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Personal Finance
Acct 473 Final Exam 2
56
Accounting
04/26/2010

Additional Accounting Flashcards

 


 

Cards

Term
Reverse annuity mortgage (RAM) (also called an equity conversion)
Definition
A mortgage in which the lender uses the borrower's house as collateral to buy an annuity for the borrower from a life insurance company.
Term
When you retired, some expenses will be lowered or eliminated
Definition
  1. Work expenses
  2. Clothing expenses
  3. Housing expenses
  4. Federal income taxes - your retirement income is not taxed until you have received the amount you have invested in the retirement fund. After that, your retirement incomes is taxable.

 

Term
When you retired, some expenses may increase
Definition
  1. Insurance -the loss of yr employers' contribution to health and life insurance will increase your own payments.
  2. Medical expenses
  3. Expenses for leisure activities
  4. Gifts and contributions
Term
Housing option for seniors
Definition
  1. Independent living
  2. Assisted living
  3. Nursing homes
  4. Continuing care communities
  5. Staying at home
Term
Defined-contribution plan (also called an individual account plan)
Definition
A plan-profit sharing, money purchase, Keogh, or 401(k) - that provides an individual account for each participant.
Term
401(k) (TSA, tax-sheltered annuity) plan
Definition
A plan under which employees can defer current taxation on a portion of their salary.
Term
Defined-contribution plans include
Definition
  1. Money-purchase pension plans
  2. Stock bonus plans
  3. Profit-sharing plans
  4. Salary reduction or 401(k) plans
Term

  Vesting

 

 

 

Definition
An employee's right to at least a portion of the benefits accrued under an employer pension plan, even if the employee leaves the company before retiring.
Term
Defined-benefit plan
Definition
A plan that specifies the benefits the employee will receive at the normal retirement age.
Term
PBGC (Pension Benefit Guaranty Corporation
Definition
a quasi-governmental agency, to provide pension insurance. The PBGC's board of directors includes the secretaries of the U.S. Departments of Labor, the Treasury, and Commerce.
Term
Individual retirement account (IRA)
Definition
A special account in which the employee sets aside a portion of his or her income, taxes are not paid on the principal or interest until money is withdrawn from the account.
Term
Roth IRA
Definition
Contributions are not tax deductible, but earnings accumulate tax free. You can make contributions even after age 70 1/2. Five years after you establish your Roth IRA, you can take tax-free, penalty-free distributions if you are at least 59 1/2 or will use the fund for first-time home buyer expenses.
Term
Rollover IRA
Definition
it is a traditional IRA that accepts rollovers of all or a portion of your taxable distribution from a retirement plan or from another IRA. To avoid a mandatory 20% federal income tax withholding, the rollover must made directly to a similar employer provided retirement plan or to an IRA. if you receive the money yourself, you must roll it over within 60 days. However, you will receive only 80% of the amount you request as a distribution (20% withholding tax). If you are under 59 1/2, the 20% withholding will be considered an early distribution subject to a 10% penalty tax.
Term
Education IRA (renamed the converdell education savings account)
Definition
You can give $2000 a year to each child-up from $500- for the education IRA. These accounts grow tax-free and can be invested any way you choose. a married couple can contribute the full $2000 if its AGI is $ 190,000 or less.
Term
Simplified Employee Pension Plans-IRA (SEP-IRA)
Definition
it is simply an individual retirement account funded by the employer. Each employee sets up an IRA account a a bank or a brokerage house. Then the employer makes an annual contribution of up to $45,000. It is simplest type of retirement plan if your fully or partially self-emplyed. Your contributions are tax deductible, and earnings accumulate on a tax-deferred basis.
Term
Keogh plan (a self-employed retirements plan)
Definition
A plan in which tax-deductible contributions fund the retirement of self-emplyed people and their employees.
Term
Annuity
Definition
A contract that provides an income for life. To the extent that annuity payments exceed your premiums, these payments are taxed as ordinary income as you receive them, but earned interest on annuities accumulates tax free until the payments begin.
Term
Immediate annuities
Definition
It generally purchased by people of retirement age and usually purchased with a lump-sum payment.
Term
Deferred annuities
Definition
Income payments start at some future date. Interest builds up on the money you deposit.
Term
Single-Premium deferred annuity
Definition
A deffered annuity purchased with a lump sum. It is the tax free buildup during the accumulation period.
Term
Income annuity options
Definition
  1. Lifetime income (life income or life)- you receive income payments for the rest of your life. the income ceases upon your death. single people
  2. Lifetime income with a munimum number of payments guaranteed (life with period certain) - You receive income ofr the rest of your life.If you die before you receive a specific number of payments, your beneficiary will receive the balance of the number of income payments you choose. People with heirs.
  3. Lifetime income for two people(joint and survivor) - Income payments are received for as long as either of the two people are alive. Upon the death of either person, income continues as a percentage of the original amount.
Term
estate planning
Definition
A definite plan for the administration and disposition of one's property during one's lifetime and at one's death.
Term
Will
Definition
The legal declaration of a person's mind as to the disposition of his or her property after death.
Term
Intestate
Definition
withour a valid will. The state's law of descent and distribution becomes your copy of the will.
Term
probate
Definition
The legal procedure of proving a valid or invalid will. It is the process by which an executor manages and distributes your property after you die according to your will's provisions.
Term
Simple will
Definition
A will that leaves everthing to the spouse, also called an I love you will.
Term
Traditional marital share will
Definition
A will in which the grantor leaves one-half of the adjusted gross estate (the gross estate minus debts and costs) to the spouse. The other half of the adjusted gross estate might go to children or other heirs or be held in trust for the family. A trust can provide the spouse with a lifelong income and would not be taxed at the spouse's death.
Term
Exemption trust will
Definition
A will in which everything passes to the spouse except the exemption (2 mil in 2008 and 3.5 mil in 2009)
Term
Stated dollar amount will
Definition

A will that allows you to pass on to your spouse any amount that satisfies your family objectives.

