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what is a fixed vs variable annuity | annuities are generally structured as either fixed or variable instruments fixed annuities provide regular periodic payments to the annuitant and are often used in retirement planning variable annuities allow the owner to receive larger future payments if investments of the annuity fund do well and smaller payments if its investments do poorly this provides for less stable cash flow than a fixed annuity but allows the annuitant to reap the benefits of strong returns from their fund s investments | |
what s the difference between an ira and an annuity | both an ira and an annuity can be classified as a qualified account by the irs granting certain tax benefits an individual retirement account ira accumulates value over time and is then drawn down in retirement an annuity instead converts a lump sum or series of payments into a guaranteed income stream in retirement often until the death of the annuitant | |
what is a qualified appraisal | a qualified appraisal is an appraisal that meets the requirements set forth by the internal revenue service irs and is conducted by a qualified appraiser qualified appraisals are made no earlier than 60 days before a piece of property is donated 1 | |
how a qualified appraisal works | qualified appraisal refers to a type of appraisal document that meets internal revenue service irs appraisal standards these appraisals must be conducted by a qualified appraiser 1 determining the value of a piece of property is especially important when making a donation since an improper valuation can result in either a deduction lower than what the property could bring or a red flag by the irs for a valuation that seems too high a qualified appraiser is an individual who has earned an appraisal designation from a recognized professional appraiser organization this designation is awarded on the basis of demonstrated competence in valuing the type of property for which the appraisal is performed an individual can also become a qualified appraiser if they have met minimum education and experience requirements set forth by the irs one way an appraiser of property can demonstrate they have met these requirements is to become licensed or certified in the state in which the appraised property is located a qualified appraiser has also successfully completed college and professional level coursework and has obtained at least two years of experience in the business of buying selling or valuing similar types of property 2 form 8283a qualified appraisal document is used to notify the irs that the value of a piece of property is in excess of 5 000 and is attached to form 8283 and filed with a tax return if a deduction is being requested form 8283 is used to report information about non cash charitable contributions and is required if a taxpayer s deduction for all non cash gifts exceeds 500 individuals partnerships and corporations can all file form 8283 3 form 8283 has two sections the type of property donated and the amount claimed as a deduction determine whether a person fills out one section or both 4 section a is used to report both donations of property for which an individual claims a deduction of 5 000 or less and donations of publicly traded securities publicly traded securities include securities with daily published quotations that are listed on an exchange as well as securities that are shares of a mutual fund section b is used to report donations of property with deduction claims of more than 5 000 per item or group of similar items 5 | |
what is a qualified automatic contribution arrangement qaca | qualified automatic contribution arrangements qacas refer to a rule established under the pension protection act of 2006 to increase worker participation in self funded retirement plans such plans include 401 k s 403 b s and deferred compensation 457s companies that use qacas automatically enroll workers in the plans at a deferral rate at or above 3 unless employees take action to opt out 1 | |
how qualified automatic contribution arrangements qacas work | encouraging retirement savings at work has been a problem for economists and policymakers many employers offer 401 k or 403 b defined contribution plans however plan enrollment and contribution levels remain relatively low in actual practice traditional plans require opting in and research by nobel prize winning economist richard thaler indicates that default options have a powerful influence on choices 3one solution has been to implement an opt out plan where employees are automatically enrolled and must elect to stop participating | |
do not assume that all money withheld from paychecks goes to pay taxes withheld funds are sometimes used for qacas and other automatic enrollment retirement plans | opt out plans tend to raise participation rates however they generally start at employee contribution levels that are far too low to satisfy retirement needs unfortunately employees tend not to take any action on their own and continue to underinvest over the long term without educational efforts many may not save enough to cover retirement expenses for example they need to be reminded that a 3 contribution is just a starting point 1some argue that opt out plans tend to lower retirement contributions because employees think low preset values are enough to counter this possibility some employers raise the employee contribution rate by 1 each year however that may not be enough for workers to reach their retirement goals an employer must do one of the following for a qaca 1with a qaca employer contributions can be subject to a two year vesting period firms must give their employees adequate notification about the qaca they must also have the ability to choose a different contribution level or opt out entirely 2qacas also have safe harbor provisions that exempt 401 k plans from nondiscrimination testing requirements for actual deferral percentage adp if additional requirements are met the plan will also be exempt from actual contribution percentage acp testing a qaca may not distribute the required employer contributions due to an employee s financial hardship 1qacas vs eacasthe pension protection act defines two different choices for employers seeking to add an automatic contribution arrangement qacas and eacas in an eligible automatic contribution arrangement eaca the plan s default percentage must be uniformly applied to all employees after providing them with the required notice it may allow employees to withdraw automatic enrollment contributions with earnings by making a withdrawal election 1this election must be no earlier than 30 days or later than 90 days after the employee s first automatic enrollment contribution was withheld unlike a qaca employees are 100 vested in their automatic enrollment contributions with an eaca 1qacas provide employers with safe harbor provisions that exempt them from adp and acp testing requirements under specific circumstances other plans must undergo such testing to ensure they do not discriminate against lower paid employees 1in return employers must make matching contributions as required by the irs and must vest matching and non elective contributions within two years the default deferred contribution for a qaca must also increase annually from at least 3 the first year to at least 6 with a maximum of 15 in any year the maximum was 10 until it was raised to 15 by the secure act of 2019 | |
are qaca contributions 100 vested | with a qualified automatic contribution arrangement qaca employer contributions are not automatically fully vested employer contributions can be subject to a vesting period of up to two years | |
do more people save for retirement with qacas | yes qacas increase participation rates for company retirement plans because they are opt out plans meaning they use an automatic enrollment system an employee must choose to opt out of the plan however many employees who participate in qacas still lack adequate retirement funds over the long term because they choose to just go along with the low preset contributions of a qaca and not increase their savings | |
what is an automatic contribution notice | an automatic contribution notice is a notification from an employer that an employee has been enrolled in either an eligible automatic contribution arrangement eaca or a qualified automatic contribution arrangement qaca employers must notify all employees 30 to 90 days before the plan year begins with plans that automatically enroll employees on the day of hire the notice may be given to employees on the hiring date 4the bottom linea qualified automatic contribution arrangement qaca is an opt out retirement savings plan employees are automatically enrolled in the plan and are not necessarily fully vested immediately it may take up to two years to become fully vested if you have questions about your plan contact your employer s human resources department or your plan administrator | |
what is a qualified charitable organization | qualified charitable organizations are nonprofit organizations that qualify for tax exempt status according to the internal revenue service irs they must be operated exclusively for one of the following purposes religious charitable scientific literary educational testing for public safety the prevention of cruelty to animals or children or the development of amateur sports in the united states a qualified charitable organization is known as a 501 c 3 organization referring to the portion of the internal revenue code irc that deals with the tax treatment of nonprofits 12rules for qualified charitable organizationsonly donations that are made to a qualified charitable organization are tax deductible organizations that do not qualify for this status are considered for profit and are taxed accordingly political contributions are not tax deductible for example because political parties are not charitable institutions on the other hand contributions to an organization dedicated to building hospitals in underdeveloped countries likely would be a charitable organization and contributions would be tax deductible 3qualified charitable organizations differ from strictly tax exempt organizations which do not have to be for a charitable purpose yet are not required to pay taxes 2 however qualified charitable organizations are also tax free 4qualified charitable organizations include charities philanthropic groups certain religious and educational organizations nonprofit veterans organizations fraternal lodge groups and cemetery and burial companies certain legal corporations can also qualify even federal state and local governments can be considered qualified charitable organizations if the money donated to them is earmarked for charitable causes 5a qualified charitable organization is prohibited from engaging in any sort of political advocacy including supporting specific candidates or trying to influence legislation 6 | |
how the irs regards qualified charitable organizations | to receive the status from the irs qualified charitable organizations must meet requirements under section 501 c 3 of the irc this means that none of the earnings of the organization can go toward any private shareholder or individual the organization may not seek to influence legislation as a substantial part of its actions 2the organization also cannot engage in any political campaign activity in favor of or in opposition to candidates there are also limits on how much lobbying these organizations may do in the legislative and political arenas this includes not being allowed to participate directly or indirectly in political campaigns for candidates for public office furthermore no contributions can be made on behalf of the organization for a political campaign likewise no statements can be made on behalf of the organization in favor of or in opposition to a political candidate programs that promote voter registration and participation in elections are permitted as long as no bias shows favoritism for one candidate over another 6 if the organization breaches such rules it may lose its tax exempt status there are further requirements for qualified charitable organizations they cannot operate or be formed for the benefit of private interests if an organization enters into any excess benefit transactions with someone who has significant influence over it then the organization could face excise taxes 2 | |
what is a qualified charitable organization | a qualified charitable organization must be a nonprofit entity that meets the requirements of the u s treasury under section 501 c 3 of the internal revenue code irc 1 | |
what is eligible to be considered a qualified charitable organization | the list is expansive and includes organizations operated exclusively for the following purposes religious charitable scientific literary educational purposes testing for public safety the prevention of cruelty to animals or children and the development of amateur sports the various types include charities philanthropic groups certain religious and educational organizations nonprofit veterans organizations fraternal lodge groups cemetery and burial companies and certain legal corporations federal state and local governments can qualify if the donation in question is intended strictly for a charitable cause 5 | |
is a qualified charitable organization exempt from paying taxes | yes indeed not paying taxes is the primary reason to become a qualified charitable organization however if the organization violates internal revenue service irs rules regarding how it must operate it can lose its tax exempt status if the group does any political advocacy for example it would cease to be tax free 2 | |
what is a qualified disclaimer | a qualified disclaimer is a refusal to accept property that meets the provisions set forth in the internal revenue code irc tax reform act of 1976 allowing for the property or interest in property to be treated as an entity that has never been received section 2518 of the irc permits a beneficiary of an estate or trust to make a qualified disclaimer so that it is as though the beneficiary never received the property for tax purposes 1 understanding the qualified disclaimersometimes the costs of receiving a gift may be greater than the benefits of the gift as a result of tax implications in these cases refusing the gift may be the tax efficient thing to do the disclaim of any gift or bequest is known as a qualified disclaimer for federal income tax purposes the internal revenue service irs defines a qualified disclaimer as an irrevocable and unqualified refusal by a person to accept an interest in property 2 qualified disclaimers are used to avoid federal estate tax and gift tax and to create legal inter generational transfers which avoid taxation provided they meet the following set of requirements only if these four requirements are met can the disclaimant be treated as if they never received the gift in the first place the disclaimed property is then passed to the contingent beneficiary by default that is to a party other than the original stated beneficiary of the gift or bequest basically the property passes to the contingent beneficiary without any tax consequence to the person disclaiming the property provided the disclaimer is qualified under federal tax law if an individual makes a qualified disclaimer with respect to an interest in property the disclaimed interest is treated as if the interest had never been transferred to that person for gift estate and generational skipping transfer gst tax purposes thus a person that makes a qualified disclaimer will not incur transfer tax consequences because they are disregarded for transfer tax purposes the federal law does not treat the disclaimant as if they had predeceased the decedent this is contrary to many states disclaimer laws in which disclaimed property interests are transferred as if the disclaimant had predeceased the donor or decedent 3 qualified disclaimer regulations and estate planningdue to the strict regulations that determine whether disclaimers are considered qualified according to the standards of the irc it is essential that the renouncing party understand the risk involved in disclaiming property in most cases the tax consequences of receiving property fall far short of the value of the property itself it is usually more beneficial to accept the property pay the taxes on it and then sell the property instead of disclaiming interest in it if a disclaimer does not meet the four requirements listed above then it is a non qualified disclaimer in this case the disclaimant rather than the decedent is treated as having transferred the interest in the property to the contingent beneficiary additionally the disclaimant is treated as the transferor for gift tax purposes and will need to apply the gift tax rules to determine whether a taxable gift was made to the contingent beneficiary 4 | |
