month, between christmas and new year's, when new models are coming in (aug, sept, oct)

best times to buy a car

11:30am, hour and a half before closing

invoice price

what the manufacturer charged the dealer

should you tell a salesperson if you are going to pay cash?

the dealer also wants to sell you financing and insurance so if you don't tell them you're paying cash they might come down more

cash or car

write a check for a month in advance, try to sell car and then give check for remaining balance if you do

what determines monthly car lease cost? (2)

the amount the vehicle will depreciate in value during the period of the lease combined with the number of miles driven

cap cost

value of car when you first start a lease

residual value

value of car at the end of the lease

what happens when lease expires?

you can buy the car at residual value or return it

when you invest in commercial/residential property does depreciation decrease or increase cost basis?

decrease

commercial/industrial property

require large amounts of capital

sale leaseback

company builds a property and sells it to an investor and leases it

active vs. passive in real estate

actives spend 50%+ of their working hours a year involved in business of real estate, where passive is less

what is a 1031 exchange?

defer taxes on capital gains by exchanging or replacing a property with another instead of selling it

are repairs/maintenance tax deductible on rental property if you're the owner?

yes

what are the requirements for owning a commercial property?

you have to adhere to building code, zoning laws, use permit

on real estate property, do capital expenditures increase or decrease cost basis?

increase

special tax benefit of REITs

you can hold them in a tax sheltered account

are dividends on REITs taxable?

yes, as normal income

can you buy REITs on stock exchanges?

yes

co-insurance

percent share of payment you pay after you have met deductible

deductible

what you pay per year before insurance company pays, higher deductible = lower cost of policy

copay

share of payment you pay after you have met deductible

HMO (abbr, benefits, cost, organization)

Health Maintenance Organization, nonprofit organization, comes with tax benefits, flat monthly fee regardless of usage, need to stay within providers in plan, has its own medical facilities , doctors paid salary

PPO

Preferred Provider Organization, choose from a group of providers who have their own contracts with your insurance company, more flexibility outside plan

HSA (taxes, rule)

tax sheltered accounts for medical bills, you must not be a dependent, tax deductible contribution

Flexible savings account

employer-only sponsored plan, money deducted from paycheck, need to estimate contribution per year

when you leave hospital, do you have to pay bill before leaving?

no

when they quote an interest rate and APR, what is difference?

APR reflects other charges as well

does standard policy normally cover earthquakes and flood damage?

no

how should you determine how much homeowners insurance you should carry on a house?

80% of the value

does homeowners' insurance include additional living expenses?

yes

when do you not need life insurance?

when no one depends on you for support

the older you are, does annual cost for life insurance go up or down?

up

what are life insurance premiums are based on?

age, sex, health, occupation

disability insurance

income replacement when you can't work

what is the most important thing to look at if you are contemplating disability policy purchase?

definition of disability

when you start a business, what is the first thing you need to have?

funding

Solo 401K

save as an employee and employer (lesser of 25% income or $53k)

why do people refinance home loans?

lower interest rate or monthly payment

subprime mortgage

mortgages given to people with scores of 660 or less

major reason for subprime mortgage crisis

taking adjustable rate mortgages with teaser rates

does homeowner's insurance cover contents of a house?

yes

what website should you use to check car's history?

carfax

what is tax deductible if you own rental property?

operating expenses are tax deductible, but not principal payments

does depreciation increase or reduce amount of profit you can make?

reduce

home equity loans

secured by equity of property, fixed rate of interest, kind of like a second mortgage

home equity lines of credit

HELOC, revolving line like a credit card

negative amortization

loan amount increases when there is a teaser rate, difference between this rate and market rate is added to loan

how much will lenders lend you on home mortgage? (3)

three times annual gross income, monthly mortgage payment, including principal, interest, insurance, and property taxes not to exceed about 28% of your gross monthly income, total debt payments not to exceed about 43% of gross income

is owning real estate a good thing during period of recession?

no

which is bigger - student loan debt or credit card debt?

student loan debt

do student loan payments hit your credit report?

yes

prospectus

document of disclosure which details the open-end fund's investment policy, strategy, expenses, and past performance

prepayment penalty

if the borrower prepays the mortgage proper to a specific date a penalty will be assessed. Usually the penalty is equal to a certain number of months of interest, or a percentage of the outstanding loan

What is the annual tax deductible contribution to a 401k in 2015?

$18,000 ($24,000 for those over 50)

How much are expensive items like jewelry, fur, art, and silverware usually covered up to?

$1,000 -2,000

True or false: you can convert all or part of your traditional IRA to your Roth IRA without paying the taxes due on the withdrawals from the Traditional IRA

false

Section 457 plans

defined contribution plans established by governmental agencies; similar to 401(k) but they are only funded your contributions

Can an employer contribute to a Roth 401(k)?

no, contributions must go into a traditional 401(k)

When do liens occur?

When contractors or subcontractors make improvements, repairs, or when the owner fails to pay all property taxes and assessments

Why are REIT's attractive?

The companies that operate them pay no tax on corporate income if they pay at least 90% of their income to shareholders in the form of a dividend

COBRA

medical insurance after you leave an employer up to 18 months, more expensive

goal of HMO

to keep costs low by keeping members healthy and requiring fewer treatments and procedures

forebearance

Put the total payments on hold for a number of months, but interest accuses and is added to the loan principal

how long until a property is a long term capital gain?

one year

how long until a student loan goes into default/what are the consequences?

270 days, subject to possible wage garnishment and other serious penalties

403b

defined contribution plans established by nonprofit organizations; the funds are used to purchase annuity contract whereby one receives payments on an investment for a lifetime or a specified number of years

What is the max $ you can put in a FSA?

$2500

How much should your apartment rent be?

25-35% of your gross monthly pay

Does a traditional IRA plan requirement you to make withdraws at 70.5?

yes

True or false: HSA must be used in conjunction with high deductible health plans

Tru

What is a late fee?

Fees distributed to credit card holders when payments aren't made on time
Cannot exceed the minimum payment on your card
If you exceed your limit by $5, the over-limit fee cannot be more than $5

tax rate for long term capital gains

maxxed at 20% on holdings held for 6+ months

tax rate for short term capital gains

varies by individual income tax rate; held less than 6 months

fixed rate of interest

A loan with an interest rate that will remain at predetermined "fixed" rate for the life or term of the loan. It does not fluctuate.

pass-through deduction

Brand new 20% tax deduction on business income from proprietorship, S-corporation, LLC, or partnership
Only remaining 80% of income is taxed at taxpayer's marginal rate
Available even if the taxpayer does not itemize deductions

Partnership

2+ business partners, general partner assumes unlimited liability, general partner decides end of year dividends, don't pay federal income taxes, K-1 forms used to decide individual liability for taxes

C Corporation

The most common type of corporation, which is a legal business entity that offers limited liability to all of its owners, who are called stockholders

S corporation

A unique government creation that looks like a corporation but is taxed like sole proprietorships and partnerships

How much should you invest in one sector/fund?

No more than 20% of your investments should be in one place

Index fund

A mutual fund that was designed to reduce fees by investing in the stocks and bonds that make up an index (S&P 500)