 

you should use percentages instead of designated amount.

Term
Types of wills
Definition
  1. simple will (I love you will)
  2. traditional marital share will
  3. the exemption trust will
  4. the stated dollar amount will
Term
Formats of wills
Definition
  1. holographic will-a handwritten will
  2. Formal will - a will that is usually prepared with an attorney's assistance
  3. Statutory will - a formal will on a preprinted form (serious risks in using this)
Term
Guardian
Definition
A person who assumes responsibility for providing children with personal care and managing the deceased's estate for them.
Term
Trustee
Definition
A person or an institution that holds or manages property for the benefit of someone else under a trust agreement.
Term
Codicil
Definition
A document that modifies provisions in an existing will. It identifies the will being amended and confirms the unchanged sections of the will. To be valid, it must conform to the legal requirements for a will.
Term
living will
Definition
A documentary that enables an individual, while well, to express the intention that life be allowed to end if he or she becomes terminally ill.
Term
Prenuptial agreement
Definition
A documentary agreement between spouses before marriage.
Term
Ethical will
Definition
A document that dispenses emotional and spiritual wealth to heirs.
Term
Power of attorney
Definition
A legal document authorizing some to act on one's behalf.
Term
A letter of last instruction
Definition
This document, though not legally enforceable, can provdie your heirs with important information. It should contain the details of your funeral arrangement, the names of the people who are to be notified of your death and the locations of your bank accounts, safe-deposit box, and other important items.
Term
Trustor
Definition
The creator of a trust, also called the grantor.
Term
Trust
Definition
A legal arrangement through which one's assets are held by a trustee.
Term
Revocable trust
Definition
A trust whose terms the trustor retains the rights to change during his/her lifetime
Term
Irrevocable trust
Definition
A trust that cannot be altered or ended by its creator. An irrevocable trust offers tax advantages not offered by a revocable trust. Irrevocable trusts often are used by individuals with large estates to reduce estate taxes and avoid probate.
Term
Benefits of establishing trusts
Definition
  1. Reduce or otherwise provide for payment of estate taxes
  2. Avoid probate and transfer your assets immediately to your beneficiaries.
  3. Free yourself from management of your assets while you receive a regular income from the trust
  4. Provide income for a surviving spouse or other beneficiaries.
  5. Ensure that your property serves a desired purpose after your death.
Term
Credit-shelter trust (also called bypass trust, a residuary trust, an A/B trust, an exemption equivalent trust, or a family trust)
Definition
A trust that allows married couples to leave everything to each other tax free.  
Term
Disclaimer trust
Definition
A trust designed for a couple who do not yet have enough assets to need a credit-shelter trust but may need one in the future.
Term
Living trust
Definition
A trust that is created and provides benefits during the trustor's lifetime. Living trusts are a must if you own property in more than one state. it is private documents.
Term
Testamentary trust
Definition
A trust established by the creator's will that becomes effective upon his or her death.
Term
Pourove will
Definition
it is a simple document stating that anything you may have neglected to palce in your trust during your lifetime should be placed in it at your death.
Term
Life insurance trust
Definition
A trust whose assets are derived at least in part from the proceeds of life insurance.
Term
Community property
Definition
Any property that has been acquired by either spouse during the marriage.
Term
joint ownership
Definition
  1. Joint tenants with the right of survivorship (JT/WROS), the property is considered owned 50-50 for estate tax purposes and will automatically pass to your spouse at your death, and vice versa. No gift tax and unlimited marital deduction.
  2. Tenants in common, each individual is considered to own a proportionate share for tax purposes, and only your share is included in your estate. gifts of joint interests to children or others can create taxation.
  3. Tenancy by the entirety is limited to married couples. Both spouse own the property, when one spouse dies, the other gets it automatically.

Joint ownership is a poor substitute for a will.

Term
Four major taxes on estate
Definition
  1. estate taxes- a federal tax levied on the right of a deceased person to transmit his or her property and life insurance at death
  2. estate and trust income taxes
  3. inheritance taxes - A tax levied on the right of an heir to receive an estate
  4. gift taxes - a federal and state tax on the privilege of making gifts to others. the tax rates are now called unified transfer tax rates. the new law creates a $1 mil lifetime gift tax exclusion.
Term
Tax avoidance
Definition
it is the use of legal methods to reduce or escape taxes
Term
Tax evasion
Definition
It is the use of illegal methods to reduce or escape taxes.
Term
Net taxable estate
Definition
your testamentary net worth after subtracting your debts, liabilities, probate costs, and administration costs.