what is a qualified distribution | the term qualified distribution refers to a withdrawal from a qualified retirement plan these distributions are penalty free and can be tax free depending on the retirement account eligible plans from which a qualified distribution can be made include 401 k s and 403 b s qualified distributions come with certain conditions and restrictions set by the internal revenue service irs so that the tax benefits and retirement savings purpose of the plans aren t taken advantage of by investors | |
how qualified distributions work | the government wants to encourage people to save for their later years it offers substantial tax benefits to those who save in qualified retirement accounts as a result many people pay into qualified plans in order to save for retirement these plans include iras 401 k s and 403 b s to make sure people don t abuse these accounts and use them for reasons other than retirement or to avoid paying taxes the irs imposes taxes and penalties on withdrawals that don t meet the qualified distribution criteria this means that if you withdraw money and the withdrawal does not meet the criteria for the account you will be taxed and could pay an additional tax penalty however if you meet the conditions you can make a qualified distribution for roth accounts you ll pay no taxes or penalties on qualified distributions for tax deferred accounts such as a traditional ira or a 401 k you ll pay no penalty but will owe taxes the rules for what constitutes a qualified distribution vary based on the type of account so it s important to know what they are before you consider making a withdrawal tax deferred retirement plans require that the account holder be at least 59 years of age to take a qualified distribution although the account owner will have to pay income tax on a tax deferred plan qualified distribution there will be no early withdrawal penalty tax deferred plans include traditional iras simplified employee pension iras savings incentive match plans for employees iras traditional 401 k s and traditional 403 b s 1unlike traditional iras roth iras do not provide a tax deduction for contributions in other words roths are funded with after tax dollars however roth iras do provide tax free withdrawals as long as certain criteria are satisfied 1 the criteria for a qualified withdrawal are if the distribution is qualified you ll pay no taxes on a roth ira withdrawal however if you fail to meet these requirements the withdrawal will not be considered a qualified distribution and you ll owe taxes and penalties on earnings 2designated roth accounts are employer sponsored plans such as a roth 401 k or roth 403 b with an after tax savings option these plans also have two requirements for qualified tax free distributions the first is the same as the roth ira the account must have been opened for at least five tax years the second requires the account holder to be at least 59 years of age permanently disabled or taking withdrawals from an inherited account whether or not you are buying a first home won t help you in this case 3special considerationsif you make an early withdrawal a 10 early withdrawal penalty will apply to the taxable portion of your non qualified distributions unless an exception applies for tax deferred accounts that means the entire distribution will be taxed unless you ve made nondeductible contributions 4for designated roth accounts early withdrawals are apportioned between your contributions which are tax free and therefore penalty free and your earnings which are taxed and penalized 5 for roth iras early withdrawals apply to all your after tax contributions before earnings are even considered those are tax and penalty free withdrawals subsequent early withdrawals are then taxed and penalized 2if you are taking an early taxable withdrawal you can avoid all or a portion of the penalty but not the income taxes if you qualify for an exception you can qualify if you if you re taking an early withdrawal from an employer plan you avoid the penalty if you re at least 55 years old when you leave your job penalty exceptions for ira account holders include first time homebuyer expenses up to 10 000 medical insurance premiums when unemployed and use of funds for qualified higher education expenses 4additional rules pertaining to certain qualified retirement accounts include required minimum distributions rmds after the account holder turns 73 as of 2023 for 401 k accounts there is an exception to this if you still work for the company that sponsors your 401 k when you turn 73 and you don t own more than 5 of the company it s possible to avoid rmds while you continue to be employed not all plans offer this so be sure to check with yours 67qualified distributions as direct and indirect rolloversdirect and indirect rollovers are key aspects of qualified distributions most rollovers whether direct or indirect occur when people change jobs but some occur when account holders want to switch to an ira with better benefits or investment choices in a direct rollover the retirement plan administrator transfers the plan s proceeds directly to another plan or an ira in an indirect rollover a plan administrator issues an employee a check that is to be deposited by the employee into another plan e g an ira with an indirect rollover it is up to the employee to redeposit the funds into the new ira within the allotted 60 day period to avoid penalty 8 | |
why does the irs penalize withdrawals from qualified accounts | the irs penalizes early withdrawals to prevent misuse of tax advantaged qualified retirement accounts that are intended to be used to save for retirement years it wants to encourage people to keep money growing in their accounts and discourage them from withdrawing it too early | |
what is a qualified distribution from a 401 k | it is a withdrawal made when the account holder is at least 59 years old any withdrawal taken prior to that age will face taxes on the withdrawn amount as well as a 10 tax penalty | |
is a direct rollover a qualified distribution | yes a direct rollover of eligible assets in a qualified retirement plan is considered a qualified distribution because the assets are transferred directly into another qualified retirement plan the bottom linequalified distributions are withdrawals from qualified retirement accounts such as 401 k s 403 b s and iras to be considered qualified distributions must meet certain irs rules if withdrawals fail to meet these rules the amounts can be taxed at regular income tax rates and may face an additional 10 tax penalty for early withdrawal the irs levies taxes and penalties on unqualified distributions to discourage individuals from abusing the long term savings purpose and tax advantages of qualified retirement accounts | |
what are qualified dividends | ordinary dividends are payments that a public company makes to owners of its common stock shares a qualified dividend is an ordinary dividend reported to the internal revenue service irs which taxes it at capital gains tax rates individuals earning over 44 625 or married couples filing jointly who earn 89 250 pay at least a 15 tax on capital gains for the 2023 tax year 1mira norian investopediaunderstanding qualified dividendsa dividend is considered qualified if the shareholder has held a stock for more than 60 days in the 121 day period that began 60 days before the ex dividend date 2 the ex dividend date is one market day before the dividend s record date the record date is when a shareholder must be on the company s books to receive the dividend for example xyz stock declares a dividend payment on nov 20 and sets a record date for a month later with an ex dividend date of dec 19 those who bought xyz stock before dec 19 and held it for at least 61 days in the 121 day period that began 60 days before the ex dividend date pay the capital gains tax rate on the dividend those who bought xyz stock before dec 19 and received a dividend but did not hold it for the required 61 days would claim the dividend as ordinary income on their tax return for that year individuals receive the next dividend if they purchase stock before the ex dividend date capital gains tax ratescapital gains are taxed at 0 15 or 20 depending on the taxpayer s income capital gains from selling collectibles or qualified small business stock may be up to 28 unrecaptured gains from selling section 1250 real property are taxed up to 25 most investors pay zero or 15 with only the highest earners paying the 20 rate 1irs form 1099 div box 1a ordinary dividends shows all taxpayer dividends qualified dividends are listed in box 1b on form 1099 div and are the portion of ordinary dividends from box 1a that meet the criteria to be treated as qualified dividends qualified dividends must have been paid by a u s company or a qualifying foreign company and the required dividend holding period has been met 2qualified dividends vs ordinary dividendsqualified and ordinary dividends have different tax implications that impact a return 3 the tax rate is 0 on qualified dividends if taxable income is less than 44 625 for singles and 89 250 for joint married filers in the 2023 tax year filers who make more than 44 625 as single or 89 250 jointly have a 15 tax rate on qualified dividends for those with income that exceeds 492 300 for a single person or 553 850 for a married couple the capital gains tax rate is 20 1there is an additional 3 8 net investment income tax niit on investment gains or income to determine this tax the irs uses the lowest figure of net investment income nii or the excess of the modified adjusted gross income magi that exceeds 200 000 for single filers 250 000 for married filing jointly and 125 000 for married filing separately 4 | |
what it means for investors | most regular dividends from u s corporations are considered qualified but there are considerations for foreign companies real estate investment trusts reits master limited partnerships mlps or tax exempt companies a foreign corporation qualifies for the special tax treatment if the company is incorporated in the united states the corporation is eligible for the benefits of a comprehensive income tax treaty with the u s or the stock is readily tradable on an established securities market in the u s a foreign corporation is not qualified if considered a passive foreign investment company 2some dividends are automatically exempt from consideration as qualified dividends these include dividends paid by real estate investment trusts reits master limited partnerships mlps employee stock options and those on tax exempt companies dividends paid from money market accounts such as deposits in savings banks credit unions or other financial institutions do not qualify and should be reported as interest income 5special one time dividends are also unqualified and qualified dividends must come from shares not associated with hedging such as those used for short sales puts and call options these investments and distributions are subject to the ordinary income tax rate | |
what are the holding periods for other investments | preferred stocks have a different holding period from common stocks and investors must hold preferred stocks for more than 90 days during a 181 day period that starts 90 days before the ex dividend date 2 the holding period requirements are somewhat different for mutual funds the mutual fund must have held the security unhedged for at least 60 days of the 121 day period which began 60 days before the security s ex dividend date 2 to receive capital gains tax treatment in a mutual fund investors must have held the applicable share of the mutual fund for the same period | |
why are qualified dividends taxed more favorably than ordinary dividends | the favorable tax treatment for qualified dividends is intended as an incentive to regularly use a share of their profits to reward their shareholders it also gives investors a reason to hold onto their stocks long enough to earn dividends | |
what are the requirements for a dividend to be considered qualified | stock shares that pay dividends must be held for at least 61 days within a 121 day period that begins 60 days before the ex dividend date | |
how do investors know if the dividends they ve received are qualified or not | the online trading platform or broker that an investor employs will break down the qualified and ordinary dividends paid in separate boxes on irs form 1099 div ordinary dividends are reported in box 1a and qualified dividends in box 1b the bottom linefor most individual investors qualified dividends offer the chance of a tax break the dividends of most american companies are qualified dividends the investor s only concern should be to qualify for the lower capital gains tax rate by purchasing shares before the ex dividend date and holding them for more than 60 days correction nov 28 2023 this article has been corrected to state that a shareholder must buy a stock before the ex dividend date and hold it for more than 60 days during a certain period in order for the dividend to be qualified correction july 19 2024 this article has been corrected to state that a qualified dividend is reported to the irs as a dividend and taxed at capital gains tax rates | |
what is a qualified domestic institutional investor qdii | a qualified domestic institutional investor or qdii is an institutional investor that has met certain qualifications to invest in securities outside of their home country institutional investors can be organizations or groups of investors that have a significant amount of money available to invest qdii programs enable large domestic investors to invest in securities in foreign markets examples of institutional investors that might seek to become a qdii include insurance companies banks funds and investment companies popular qdii programs come from the people s republic of china where the main regulatory body the china securities regulatory commission csrc at times grants a limited avenue for institutional investors to invest in foreign based securities a similar outbound investment initiative in china is the qualified domestic limited partnership qdlp understanding qualified domestic institutional investor qdii qdii programs are helpful in places where the capital markets are not yet fully open to all investors introduced in april 2006 china s qdii programs permit five types of chinese entities to invest abroad insurance companies banks trust companies funds and securities firms 34entities must apply and receive approval for a license before they are allowed to make investments in the overseas markets for both themselves or on behalf of retail clients once approved they can make investments in fixed income equities and derivatives in specified overseas markets china s state administration of foreign exchange safe is responsible for approving participants to enter the qdii program and for approving the investment quota amount allowed each participant 54the 2015 china stock market crashsafe paused the qdii quotas after the 2015 stock market crash in china which led to major capital outflows several factors contributed to the market downturn including excessive margin loans from chinese brokerages this fueled a massive run up in the market a subsequent uptick in margin calls on borrowed positions led to a downward spiral of selling and increased volatility after two years china began to grant licenses to global asset managers under the qualified domestic limited partnership qldp program similar to qdii these foreign managers were allowed to raise money in china for investment overseas during a six month period firms included jpmorgan chase standard life aberdeen manulife financial allianz bnp paribas axa and robeco and mirae asset the motion signaled strength in the chinese economy and paved the way for the revival of qdii revised requirements for qualified domestic institutional investor qdii in 2018 chinese regulators began to make several updates to these programs for example an institution s qdii quota has a cap of 8 of its fund assets excluding money market funds in addition if an institution has used less than 70 of its existing allocation it will not be eligible to apply for a new quota in april 2018 safe said that it was considering further reforms to its qdii program following its economic recovery notably 24 firms received new qdii quotas of 8 34 billion of the group of 24 firms 12 are existing qdii investors and the remaining ones are newly qualified the move brought total outstanding qdii quotas to over 98 3 billion chinese president xi jinping said he would continue to open up china s economy to other outbound investment programs as financial markets have stabilized and regulators are less concerned about capital flight qualified foreign institutional investors qfii similar to the qdii program is the qualified foreign institutional investor qfii program qfii permits certain licensed international investors access to mainland china s stock exchanges to buy and sell stocks prior to 2002 investors from foreign nations were prevented from buying and selling stocks on chinese exchanges the qfii program lifted these tight capital controls and gave some foreign institutional investors the authorization to trade on the shanghai and shenzhen exchanges | |
