FIN 420 EXAM 2 RISK MANAGEMENT DERIVATIVES AND HEDGING STRATEGIES ASSESSMENT REVIEW GUIDE

FIN 420 EXAM 2 RISK MANAGEMENT
DERIVATIVES AND HEDGING STRATEGIES
ASSESSMENT REVIEW GUIDE

●● Overall Goal of Tax Planning
Answer: maximize after-tax returns on investments, including
investment in human assets


●● Why do planners and CPAs sometimes come into conflict/disagree
when planning taxes for a client?
Answer: CPAs seek to lower taxes TODAY
CFPs seek to minimize taxes over the LIFETIME of client


●● Roth vs Traditional IRA
Answer: Roth:
- funded with POST-tax dollars
- tax-FREE growth
- tax-FREE withdrawals
- good if you are at a low tax rate now, but are expecting it to increase in
the future


Traditional:

, - funded with PRE-tax dollars
- tax-DEFERRED growth
- TAXED at income tax rates at withdrawal
- good if you are at a high tax rate now, but are expecting it to decrease
in the future


●● Tax Planning Strategies
Answer: - Clustering
- Deferrals
- Conversions
- Eliminations


●● Clustering/Increasing Deductible Expenses
Answer: group payments together into 1 year to bring deductible
expenditures above their respective floors, timing the expenses so they
fall in the same year (would rather have money today than money
tomorrow)


●● Deferrals
Answer: Postponing taxes to some time in the future
- good if at a high tax bracket now and expecting a decrease (but...rates
are always unknown)
- key benefits of a pension/IRA