what is a qualified domestic relations order qdro | a qualified domestic relations order qdro is a legal document typically found in a divorce agreement it recognizes that a spouse former spouse child or other dependent is entitled to receive a predefined portion of the account owner s retirement plan assets | |
how does a qdro work | according to the internal revenue service irs a spouse or former spouse must report the qdro benefits received as if he or she were a plan participant the qdro grants the spouse a percentage of the participant s investment in the contract with the numerator being the present value of the benefits payable to the spouse and the denominator being the present value of all benefits payable to the participant 1once the distribution is made the former spouse becomes responsible for any taxes due the former spouse can alternatively roll over the assets received from a qdro just the same as an employee could receive a distribution and roll it over into another retirement account however a qdro distribution that is paid to a dependent such as a child is taxed to the plan s participant 1if there is no qdro and the account holder distributes retirement plan assets to the former spouse then the account holder would be responsible for the taxes on the transferred assets in the case of a divorce or custody issue a family court judge may issue a qdro for a dependent qdro requirementsa qdro is only valid for retirement plans covered by the employee retirement income security act erisa this includes qualified plans such as 401 k s they do not cover iras 23to be valid a qdro must contain specific information 4the qdro cannot award an amount or form of benefit that is not available under the participant s specific retirement plan 1 retirement benefits from more than one retirement benefit plan can be subject to a qdro as long as it clearly states the benefits that are assigned to the former spouse the provisions in a qdro are not standardized and will vary based on the retirement plan type and the purposes of the order 5some plan administrators provide a standard qdro form limitations of a qdrorules imposed by the u s department of labor s employee benefits security administration restrict specific provisions from being included in a qdro the court order cannot force a retirement plan to disburse any benefit amount or option that is not provided through the plan in addition the qdro cannot require increased benefits on the basis of actuarial value from the retirement plan 6benefits cannot be required from a plan for an alternate payee when those benefits are already allocated to another alternate payee under the decree of a previous qdro for example in the instance of subsequent divorces and qdros the earliest takes priority for the designated benefit amount 6survivor benefitsadditionally the order must not require the plan to pay the alternate payee in the form of a qualified joint and survivor annuity qjsa for the lives of the alternate payee and their subsequent spouse 6a qdro may provide surviving spousal benefits to a former spouse under the plan benefits allocated to an alternate payee under a qdro are not available for a subsequent spouse to receive as survivor benefits under the retirement plan 5other qdro beneficiariesin some cases a qdro might be put in place for a relation other than a former spouse dependents might also qualify to receive the ordered benefits in such instances the alternate payee is a minor or is determined to be legally incompetent the order can require the benefit plan to make payment to an individual with legal responsibility for that payee this can include a guardian as well as a trustee who serves as the agent of the individual 7the plan administrator who oversees the retirement benefits subject to the order will determine if a qdro is a qualified domestic relations order in these circumstances plan administrators are then responsible for ensuring that their duties are fulfilled on behalf of plan participants and beneficiaries | |
what is the purpose of a qdro | the purpose of a qdro which is typically used in divorce agreements is to fairly divide assets in a qualified retirement plan in addition to an ex spouse a qdro can also recognize a child or other dependent as entitled to receive some of the retirement account s assets who files the qdro in a divorce the ex spouse typically files a qrdo some do so with the help of a lawyer standard qdro forms are also provided by some plan administrators | |
how is a qdro paid out | there are number of ways in which retirement plan assets can be paid out options include receiving a lump sum installment payments or transferring the funds to another retirement account 2the bottom linea qrdo is used to divide retirement plan assets in a divorce it can only be used for retirement plans covered by erisa this includes qualified plans such as 401 k s but not iras typically filed by an ex spouse a qrdo must be approved by both the plan administrator and a court while qdros have specific requirements they are not standardized each varies based on the type of retirement plan how assets are paid and whether or not there are dependents among other nuances | |
what is a qualified domestic trust qdot | a qualified domestic trust qdot is a special kind of trust that allows taxpayers who survive a deceased spouse to take the marital deduction on estate taxes even if the surviving spouse is not a u s citizen normally a u s citizen surviving spouse can take the marital deduction but a non citizen surviving spouse cannot qdots like qtip trusts only allow the marital deduction if assets are included inside the trust | |
how a qualified domestic trust qdot works | a qualified domestic trust allows a non citizen surviving spouse of a deceased taxpayer to take full advantage of the marital deduction on estate tax for any assets that are placed into the trust before the death of the decedent this kind of trust is helpful for the non citizen surviving spouse who under standard tax laws would not be eligible for the 100 marital deduction on estate tax as per the irs under section 2056a a surviving spouse is eligible for a 100 marital deduction of any estate taxes owed on assets this means the surviving spouse pays no taxes on assets with no limit however if the surviving spouse is not a u s citizen the full marital deduction normally is not allowed in addition a non resident non citizen cannot take advantage of the same estate tax exemption amount that applies individually or jointly to a u s citizen surviving spouse forming a qdot and putting all assets into the trust allows a non citizen surviving spouse to take advantage of the marital deduction of 100 of estate taxes it s also important to note that the surviving spouse can set up and fund the qdot if their spouse failed to before the federal estate tax return is filed for surviving spouses who have not obtained u s citizenship for any reason a qdot is the best way to preserve marital assets it is important to comply with all requirements and provisions of the trust for it to remain valid a qdot only protects the assets of decedents who have died after november 10 1998 in addition at least one trustee of the qdot must be a u s citizen or a domestic corporation authorized to retain estate tax if all these conditions are met forming a qdot and placing marital assets into it can preserve assets for the surviving non citizen spouse any assets not included in the trust will not qualify for the marital deduction and will be subject to estate taxes limitations of a qdotalthough a qdot allows the qualifying non citizen surviving spouse to take the marital deduction on assets inside the trust it does not exempt the trust from paying the estate tax it merely defers it until the death of the surviving non citizen spouse at that time the estate will be liable for section 2056a estate taxes on all assets in the qdot whether or not there are surviving beneficiaries this could reduce the value of the assets in the trust significantly for such beneficiaries | |
why is a qualified domestic trust important | a qdot can be very important to the financial future of a surviving spouse who isn t a u s citizen because it allows for the spouse to take 100 of the marital deduction for estate taxes without it the spouse wouldn t be able to take advantage of the full deduction amount who can set up a qualified domestic trust a person with assets to protect for their non u s citizen spouse can set one up so can the surviving spouse as long as the trust is funded before the federal estate tax return for the decedent is due contact a reputable estate lawyer for more information | |
does the qualified domestic trust eliminate estate taxes | no it simply defers them until after the death of the surviving spouse the bottom linea qualified domestic trust is a legal document that s created for the financial benefit of a surviving spouse who is a non u s citizen who otherwise would not normally qualify for the full marital estate tax deduction the trust defers estate taxes that will be due once the surviving spouse passes away one trustee of the qdot must be a u s citizen or a domestic corporation authorized to retain estate tax | |
what is a qualified electric vehicle | the term qualified electric vehicle refers to a plug in electric passenger vehicle or light truck that allows the owner to claim a nonrefundable tax credit after purchase these vehicles must have at least four wheels be designed for use in the public and were not used for commercial purposes the vehicle must be powered primarily by an electric motor that draws its charge from rechargeable batteries or fuel cells the vehicle must be driven almost exclusively in the u s 12understanding qualified electric vehiclesas noted above a qualified electric vehicle is any passenger vehicle or light truck that is designed to be driven by consumers as such these vehicles are not intended for commercial use they must run on batteries or fuel cells that can be recharged using plug in technology consumers with these vehicles are able to claim a nonrefundable tax credit to offset the purchase price 1this credit can be found via section 30d of the internal revenue code irc the section originated from the energy improvement and extension act of 2008 and was later modified for vehicles acquired after dec 31 2009 by the american recovery and reinvestment act aara 34additional amendments were made for specific two or three wheeled vehicles acquired between dec 31 2011 and jan 1 2014 by the american taxpayer relief act atra 5to receive the credit the vehicles must be acquired for use or lease and the credit isn t available for resale the original use of the vehicle must begin with the taxpayer predominantly in the u s 6 there are three parts that must be filled out on form 8936 to get the credit part i calculates the tentative credit amount while the remaining two parts allocate the credit between an individual s business in part ii and personal use of the vehicle in part iii 7president joe biden signed the 1 2 trillion infrastructure investment and jobs act on nov 15 2021 the bill makes investments in a series of areas including the electric vehicle market a total of 7 5 billion is set aside to build a network of charging stations across highways and communities in rural disadvantaged and hard to reach areas this investment also aims to tackle climate change and create jobs in the american manufacturing sector 8special considerationsthe amount of the full credit is 7 500 individuals can receive 2 500 for vehicles acquired after dec 31 2009 a vehicle owner can receive an extra 417 if it is powered by a battery that provides as much as five kilowatt hours of capacity the owner can get an additional 417 for every kwh of battery life above the initial five kwh threshold 6the internal revenue service irs phases out the credit though according to the agency this takes place for a car company s vehicles over the one year period starting with the second calendar quarter after the calendar quarter in which at least 200 000 qualifying vehicles manufactured by that manufacturer have been sold for use in the united states 6a consumer may be eligible for 50 of the credit if they acquire their vehicle from a car manufacturer within the first two quarters of the phase out period and 25 of the credit if it s purchased within the third or fourth quarters of that period any vehicles purchased from a car company once the phase out period is complete 9you can find a complete list of makes models and credit amounts on the irs website keep in mind though that the phase out period for tesla vehicles is already initiated 1effect of the inflation reduction act of 2022the inflation reduction act of 2022 public law 117 169 amended the qualified plug in electric drive motor vehicle credit irc 30d which is now known as the clean vehicle credit it adds a new requirement for final assembly in north america that takes effect on aug 16 2022 additional provisions will go into effect on jan 1 2023 further guidance on these provisions is forthcoming you can get more information about this credit from the internal revenue service 10 | |
what is a qualified eligible participant qep | a qualified eligible participant qep is an individual who meets the requirements to trade in sophisticated investment funds such as futures and hedge funds these requirements are defined by rule 4 7 of the commodity exchange act cea understanding qualified eligible participants qeps qualified eligible participants qeps must meet a set of conditions described by the commodity exchange act qeps are considered to be more knowledgeable than the typical investor regarding sophisticated investments hedge funds for example are understood to be riskier than mutual funds pension funds and other investment vehicles they are liable to see significant losses but produce higher than average long term returns when successful hedge fund managers go long on assets they predict will do well in the future while shorting assets they anticipate will fall in price by law a plurality of hedge fund participants must be qeps 2 hedge funds that limit their investors only to qeps may obtain an exemption from several securities and exchange commission sec regulations this exemption allows hedge fund managers more considerable latitude in their investment decisions which opens the door for both more significant risks and rewards than other types of investments hedge funds are blamed by many for contributing to the 2007 2008 financial crisis by adding risky leverage based derivatives to the banking system these investments created high returns when the market was good but amplified the impact of the market s decline qeps vs accredited investors and cposqualified eligible participants are similar to accredited investors in that they both must meet specific income and net worth requirements the difference is that qeps are assumed to have a sophisticated understanding of the complexities of trading risky assets such as futures and hedge funds 3individuals who receive funds to use in a commodity pool such as a hedge fund are required to register as commodity pool operators cpo cpos must comply with the disclosure requirements of both the commodity exchange act and the commodity futures trading commission 34 while investors in hedge funds must be qeps hedge fund managers must be both qeps and cpos | |
what are qualified exchange accommodation arrangements | a qualified exchange accommodation arrangement is a tax strategy where a third party known as the accommodation party temporarily holds a real estate investor s relinquished or replacement property qualified exchange accommodation arrangements while still subjecting investors to strict guidelines for the sale and purchase of like kind properties increase flexibility in the timing of sales and simplify qualifications for the tax deferral understanding qualified exchange accommodation arrangementsa qualified exchange accommodation arrangement qeaa enables investors to comply with section 1031 of the internal revenue code which allows investors to defer taking a capital gain or loss on the sale of real estate as long as the relinquished property is replaced by a like kind property also known as a 1031 exchange this transaction is a tax deferred exchange that allows for the disposal of an asset and the acquisition of another similar asset without generating a tax liability from the sale of the first asset a qualified exchange accommodation arrangement is typically established by an intermediary who becomes the exchange accommodation titleholder eat the eat holds the property that was either relinquished or the property that was purchased to allow time for the other half of the transaction to be finalized a qualified exchange accommodation arrangement is essentially a holding arrangement for one of the two properties in a 1031 exchange this is one of the benefits of a qualified exchange accommodation arrangement since it allows for flexibility in giving up and receiving like kind properties so the properties can be held with the eat until both are ready for the 1031 exchange as a result the arrangement helps investors to defer realizing a capital gain or loss from the sale of real estate while allowing them to comply with section 1031 of the tax code however an exchange must be completed for a like kind property also there are limitations as to how long the property can be held within an eat and a tax professional should be consulted before attempting a 1031 exchange properties and qualified exchange accommodation arrangementsthis tax strategy was recognized by the irs in 2000 but previously was in use for many years irs approval of the procedure and establishment of specific qualification guidelines made investor compliance with 1031 exchange rules more straightforward because the purpose of such transactions was to hold a property temporarily they also were known as warehouse transactions before january 1 2018 a 1031 exchange could include the exchange of one business for another or one piece of tangible property for another however with the passage of the tax cuts and jobs act tcja in december 2017 a 1031 exchange is limited to real property in other words other asset exchanges including machinery equipment vehicles artwork collectibles patents and other intellectual property as well as intangible business assets no longer qualify for like kind exchange tax treatment 1 as a result a 1031 exchange can only involve an exchange of property with a like kind property and it must be for real estate held for investment or for productive use in a trade or business located in the united states properties are of like kind if they have the same nature or character even if they differ in quality in other words whether one property is improved or unimproved they will typically be considered like kind for example an apartment building would be considered like kind for another apartment building however real property in the u s is not considered like kind to property outside the u s taxes and qualified exchange accommodation arrangementsalthough tax liability is deferred and no gain or loss is recognized the 1031 exchange must be reported on form 8824 like kind exchanges form 8824 s instructions explain how to report the details of the 1031 exchange form 8824 helps the taxpayer calculate the amount of gain deferred as a result of the like kind exchange 2 section 1031 allows an investor to give or receive cash liabilities or other property that is not like kind in addition to the like kind real estate exchanged cash liabilities or other property that is not like kind and that is given or received in a 1031 exchange is called boot boot triggers taxable gains or losses in the year of the exchange in other words if a person also receives other not like kind property or money as part of the exchange it must be recognized as a gain to the extent of the other property and money received however the taxpayer cannot recognize a loss the taxable amount that is not deferred by section 1031 is the amount of the boot the taxable amount that is deferred by section 1031 is the capital gain or loss on the like kind real estate exchanged gain recognized because the boot was received is reported on form 8949 schedule d on form 1040 or form 4797 as applicable if depreciation must be recaptured then this recognized gain may have to be reported as ordinary income if under a qualified exchange accommodation arrangement the property is transferred to an exchange accommodation titleholder eat and held in a qeaa the eat becomes the beneficial owner of the property even though there s an intermediary the tax benefits of the like kind exchange still apply according to the irs property transferred from the eat to the investor may be treated as property that was received in an exchange and the property transferred to the eat may be treated as a property relinquished in an exchange this may also be true if the property due to be received is transferred to the eat before the property to be relinquished is transferred to the accommodation titleholder 3 | |
what is a qualified foreign institutional investor qfii | the qualified foreign institutional investor qfii is a program that allows specified licensed international investors to participate in mainland china s stock exchanges the qualified foreign institutional investor program was introduced by the people s republic of china in 2002 to provide foreign institutional investors with the right to trade on stock exchanges in shanghai and shenzhen before the launch of the qfii program investors from other nations were not allowed to buy or sell stocks on chinese exchanges due to the country s tight capital controls 1understanding qualified foreign institutional investor qfii with the launch of the qualified foreign institutional investor qfii program in 2002 licensed institutional investors were allowed to purchase and sell yuan denominated a shares which are shares of mainland china based companies however specified quotas constrained foreign access to these shares the chinese government used these quotas to regulate the amount of money that licensed foreign investors could invest in china s capital markets 1the qfii program quota was increased from 30 billion to 80 billion in april 2012 a decade after the program launched the quotas are granted by china s state administration of foreign exchange safe and the quotas can be changed at any time in response to the country s current economic and financial conditions in an effort to attract more foreign investment safe announced it was eliminating quota restrictions in sept 2019 the type of investments that can be traded as part of the qfii system includes listed stocks but excludes foreign oriented shares treasury bonds corporate debentures convertible bonds and other financial instruments as approved by the china securities regulatory commission csrc 2in 2019 nearly 300 overseas institutions had received qfii quotas totaling roughly 111 4 billion 2qualified foreign institutional investor qfii qualifications | |
when the csrc first launched the qfii program in 2002 it mandated that certain prerequisites had to be met for investors to be accepted into the program the csrc determined these qualifications by the type of institutional investor who applied for a license such as a fund management company or insurance business 1 | for example fund management companies had to have at least five years of asset management experience and at least 5 billion of assets under management during the most recent accounting year a certain amount of foreign currency transferred and converted to local currency was also mandatory for approval starting in 2016 the csrc began a series of reforms to the qfii program with the goal of attracting more foreign capital the csrc began to loosen investor qualifications for the qffi program in 2019 the csrc announced simplified rules that removed the assets under management aum criteria and years of experience needed by foreign investors qfii vs rqfiiin dec 2011 the csrc started the renminbi qualified foreign institutional investor rqfii program similar to the qfii program the rqfii program allows foreign investors the opportunity to invest in china s stock exchanges there are differences between the rqfii program and the qfii program most of which have to do with easing restrictions on investors that made accessing the qfii program difficult for example qfii program participants must convert their foreign currency into renminbi before investing in chinese securities rqfii participants however do not need to convert their currency and can invest directly in china s domestic capital markets 3special considerationsprior to june 2018 foreign institutions invested in china s stock or bond markets through the qfii program could only repatriate up to 20 of its investments every month also each time a qfii participant sought to move money out of china for the first time they were prevented from doing so by a three month lock up restriction however that has now changed 4as of mid june 2018 china lifted both the 20 remittance ceiling and the three month lock up period for all new and existing qfii participants as an added incentive china allows qfiis to perform hedging to manage foreign exchange risks 5these new rules along with the lifting of quota restrictions are seen as china s attempts to make trading in their bond and stock markets more widely accepted among international investors in 2019 china s securities regulator announced plans to eventually combine the qfii and rqfii programs as part of its reforms to increase foreign investor participation 2 | |
what is a qualified domestic institutional investor qdii | qdii is a designation started in china in 2006 that allows five types of chinese entities to invest abroad in non chinese markets insurance companies banks trust companies funds and securities firms | |
what did the qualified foreign institutional investor qfii designation do | prior to 2002 investors from foreign nations were prevented from buying and selling stocks on chinese exchanges the qfii program lifted these tight capital controls and gave some foreign institutional investors the authorization to trade on the shanghai and shenzhen exchanges 6 | |
how can u s individuals invest in chinese stocks | individuals cannot qualify as qfii therefore the easiest way for american investors to access chinese stocks is to look for adrs of chinese companies listed on u s exchanges or via etfs that track chinese markets | |
what is a qualified higher education expense qhee | the term qualified higher education expense qhee refers to money paid by an individual for expenses like tuition books fees and supplies to attend a college university or other post secondary institution these expenses can be paid by a student spouse parent s or another party such as a friend or another relative the internal revenue service irs provides individuals with tax incentives with respect to qualified higher education expenses understanding qualified higher education expenses qhees qualified higher education expenses are any amounts paid to cover the enrollment of a student at an accredited post secondary institution expenses covered under this category include tuition books materials supplies including laptops or notebooks and any other related expenses such as student activity fees 1 these costs can be paid by cash check credit card or money from a loan 4qhees must be paid directly by the student themselves their spouse parents another relative or friend in order to qualify 4 these fees may or may not be paid directly to an eligible post secondary institution eligible schools include private public for profit and nonprofit institutions all schools send out a form 1098 t tuition statement for qhees to the student for tax purposes 5as mentioned above qhees may provide individuals with a tax break in one of three possible ways these include 6these tax breaks help reduce the financial burden of attending a college or university and are provided on expenses paid during semesters trimesters quarters or summer school during the tax year or for the first three months of the next tax year special considerationsas noted above qualified higher education expenses are defined as tuition fees books supplies and equipment needed to enroll or attend a level of education beyond high school 1 these expenses are important because they can determine whether or not you can exclude the interest off of a qualified savings bond from your taxable income expenses that do not qualify include insurance medical expenses student health fees transportation personal living expenses or fees relating to sports activities 6taxpayers may claim qhees for reimbursement under the american opportunity tax credit aotc or the lifetime learning credit llc the aotc is capped at 2 500 per student while the lifetime learning credit is limited to 2 000 per tax return 78 also note that the llc is only available to taxpayers with a modified adjusted gross income magi of 80 000 or less or 160 000 or less for married couples filing jointly 9you can use form 8863 education credits to apply for both the american opportunity tax credit and the lifetime learning credit 10filers can use form 8863 education credits to apply for both credits it s important to note however that you can t take more than one type of credit for the same student and the same expenses so you can t take the aotc andthe llc for the same student in the same tax year 11 | |
what is a qualified institutional buyer qib | a qualified institutional buyer qib is a class of investor that can safely be assumed to be a sophisticated investor and hence does not require the regulatory protection that the securities act s registration provisions give to investors in broad terms qibs are institutional investors that own or manage on a discretionary basis at least 100 million worth of securities 1the sec allows only qibs to trade rule 144a securities which are certain securities deemed to be restricted or control securities such as private placement securities for example 2investopedia jessica olahunderstanding qualified institutional buyers qibs the qualified institutional buyer designation is often conferred upon entities comprised of sophisticated investors essentially these individuals or entities due to their experience assets under management aum and or net worth are considered not to require the type of regulatory oversight needed by regular retail investors when purchasing securities typically a qib is a company that manages a minimum investment of 100 million in securities on a discretionary basis or is a registered broker dealer with at least 10 million invested in non affiliated securities 3 the range of entities who are deemed to be qualified institutional buyers also includes banks savings and loans associations which must have a net worth of 25 million investment and insurance companies employee benefit plans and entities completely owned by qibs 1the definition of qib is generally narrower than the list of entities in the broader accredited investor definition the formerly rigid qib definition had resulted in some sophisticated investors that had met the 100 million securities ownership threshold being technically excluded from achieving qib status and hence ineligible to participate in rule 144a offerings to remedy these technical deficiencies and to better identify institutional and individual investors that have the knowledge and expertise to participate in the u s private capital markets on aug 26 2020 the securities and exchange commission sec adopted amendments to the qib and accredited investors definitions 4the qib amendments added a provision to the qib definition to include any institution not already specifically listed in the definition of qualified institutional buyer but that qualifies as an accredited investor and meets the 100 million securities ownership threshold the amendments also permitted these entities to be formed as qibs specifically for the purpose of acquiring the securities offered 4qibs and rule 144aunder rule 144a qib s are allowed to trade restricted and control securities on the market which increases the liquidity for these securities 5 this rule provides a safe harbor exemption against the sec s registration requirements for securities rule 144a applies only to resales of securities and not when they are initially issued in a typical underwritten security offering only the resale of the security from underwriter to investor constitutes a rule 144a transaction not the initial sale from issuer to underwriter 5typically transactions conducted under rule 144a include offerings by foreign investors looking to avoid u s reporting requirements private placements of debt and preferred securities of public issuers and common stock offerings from issuers that do not report these securities have a degree of complexity that may make them difficult to evaluate for retail investors and may thus only be suitable for institutional investors that have the research capability and risk management expertise to make an informed decision about investing in them securities act rule 144 and exempt offeringsthis rule governs the sales of controlled and restricted securities in the marketplace this rule protects the interests of issuing companies because the sales are so close to their interests 6 section 5 of the securities act of 1933 governs all offers and sales and requires them to be registered with the sec or to qualify for an exemption from registration requirements 7rule 144 offers an exemption allowing the public resale of controlled and restricted securities if certain conditions are met 6 this includes the length of time securities are held the method used to sell them and the number that are sold in any one sale even if all requirements have been met sellers are not permitted to conduct sales of restricted securities to the public until a transfer agent has been secured the significance of exempt offerings has increased both in terms of the total amount raised and relative to capital raised in public registered markets according to the sec in 2019 an estimated 2 7 trillion or 69 2 of the total was raised through exempt offerings compared to 1 2 trillion 30 8 from registered offerings 8 | |
what is a qualified institutional placement qip | a qualified institutional placement qip is at its core a way for listed companies to raise capital without having to submit legal paperwork to market regulators it is common in india and other southeast asian countries the securities and exchange board of india sebi created the rule to avoid the dependence of companies on foreign capital resources | |
how a qualified institutional placement qip works | a qualified institutional placement qip was initially a designation of a securities issue given by the securities and exchange board of india sebi the qip allows an indian listed company to raise capital from domestic markets without the need to submit any pre issue filings to market regulators the sebi limits companies to only raising money through issuing securities the sebi put forth the guidelines for this unique avenue of indian financing on may 8 2006 the primary reason for developing qips was to keep india from depending too much on foreign capital to fund its economic growth before the qip there was a growing concern from indian regulators that its domestic companies were accessing international funding too readily via american depositary receipts adrs foreign currency convertible bonds fccbs and global depositary receipts gdrs rather than by indian based capital sources authorities proposed the qip guidelines to encourage indian companies to raise funds domestically instead of tapping into overseas markets qips are helpful for a few reasons their use saves time as the issuance of qips and the access to capital are far quicker than through a follow on public offer fpo the speed is because qips have far fewer legal rules and regulations to follow making them much more cost efficient further there are fewer legal fees and there is no cost of listing overseas in india 20 firms together raised 18 443 billion rupees 221 billion through qips in the first half of fiscal year 2024 1regulations for a qualified institutional placement qip to be allowed to raise capital through a qip a firm must be listed on a stock exchange along with the minimum shareholding requirements as specified in their listing agreement also the company must issue at least 10 of its issued securities to mutual funds or allottees regulations also exist for the number of allottees on a qip depending on the specific factors within an issue additionally no single allottee is allowed to own more than 50 of the total debt issue furthermore allottees must not be related in any way to promoters of the issue several more regulations dictate who may or may not receive qip securities issues qualified institutional placements qips and qualified institutional buyers qibs the only parties eligible to purchase qips are qualified institutional buyers qibs which are accredited investors as defined by whatever securities and exchange governing body preside over it this limitation is due to the perception that qibs are institutions with expertise and financial power that allows them to evaluate and participate in capital markets at that level without the legal assurances of a follow on public offer fpo who created the qualified institutional placement qip the securities and exchange board of india sebi created the qualified institutional placement qip the purpose was to avoid the dependence of companies on foreign capital resources | |
what are the advantages of qips | the use of qips saves time because the issuance of qips and the access to capital are far quicker than through a follow on public offer fpo qips have far fewer legal rules and regulations to follow making them not only faster but also more cost efficient additionally there are fewer legal fees and no cost of listing overseas | |
what are the disadvantages of qips | the disadvantages of qips include 2the bottom linequalified institutional placements qips are a way for listed companies to raise capital without having to submit legal paperwork to market regulators they follow a looser set of regulations but in return allottees are more highly regulated qips are used mostly in india and other southeast asian countries | |
what is a qualified joint and survivor annuity qjsa | a qualified joint and survivor annuity qjsa provides a lifetime payment to an annuitant and spouse child or dependent from a qualified plan qjsa rules apply to money purchase pension plans defined benefit plans and target benefits they can also apply to profit sharing and 401 k and 403 b plans but only if so elected under the plan understanding a qualified joint and survivor annuity qjsa the plan document of a qualified qjsa plan usually provides the annuity payout percentage but the general requirement is that the survivor annuity must be at least 50 and no more than 100 of the annuity paid to the participant if the participant is unmarried the annuity is paid under the incidental benefit rule or follows the minimum distribution requirements 1according to the internal revenue service irs a qualified plan like a defined benefit plan money purchase plan or target benefit plan must provide a qjsa to all married participants as the only form of benefit unless the participant and spouse if applicable consent in writing to another form of benefit payment 1 for more on qjsa rules the irs provides an information page rules governing qjsas can be found in title 26 chapter i subchapter a section 1 401 a 20 on the federal register qualified joint and survivor annuity features and considerationsqualified joint and survivor annuities for married participants have the following features like many annuities a qjsa provides a lifetime benefit to a primary participant and spouse via monthly payments as such they should be factored into any financial planning and retirement income and expense scenarios such a product is not subject to diminishing payments due to poor stock market performance qjsa distributions once initiated are not changeable also distributions in addition to the regular monthly payment are not allowed if the participant is in poor health a qjsa like an annuity may not be a good investment of the assets required to fund such an investment vehicle payments may also lose purchasing power over time unless adjusted for a cost of living increase qualified joint and survivor annuity examplean individual s employer sponsored 401 k plan offers a qjsa that provides a monthly 1 500 retirement income at age 65 it also provides for a 1 000 monthly retirement benefit for the spouse when that individual dies that benefit is paid until the surviving spouse dies the individual may choose to receive a lump sum distribution of benefits but only with the written consent of their spouse witnessed by a notary public or a plan representative one exception is that a plan may pay a lump sum distribution to a participant without first obtaining their and their spouse s permission if that sum is 5 000 or less 3 if a participant gets divorced they may be required to treat their former spouse as a current spouse as part of a qualified domestic relations order or according to the terms of the divorce if a divorced participant wants to change their beneficiary of survivor benefits they have to contact a plan administrator 4 | |
a qualified longevity annuity contract qlac is a deferred annuity funded with an investment from a qualified retirement plan or an individual retirement account ira they are available for purchase through many insurance companies | a qlac provides guaranteed monthly payments that begin after the specified annuity starting date as long as the qlac complies with internal revenue service irs requirements it is exempt from required minimum distribution rmd rules until the owner reaches age 85 1understanding a qualified longevity annuity contract qlac a qlac is an investment vehicle that allows funds in a qualified retirement plan such as a 401 k a 403 b or an ira to be converted into an annuity an annuity is a contract purchased from an insurance company in which the buyer pays a lump sum or a series of premiums the insurance company pays the annuitant beginning on a predetermined start date how many years the owner receives payments depends on the type of annuity purchased the secure 2 0 act of 2022 allows individuals to move 200 000 to a qualified longevity annuity contract it adjusts the 200 000 limit annually for inflation and the legislation recently removed the rule capping qlac premiums at 25 of the participant s total plan assets 2a qlac provides a lifetime income once the preset annuity start date is reached the longer an individual lives the longer a qlac pays out using ira funds to purchase a qlac helps avoid violating the irs rmd rules mandating a minimum amount to be annually withdrawn from an individual s retirement account balances beginning at age 73 and increasing to age 75 in 2033 3a qlac allows distributions to be delayed until a predetermined payout date but no later than the person s 85th birthday a qlac also allows a spouse or other party to be a joint annuitant where both named individuals are covered with the same conditions regardless of how long they live the maximum age to which qlac funds may be deferredqualified longevity annuity contracts and taxesqlacs have the added benefit of reducing an individual s rmds which iras and qualified retirement plans require limiting rmds can help keep a retiree in a lower tax bracket with a tax benefit and reduced medicare premium once qlac income begins an individual s tax liability will increase the annual distribution is based on the account s value at the end of the preceding year the promised benefit of qlacs can only be achieved if rules set by the irs are followed 1qualified longevity annuity contract optionsone option to benefit from qlacs is by laddering them and purchasing one qlac each year for several years such a strategy is similar to dollar cost averaging which considers that annuity costs can fluctuate along with interest rates in other words a qlac could be purchased each year lowering the average cost of the contracts all laddered annuity contracts can be structured to begin paying out in the same year each contract could also have its payouts staggered to pay out in different years based on the owner s age and when the income is needed the first qlac purchased could begin paying out at age 78 the next at age 79 and continue however rmds are required at age 85 qlac buyers can add a cost of living adjustment to their contract which indexes the annuity against inflation deciding on this depends on life expectancy as the cost of living adjustment will reduce the qlac s initial payout the greatest risk of buying a qlac is the financial strength of the issuing company example of a qlacshahana is 67 and due to retire in three years she would like to save on tax liabilities from her rmds based on her current retirement account balances shahana s first year rmd is estimated at 84 000 when she turns 73 she has investments in other assets such as stocks bonds and real estate which should provide her with an income stream during retirement she also plans to consult part time to stay current in her field shahana invests 100 000 in a single premium qlac account from her ira savings to withdraw when she turns 85 this will delay her rmd withdrawal date for the 100 000 used to purchase the qlac when shahana turns 85 she ll have guaranteed income from the qlac for the rest of her life the money set aside in the qlac is excluded from her ira assets when determining her annual rmds until she turns 85 resulting in lower current income taxes however she will eventually pay income taxes on the distribution amounts from the qlac and likely a lower tax bracket at age 85 | |
what is a limitation of purchasing a qlac | qlacs are inflexible and may not be suitable for all individuals once you purchase a qlac you lose access to the money until the annuity begins | |
what is the cost of a qlac | a qlac requires only the investment from your ira or qualified retirement account paid in a lump sum to an insurance company or provider there are no fees associated with the purchase the bottom linea qlac is a deferred annuity funded from a qualified retirement account such as an ira you can purchase a qlac from an insurance provider and set a designated date for your payments to begin irs rules stipulate that required minimum distributions begin at age 85 from the qlac transferring money to a qlac reduces a retiree s annual rmd calculated on other retirement accounts | |
what is a qualified mortgage | a qualified mortgage is a mortgage that meets certain requirements for lender protection and secondary market trading under the dodd frank wall street reform and consumer protection act a significant piece of financial reform legislation passed in 2010 1provisions of the dodd frank wall street reform and consumer protection act are intended to protect both borrowers and the financial system from the risky lending practices that contributed to the subprime mortgage crisis of 2007 by creating greater incentives for offering higher quality mortgage loans in both the primary and secondary markets the goal of the act was to lower the overall risk that mortgages create in the greater financial system | |
how qualified mortgages work | to be eligible for a qualified mortgage there are certain requirements that borrowers must meet these requirements are based on an analysis of the borrower s ability to repay their mortgage according to their income assets and debts these parameters require that the borrower has not taken on monthly debt payments in excess of 43 of pre tax income that the lender has not charged more than 3 in points and origination fees and that the loan has not been issued as a risky or overpriced loan with terms such as negative amortization balloon payment or interest only mortgage for lenders who follow certain regulations laid out in the act qualified mortgages may provide them with certain additional legal protections under qualified mortgage rules safe harbor provisions protect lenders against lawsuits by distressed borrowers who claim they were extended a mortgage the lender had no reason to believe they could repay they also provide incentives for lenders who wish to sell their loans in the secondary market since qualified mortgage loans are more appealing to underwriters in structured product deals lenders who issue qualified mortgages can more easily resell them in the secondary market to entities such as fannie mae and freddie mac these two government sponsored enterprises buy most mortgages which frees up capital for banks to make additional loans qualified mortgage rules were developed to help improve the quality of loans issued in the primary market and that ultimately may become available for trading in the secondary market the majority of newly originated mortgages are sold by the lenders into the secondary mortgage market in the secondary mortgage market newly originated mortgages are packaged into mortgage backed securities and sold to investors such as pension funds insurance companies and hedge funds only certain qualified mortgages are eligible for sale in the secondary market upfront fees on fannie mae and freddie mac home loans changed in may 2023 fees were increased for homebuyers with higher credit scores such as 740 or higher while they were decreased for homebuyers with lower credit scores such as those below 640 another change your down payment will influence what your fee is the higher your down payment the lower your fees though it will still depend on your credit score fannie mae provides the loan level price adjustments on its website 2special considerationsthere are several exceptions to qualified mortgage rules one exception is that points and origination fees may exceed 3 for loans of less than 100 000 otherwise lenders might not be sufficiently compensated for issuing such loans and these smaller mortgages might become unavailable in addition qualified mortgage regulations permit lenders to issue mortgages that are not qualified however there are rules that limit the sale of these loans into the secondary mortgage market and provide fewer legal protections for lenders | |
what is a qualified opinion | a qualified opinion is a statement issued in an auditor s report that accompanies a company s audited financial statements it is an auditor s opinion that suggests the financial information provided by a company was limited in scope or there was a material issue with regard to the application of generally accepted accounting principles gaap but one that is not pervasive qualified opinions may also be issued if a company has inadequate disclosures in the footnotes to the financial statements understanding a qualified opiniona qualified opinion may be given when a company s financial records have not followed gaap in all financial transactions but only if the deviation from gaap is not pervasive the term pervasive can be interpreted differently based on an auditor s professional judgment however to not be pervasive the misstatement must not misrepresent the factual financial position of the company as a whole and should not affect the decision making of financial statement users a qualified opinion may also be given due to a limitation of scope in which the auditor was not able to gather sufficient evidence to support various aspects of the financial statements without sufficient verification of transactions an unqualified opinion may not be given inadequate disclosures in the notes to the financial statements estimation uncertainty or the lack of a statement of cash flows are also grounds for a qualified opinion | |
how a qualified opinion is represented | a qualified opinion is listed in the third and final section of an auditor s report the first section of the report outlines management s responsibilities in regard to preparing the financial statements and maintaining internal controls the second section outlines the auditor s responsibilities in the third section an opinion is given by the independent auditor regarding the company s internal controls and accounting records the opinion may be unqualified qualified adverse or a disclaimer of opinion a qualified opinion states that the financial statements of a corporate client are with the exception of a specified area fairly presented auditors typically qualify the auditor s report with a statement such as except for the following when they have insufficient information to verify certain aspects of the transactions and reports being audited a qualified opinion is not so severe that it indicates that a business is doing poorly or that a company has hidden or falsified information but rather that the auditor simply cannot give an issue free report the auditor may specify that they believe the overall audit to be true and factual but will specify the area that they believe is the issue qualified opinion vs other opinionsa qualified opinion is a reflection of the auditor s inability to give an unqualified or clean audit opinion an unqualified opinion is issued if the financial statements are presumed to be free from material misstatements it is the most common type of auditor s opinion if the issues discovered during the audit result in material misstatements that would affect the decision making of the financial statement users the opinion is escalated to an adverse opinion the adverse opinion results in the company needing to restate and complete another audit of its financial statements a qualified opinion is still acceptable to most lenders creditors and investors if the auditor is unable to complete the audit report due to the absence of financial records or insufficient cooperation from management the auditor issues a disclaimer of opinion this is an indication that no opinion over the financial statements was able to be determined | |
how many auditor s opinions are possible on a financial statement | four auditor s opinions are possible on a company s financial statement the opinions are qualified unqualified adverse or a disclaimer of opinion | |
when may a qualified opinion be issued | a qualified opinion may be given when a company s financial records have not followed gaap in all financial transactions however the deviation from gaap must not be pervasive to not be pervasive the misstatement must not misrepresent the company s factual financial position as a whole and should not affect the financial statement users decision making | |
where is a qualified opinion in an auditor s report | an auditor s report contains three sections the bottom linea statement issued in an auditor s report that accompanies a company s audited financial statements is called a qualified opinion the auditor s opinion suggests the financial information provided by the company was limited in scope or there was a material but not pervasive issue regarding the application of generally accepted accounting principles gaap | |
what is a qualified personal residence trust qprt | a qualified personal residence trust qprt is a specific type of irrevocable trust that allows its creator to remove a personal home from their estate for the purpose of reducing the amount of gift tax that is incurred when transferring assets to a beneficiary qualified personal residence trusts allow the owner of the residence to remain living on the property for a period of time with retained interest in the house once that period is over the interest remaining is transferred to the beneficiaries as remainder interest depending on the length of the trust the value of the property during the retained interest period is calculated based on applicable federal rates afr that the internal revenue service irs provides because the owner retains a fraction of the value the gift value of the property is lower than its fair market value fmv thus lowering its incurred gift tax this tax can also be lowered with a unified credit | |
how a qualified personal residence trust qprt works | a qualified personal residence trust can be useful when the trust expires prior to the death of the grantor if the grantor dies before the term the property is included in the estate and is subject to tax the risk lies in determining the length of the trust agreement coupled with the likelihood that the grantor will pass away before the expiration date theoretically longer term trusts benefit from smaller remainder interest given to the beneficiaries which in turn reduces the gift tax however this is only advantageous to younger trust holders who have a lower possibility of passing away prior to the trust end date qprt and other trust formsmany different types of trusts exist in addition to a qualified personal residence trust two additional ones are a bare trust and a charitable remainder trust in a bare trust the beneficiary has the absolute right to the trust s assets both financial and non financial such as real estate and collectibles as well as the income generated from these assets such as rental income from properties or bond interest in a charitable remainder trust a donor may provide an income interest to a non charitable beneficiary with the remainder of the trust going to a charitable organization the charitable remainder annuity trust crat and charitable remainder uni trust crut are two types of charitable remainder trusts under two types of charitable remainder trusts crat and crut the donor receives an income tax deduction from the present value of the remainder interest example of a qprtconsider a parent who wants to pass their house which is valued at 500 000 to their child currently the parent does not plan to move out of the house to reduce the tax impact on their estate the parent sets up a qualified personal residence trust for 10 years in 10 years the house increases in value to 750 000 because the house is under a qprt the 250 000 in gains will be tax free in other words the parent will only have to pay gift tax on the 500 000 value of the house that is held within the trust the value of the house also diminishes over the 10 year term the parents don t own the house at all at the end of the term they must leave or enter into a lease agreement and if the parent dies before the end of the trust s term the tax benefits will fail to apply qprts may also have various caveats pertaining to the adjoining land outliving the trust and selling the home before the term s end | |
what is a qualified pre retirement survivor annuity | a qualified pre retirement survivor annuity qpsa is a death benefit that is paid to the surviving spouse of a deceased employee if the employee dies before retirement the qualified pre retirement survivor annuity is paid to offer compensation to the surviving spouse for the loss of retirement benefits that would have otherwise been paid to the employee as the name implies qpsas are paid only in the case of qualified plans understanding qpsaa qpsa provides a way for an individual to provide for their surviving spouse or another beneficiary should they become deceased prior to the institution of their retirement benefits qpsa benefits are ones that must be offered with all types of qualified plans to vested participants some of these plans include defined benefit plans and money purchase plans the employee retirement income security act erisa mandates how the payments for a qpsa should be calculated both the employee and the spouse must sign off on a waiver of qpsa benefits and have it witnessed by either a notary public or an authorized plan representative in some instances a qualified domestic relations order qdro is needed the qdro is a judgment or order for a retirement plan to pay child support alimony or property rights to a spouse child or another dependent of a participant according to the internal revenue service irs a qpsa is a form of a death benefit paid as a life annuity a series of payments usually monthly for life to the surviving spouse or former spouse child or dependent who must be treated as a surviving spouse under a qdro of a participant where there are set conditions that must be met a qpsa provides a level of protection for a surviving spouse in the form of monthly payments for life special considerations for a qpsafor qpsa payments to be made the participant must have vested benefits and died before retirement as well if it s a spouse that is to receive qpsa payments they must be married for at least one year some types of qualified plans may be exempt from having to provide a qpsa to a surviving spouse this happens with defined contribution plans if the plans do not offer a life annuity option or if the plans require the benefit be paid in full to the surviving spouse a qpsa notice must be sent to the participant if the plan offers a qualified pre retirement survivor annuity the notice must be sent when the participant is between the ages of 32 and 35 or within one year from when an employee becomes a plan participant if they are older than 35 | |
what is the qualified production activities income | qualified production activities income qpai is the portion of income derived from domestic manufacturing and production that qualifies for reduced taxation more specifically qualified production activities income is the difference between the manufacturer s domestic gross receipts and aggregate cost of goods and services related to producing domestic goods 1 the tax deductibility of qpai is intended to reward manufacturers for producing goods domestically instead of overseas understanding qualified production activities income qpai section 199 of the internal revenue code irc mandates that qualified production activities income qpai be taxed at a lower rate 2 qpai refers to certain income related to manufacturing that is equal to the excess of the business taxpayer s domestic production gross receipts dpgr over the sum of the cost of goods that are allocable to such receipts and other expenses losses or deductions which are properly allocable to such receipts domestic production gross receipts dpgr are gross receipts from the manufacture production growth or extraction of qualifying production property a company that generates qpai in a qualifying tax year qualifies for the domestic production activities deduction dpad 3 u s based business allowable dpad generally cannot be more than 9 of its qpai a taxpayer with oil related qpai also must reduce the dpad by 3 of the least of the following amounts oil related qpai qpai and adjusted gross income for an individual estate or trust taxable income for all other taxpayers figured without dpad 4 in addition the deduction is limited to 50 of the w 2 wages paid by the taxpayer during the calendar year that ends with or within the tax year an employer that did not pay any form w 2 wages or have form w 2 wages allocated to him her on a schedule k 1 cannot claim a dpad 5 the dpad was in effect for small and large u s based business activities between 2005 and 2017 and expired on december 31 2017 6 irc section 199 defines qualified production activities to include qpai will be the same as gross income for a business that engages in only one line of business but businesses with multiple lines of businesses must allocate their incomes 4 individuals corporations cooperatives estates and trusts use irs form 8903 to figure their allowable qualified production activities income qpai and form w 2 wages are figured by only taking into account items that are attributable to the actual conduct of a trade or business qpai does not include revenue generated from the restaurant industry electricity or natural gas distribution or real estate transactions 8 | |
what is a qualified professional asset manager qpam | a qualified professional asset manager qpam is a registered investment adviser ria that assists various institutions in making financial investments the focus of a qpam is on retirement accounts such as pension plans qpams are beneficial to investment funds because if an investment fund or retirement plan is managed by a qpam they can then transact in areas otherwise prohibited by the employee retirement income security act erisa understanding a qualified professional asset managerthe criteria for qualifying as a qpam are defined by erisa regulated institutions such as banks and insurance companies may qualify as a qpam under amendments that came into effect in august 2005 a qpam is also defined as a registered investment adviser with client assets under management aum of at least 85 million and shareholder s equity of 1 million or more 1investment funds can typically benefit on a regulatory basis through the qpam exemption the qpam exemption is widely used by parties who conduct transactions with accounts holding retirement plan funds essentially the qpam exemption allows an investment fund that is managed by a qpam to engage in a wide range of transactions that would otherwise be prohibited by erisa erisa prohibits certain transactions when an erisa governed plan or fund transacts business with an entity that may be conflicted in regards to that plan or fund when a qpam is in the equation the restriction is lifted with practically all parties such as plan sponsors and plan fiduciaries however such transactions cannot be entered into with the qpam itself or with those parties that may have the power to influence the qpam one big role for qpams is representing pension plans when they want to engage in private placements the qpams role is to vet the private placement for the pension fund qualified professional asset managers may also assist investment plans with investing in real estate or other alternative investments qualified professional asset managers and prohibited transactionsa qualified professional asset manager may make a transaction that would normally be prohibited under erisa section 406 a 2 such transactions may include sales exchanges leases loans extensions of credit and the provision of services between a party of interest and a pension plan using a qpam can remove the risk of trustees being held personally liable for errors as long as they utilize the qpam prudently however using a qpam is not a shield for breach of fiduciary duty qualified professional asset manager qualificationsthe qualifications for a qualified professional asset manager are codified in prohibited transaction class exemption 84 14 issued by the department of labor they are 3 | |
what is a qualified reservist | a qualified reservist is a member of the military reserve who is not active but when called to duty is eligible to make an early withdrawal from a retirement account without incurring the usual early distribution penalty under most circumstances the irs imposes a penalty of 10 on the taxable amount withdrawn from a retirement account by a taxpayer younger than 59 years old qualified reservists are rare exceptions to this rule 1 still their withdrawals are subject to federal and state taxes to qualify reservists must be ordered or called to active duty after sept 11 2001 for more than 179 days or an indefinite period distributions need to be either from an individual retirement account ira or from employees elective deferrals to a 401 k 457 or 403 b also distributions must be during the period of active duty 2certain rules allow reservists to repay retirement account distributions during the two year period when active duty ends even if the repayment contributions exceed annual contribution limits understanding qualified reservistsqualified reservist rules are fairly recent enacted as part of the pension protection act of 2006 3 initially the rules only applied to active reservists on dec 30 2007 or before however the 2008 heart act or heroes earnings assistance and relief tax act extended the rules for qualified reservists going forward 4the heart act gave u s service members and their families many forms of financial assistance as a further means of thanking and compensating them for their service the heart act contains several provisions designed to allow service members and reservists to make a smooth financial transition both into active duty and then back into their civilian lives pros and cons of being a qualified reservistserving in the reserves can present financial hardships married couples with kids for instance face unexpected childcare costs when one or both adult family members are called into active duty overseas as with many of the heart act provisions qualified reservist rules provide additional financial flexibility for reservists if there is a trade off it s that there are important restrictions for example service member employees cannot make further elective contributions to their retirement plans after the date of distribution 5 this can have a negative impact on a potential retirement nest egg perhaps the biggest disadvantage of the qualified reservist rules is that missing even a single year of savings in a 401k or ira can make a difference in retirement this is especially true early in the retirement savings process as the money taken out will not have a chance to compound over multiple years for this reason even a withdrawal of a few thousand dollars as allowed for qualified reservists can cost 10 000 or more over several decades | |
what is a qualified retirement plan | a qualified retirement plan is an employer sponsored retirement plan that meets the requirements of the internal revenue code irc and the employee retirement income security act erisa making it eligible for certain tax benefits these can include tax deductions for employer and employee contributions and tax deferral of investment gains understanding qualified retirement plansqualified retirement plans come in two main types defined benefit and defined contribution there are also some other plans that are hybrids of the two such as a cash balance plan defined benefit plans give employees a guaranteed payout after retirement and place the risk on the employer to save and invest properly to meet plan liabilities a traditional annuity type pension is an example of a defined benefit plan with defined contribution plans the amount of money that employees will have available to them in retirement depends on how much they contribute and how successfully they invest those contributions the employee typically chooses what to invest in and bears all of the investment risk a 401 k is the most popular example of a defined contribution plan other examples of qualified plans include requirements for qualified retirement plansthe tax code lays out a long list of requirements that plans must meet to be qualified for example employees must be eligible to participate in the plan no later than the date when they turn 21 years old or the date when they complete one year of service whichever comes later 1once they are eligible to participate employees must be allowed to join the plan no later than the first day of the first plan year beginning after the date when they met the minimum age and service requirements or six months after the date when they satisfied those requirements whichever comes earlier 1the tax code also establishes the rules for vesting employer matching contributions rollovers distributions and more 1employers have some leeway within these rules but once they have put the specifics of their plan in writing as they are required to do they must adhere to them unless they amend the plan qualified retirement plans are also subject to the rules of the employee retirement income security act of 1974 erisa which is administered by the u s department of labor one of its chief requirements is that plan sponsors employers and administrators act as fiduciaries meaning that they must make investment decisions in the best interest of plan participants if they fail to do that they can be held personally liable to make up any losses 2tax benefits of qualified retirement plansemployers that provide qualified retirement plans for their employees can take a tax deduction for the money they contribute to the plans up to certain limits 3 those limits depend on the type of plan with defined benefit plans having higher contribution limits than defined contribution plans 4the internal revenue service irs also sets limits for the maximum amount of contributions an employee can make to the plan with traditional defined contribution plans employees can take a tax deduction for their contributions reducing their taxable income and therefore their taxes for the year they ll pay tax on that income only when they later withdraw it usually in retirement in the meantime the investment earnings on the money in their account will be tax deferred again until it s withdrawn roth type accounts are an exception here they don t provide any tax deduction going in but later withdrawals will be tax and penalty free as long as the account owner is over age 59 and has had the account for over five years depending on the specific provisions of the employer s plan qualified plans can also allow employees to take out loans and make penalty free hardship withdrawals under certain circumstances | |
what is a non qualified retirement plan | non qualified retirement plans are employer sponsored plans that don t meet all of the requirements of the employee retirement income security act of 1974 erisa they don t receive all of the tax advantages of qualified plans non qualified plans are primarily used to incentivize and reward a company s top executives | |
are qualified retirement plans federally insured | many defined benefit plans or traditional pensions are insured by the federal pension benefit guaranty corp up to certain limits defined contribution plans on the other hand are not insured | |
how are withdrawals from qualified retirement plans taxed | withdrawals or distributions from qualified retirement plans must be included in the taxpayer s income for that year and are taxed at the same rate as their ordinary income such as a salary as long as the account has been open for more than five years roth type accounts are eligible for tax free withdrawals this is because the income that was used to fund the account s contributions has already been taxed 5the bottom linequalified retirement plans are employer sponsored plans that meet the requirements of the internal revenue code irc and the employee retirement income security act erisa and are eligible for certain tax benefits such as tax deductions for contributions and tax deferral of investment gains qualified retirement plans can be either defined benefit or defined contribution plans | |
what is the qualified special representative agreement qsr | the qualified special representative agreement qsr is an agreement between broker dealers to clear trades without interacting with the nasdaq act system the qsr agreement allows one broker dealer to send trades directly to the national securities clearing corporation on behalf of another broker dealer this method of clearing trades provides simpler processing lower transaction costs and extended trading hours understanding the qualified special representative agreement qsr the qualified special representative agreement qsr applies to nasdaq trades that a broker dealer would normally process through the act system the act system matches trades and then communicates the transaction to the broker dealer s clearing firm the act system also reports the trade to the national securities clearing corporation a qualified special representative agreement qsr has two parties the receiving party and the delivering party both parties need to be registered with the securities and exchange commission as most broker dealers are required to utilizing this agreement speeds up the settlement process because it removes some of the steps in the process trade details can be shared between these two parties outside of the clearing house which speeds things up while the benefits include increased efficiency improved communication and lower costs the risks include counterparty risk one party does not act accordingly as stipulated by the agreement and operational risk if counterparty issues arise between both parties the agreement usually stipulates the steps to remedy any disagreements this usually includes specific timeframes such as reporting the issue steps to resolve the dispute and guidance on escalation to higher regulatory authorities matching and reporting trades | |
when two broker dealers have a qualified special representative agreement qsr each one can send trades to its clearinghouse on behalf of the other and each of their clearing firms has agreed to clear the trades based on the agreement | broker dealers match orders against another broker dealer by using an electronic communication network ecn each broker dealer and the ecn send a ticket file to their clearing firms with the trade details however each firm must still report their own trades to finra | |
what is an agu agreement | an agu agreement is an automatic give up agreement a give up agreement allows one broker to execute trades for another broker the give up relates to the executing broker giving up credit on the trade on the record books an agu automatically locks in a transaction in the system | |
what is tape reporting | tape reporting is consolidated tape reporting it is a digital transmission of financial information primarily used for stocks it includes a stock s symbol price trading volume and other details it can be seen as the modern version of the ticker tape | |
what is the contra side of a trade | the contra side of a trade is simply the other side of a trade the contra party is the opposing party to the bid ask spread of the market maker the contra side can be trading for their own accounts or the accounts of other individuals for example if a market maker buys a security the contra side would be selling the security | |
why is spoofing illegal | spoofing is illegal because it does not reflect the actuality of the market or a stock s true supply and demand spoof traders execute orders to drive up the volume of a stock either up or down but never actually fill the orders their goal is to manipulate the price to benefit in some way | |
why do brokers give up trades | the primary reason why brokers give up trades to other brokers is because when a client wants to make a trade their regular broker is not available and so another broker must take its place with the advent of electronic trading and automated trading the necessity for give up trades has diminished as clients can make their own tradesthe bottom linequalified special representative agreements allow broker dealers to send clearing trades on behalf of one another which improves the efficiency of the financial markets it improves speed lowers costs and extends trading hours benefiting all parties | |
what is a qualified terminable interest property qtip trust | a qualified terminable interest property qtip trust enables the grantor to provide for a surviving spouse and maintain control of how the trust s assets are distributed once the surviving spouse dies income generated from the trust and sometimes the principal is given to the surviving spouse to ensure that the spouse is taken care of for the rest of their life | |
how qualified terminable interest property qtip trusts work | this type of irrevocable trust is commonly used by individuals who have children from another marriage qtip trusts enable the grantor to look after their spouse and ensure that the assets from the trust are passed on after that spouse dies to beneficiaries of their choice beneficiaries could be children from the grantor s first marriage other family members or friends aside from providing the living spouse with a source of funds a qtip trust can also help limit applicable death and gift taxes the property within the qtip trust providing income to a surviving spouse qualifies for marital deductions meaning the value of the trust is not taxable after the first spouse s death instead the property becomes taxable after the second spouse s death with liability transferring to the named beneficiaries of the assets within the trust additionally qtips can assert control over how the funds are handled should the surviving spouse die as the spouse never assumes the power of appointment over the principal this can prevent these assets from transferring to the living spouse s new spouse should they remarry qtip trusts are reported on tax returns using ird form 706 1qualified terminable interest property trustee appointmentsa minimum of one trustee must be appointed to manage the trust though there may be multiple named simultaneously the trustee or trustees will be responsible for controlling the trust and have authority over the management of the assets examples of possible trustees include but are not limited to the surviving spouse a financial institution an attorney and other family members or friends spousal payments and qtip truststhe surviving spouse named within a qtip trust typically receives payments from the trust based on the income the trust generates similar to stock dividends payments can be made from the principal if the grantor allows it when the trust is created payments will be made to the spouse for the rest of their life upon death the payments cease as they are not transferable to another person the assets in the trust then become the property of the listed beneficiaries qtip trust vs marital trusteach type of trust can help you achieve similar estate planning goals however the key differences lie in how the assets in the trust are controlled for example a qtip lets the grantor dictate how assets within the trust are distributed to their spouse and requires that distributions be made at least annually a marital trust allows the surviving spouse to dictate how the assets are distributed it doesn t require distributions and that spouse can even add new beneficiaries a marital trust has more flexibility as this type does not require the surviving spouse to take annual distributions the surviving spouse of a marital gift trust can also appoint new beneficiaries following the death of the original grantor as the surviving spouse is never the true property owner a lien cannot be put against the property within the trust or the trust itself benefits of a qtipwhile qtips are similar to marital trusts there are benefits in certain situations | |
how does a qtip trust work | a qtip trust is an irrevocable trust that pays income generated from the assets to a spouse when that spouse dies the assets pass to the beneficiaries named by the grantor | |
what is the difference between a qtip and marital trust | the two are similar except that a qtip cannot be changed by the surviving spouse and requires that at least one annual distribution occur | |
what are the requirements of a qtip trust | a qtip is required to pay all of its income to the spouse beneficiary there can also be no other beneficiaries until that spouse passes away the bottom linequalified terminable interest trusts are designed to be a method of ensuring you can leave assets to your spouse and other named beneficiaries while the terms you want are enforced throughout the trust s existence qtips may not be suitable for everyone or every situation for example if you re not concerned with how your estate is distributed after your spouse dies you might not need a qtip but if you re leaving an estate to your spouse when you die and want any remaining assets and income to go to specific people after your spouse passes on a qtip is an excellent way to ensure your wishes are followed | |
what is a qualified trust | a qualified trust is a tax advantaged fiduciary relationship between an employer and an employee in the form of a stock bonus pension or profit sharing plan in a qualified trust the underlying beneficiary may use his or her life expectancy to determine required minimum distribution rmd amounts but other considerations like gender race or salary cannot be used understanding qualified trustsa trust may be qualified or non qualified according to the irs a qualified plan carries certain tax benefits to be qualified a trust must be valid under state law and must have identifiable beneficiaries in addition the ira trustee custodian or plan administrator must receive a copy of the trust instrument if a qualified trust is not structured correctly disbursements are taxable by the irs section 401 a of the internal revenue code authorizes and sets forth the requirements for what is considered a qualified trust stipulations exist to be sure that an employer does not discriminate among employees when contributing to a qualified trust for example an employer may not discriminate in favor of employees that are more highly compensated contributions must be uniform across an organization other types of trustsin addition to qualified trusts there is a myriad of other trust types in a charitable lead trust for example beneficiaries are able to reduce their taxable income by donating a portion of the trust s income to charity after a specified period of time the remainder of the trust is transferred to the beneficiaries in a bare trust a beneficiary has the absolute right to the capital and assets within the trust as well as the income these assets generate such as dividends while a trustee will often bear responsibility for managing the trust assets in a prudent manner the trustee does not determine how or when the trust s capital or income is distributed a personal trust is a type of trust that a person sets up for himself or herself as the beneficiary as separate legal entities personal trusts that have the authority to buy sell hold and manage the property for the benefit of their trustor and can accomplish a variety of important objectives for example a young adult may set up a personal trust to pay for a graduate school program or professional education down the line | |
what is a qualified widow or widower | the term qualified widow or widower refers to a tax filing status that allows a surviving spouse to use the married filing jointly tax rates on an individual return the provision is good for up to two years following the death of the individual s spouse the taxpayer must remain unmarried for at least two years following the death of their spouse in order to qualify for this status 1filing as a qualified widow er allows the taxpayer to receive the highest standard deduction for their taxes provided they do not itemize deductions understanding qualified widows or widowersqualifying widow er is one of the five official filing statuses of the internal revenue service irs 2 it provides financial relief for those who lose their spouses and may be struggling with death related expenses or other regular household bills using the qualified widow er status allows the surviving spouse to file taxes as if they were still married despite the fact that their partner is deceased you can file taxes as a qualified widow er for the year your spouse died as well as two years following their death so depending on the timing of when the spouse passed during the year this time frame could technically be three calendar years 1 after that you must opt for the status of either single filer or head of household because it is a somewhat unusual status there are specific rules and regulations about who qualifies the following are eligibility rules set out by the irs for the qualified widow er filing status as noted above you get all the advantages of being married and filing jointly when you use the qualified widow er status notably the deductions and income tax brackets for tax year 2022 the standard deduction for single filers is 12 950 rising to 13 850 in tax year 2023 this is the same for married filing separately for heads of household the standard deduction is 19 400 in 2022 rising to 20 800 in 2023 for married filing jointly the standard deduction is 25 900 in 2022 rising to 27 700 in 2023 for surviving spouses the standard deduction is 25 900 in 2022 rising to 27 700 in 2023 45taxpayers who do not remarry in the year their spouse dies can file jointly with the deceased spouse for that tax year after that they can opt for qualifying widow er status 1special considerationshaving a dependent child is a key part of filing as a qualified widow or widower in fact it s actually a very crucial part of the tax filing status there is often an addendum to the title that stipulates it notably qualified widow er with dependent child 6the law also dictates that the dependent child must have lived in the home with the taxpayer all year aside from temporary absences like vacations or visiting relatives there are exceptions if a child s presence is for less than a year for things like birth death and even kidnapping 7in addition the child cannot qualify if | |
what is a qualifying annuity | a qualifying annuity is similar to any other annuity except the irs has approved it for use within a qualified retirement plan or individual retirement account ira these annuities can be fixed indexed or variable depending upon the plan sponsor s investment objectives according to employee retirement income security act erisa guidelines contributions made into a qualifying annuity are tax deductible unless the plan or annuity has a roth feature 1 2 | |
how a qualifying annuity works | qualifying annuities are not tax deductible plans in and of themselves they must reside within a qualified plan or ira to enjoy this status qualifying annuities can be either the sole vehicle inside the plan or account or they can be one of several other choices that are offered as well in many cases the qualifying annuity is a variable contract and is the only vehicle offered within the plan with the variable subaccounts constituting the choices available to plan participants there are many types of annuities to choose from depending on a variety of factors from retirement income needs to comfortability with financial risk types of annuitiesthe products that go into qualified and non qualified annuities are the same however the rules for non qualified annuities are different which is covered in irs publication 575 one twist is that when a non qualified annuity is partially or fully surrendered the first dollars out are considered earnings for tax purposes and are thus taxed at ordinary income rates once all of the earnings have been withdrawn the remaining money the original investment can be taken out tax free if payments under a non qualified plan are taken in the form of periodic payments part of each payment is treated as a return of the original investment for which no taxes are due part of the payout is considered earnings and taxed at ordinary income rates the exact percentages of earnings versus principal are based on the type of payout and the beneficiary s age annuities can be structured generally as either fixed or variable fixed annuities provide regular periodic payments to the annuitant variable annuities allow the owner to receive more significant future cash flows if investments within the annuity fund do well and smaller payments if its investments do poorly this provides for less stable cash flow than a fixed annuity but allows the annuitant to reap the benefits of strong returns from their fund s investments special considerationsthere are many other considerations including sales fees commissions and the length of the annuity whether an annuity is qualified or not withdrawals before age 59 are subject to a 10 penalty since the non qualified annuity is purchased with after tax dollars only the earnings would be subject to the penalty | |
what is a qualifying disposition | qualifying disposition refers to a sale transfer or exchange of stock that qualifies for favorable tax treatment individuals typically acquire this type of stock through an incentive stock option iso or through a qualified employee stock purchase plan espp a qualified espp requires shareholder approval before it is implemented furthermore all plan members must have equal rights in the plan 1 | |
how qualifying disposition works | to be a qualifying disposition the employee must sell their position at least one year after exercising the stock and two years after the incentive stock option iso was granted or two years after the beginning of the espp offering period 1 for example suppose cathy s iso options were granted september 20 2018 and she exercises them september 20 2019 in this scenario cathy must wait until september 20 2020 before she may report a long term capital gain the capital gains treatment for a qualifying disposition applies to the amount of the sale represented by the difference between the exercise price of the option s stock and the market price at which the stock sold for example if tim exercises 1 000 iso options at 10 per share and sells them for 30 per share he consequently will report a capital gain of 20 000 20 x 1000 shares 3 non statutory stock options nsos do not qualify for capital gains tax treatment and are taxed at ordinary income rates 2 issuing a compensation package that includes isos and a qualified espp helps companies attract and retain top tier personnel it also aligns a company s management and key employees with its shareholders as they all want the company to succeed and increase its share price some companies do not offer isos because contrary to non statutory or non qualified option plans there is no tax deduction for the company when the options are exercised 4 special considerations bargain element refers to an option that can be exercised below the current market price which provides the employee with an immediate profit an employee who exercises a non statutory option must report the bargain element as earned income which is subject to income tax it should be noted that employees who hold isos are not mandated to report the bargain element until after they sell their shares 3 the bargain element is reported as ordinary income if the shares were immediately sold after they were exercised a disqualifying disposition by contrast the bargain element is reported as a long term capital gain if the sale was executed one year after exercising the options and two years after the grant date qualifying disposition 3 the bargain element for nsos is added to an individual s alternative minimum taxable income which has a flat tax meant to ensure everyone pays their fair share of taxes despite tax minimization strategies 3 qualifying distribution vs disqualifying distributiona disqualifying distribution is the sale or exchange of shares received from an iso or espp before the holding period has been met the iso holding period is one year from the exercise date and two years from the grant date or two years from the espp offering date gains or losses realized in a disqualifying disposition are taxed at a higher rate 3 if espp or iso shares are sold in a qualifying disposition the bargain amount is taxed at the capital gains rate disqualifying dispositions are recorded at the income tax rate which is generally higher than the capital gains tax 3 | |
what is a qualifying disposition | qualifying disposition refers to a sale transfer or exchange of stock that qualifies for favorable tax treatment individuals typically acquire this type of stock through an incentive stock option iso or through a qualified employee stock purchase plan espp a qualified espp requires shareholder approval before it is implemented furthermore all plan members must have equal rights in the plan 1 | |
how qualifying disposition works | to be a qualifying disposition the employee must sell their position at least one year after exercising the stock and two years after the incentive stock option iso was granted or two years after the beginning of the espp offering period 1 for example suppose cathy s iso options were granted september 20 2018 and she exercises them september 20 2019 in this scenario cathy must wait until september 20 2020 before she may report a long term capital gain the capital gains treatment for a qualifying disposition applies to the amount of the sale represented by the difference between the exercise price of the option s stock and the market price at which the stock sold for example if tim exercises 1 000 iso options at 10 per share and sells them for 30 per share he consequently will report a capital gain of 20 000 20 x 1000 shares 3 non statutory stock options nsos do not qualify for capital gains tax treatment and are taxed at ordinary income rates 2 issuing a compensation package that includes isos and a qualified espp helps companies attract and retain top tier personnel it also aligns a company s management and key employees with its shareholders as they all want the company to succeed and increase its share price some companies do not offer isos because contrary to non statutory or non qualified option plans there is no tax deduction for the company when the options are exercised 4 special considerations bargain element refers to an option that can be exercised below the current market price which provides the employee with an immediate profit an employee who exercises a non statutory option must report the bargain element as earned income which is subject to income tax it should be noted that employees who hold isos are not mandated to report the bargain element until after they sell their shares 3 the bargain element is reported as ordinary income if the shares were immediately sold after they were exercised a disqualifying disposition by contrast the bargain element is reported as a long term capital gain if the sale was executed one year after exercising the options and two years after the grant date qualifying disposition 3 the bargain element for nsos is added to an individual s alternative minimum taxable income which has a flat tax meant to ensure everyone pays their fair share of taxes despite tax minimization strategies 3 qualifying distribution vs disqualifying distributiona disqualifying distribution is the sale or exchange of shares received from an iso or espp before the holding period has been met the iso holding period is one year from the exercise date and two years from the grant date or two years from the espp offering date gains or losses realized in a disqualifying disposition are taxed at a higher rate 3 if espp or iso shares are sold in a qualifying disposition the bargain amount is taxed at the capital gains rate disqualifying dispositions are recorded at the income tax rate which is generally higher than the capital gains tax 3 | |
what is a qualifying investment | a qualifying investment refers to an investment purchased with pretax income usually in the form of a contribution to a retirement plan funds used to purchase qualified investments do not become subject to taxation until the investor withdraws them | |
how a qualifying investment works | qualifying investments provide an incentive for individuals to contribute to certain types of savings accounts by deferring taxes until the investor withdraws the funds contributions to qualified accounts reduce an individual s taxable income in a given year making the investment more attractive than a similar investment in a non qualified account example of a qualifying investmentfor high income individuals deferring taxation on earnings until the distribution from a retirement fund could potentially yield savings in a couple of ways for example consider a married couple whose gross income would push them just over the break point to a higher tax bracket in 2024 a married couple filing jointly would see a rise in tax rate from 24 to 32 on earnings over 383 900 because the internal revenue service irs uses marginal tax rates the couple s 2023 earnings between 201 050 and 383 900 would be taxed at 24 1suppose each spouse s employer offered a 401 k plan and the couple maxed out their contributions for the year the contribution limit established by the irs caps annual contributions to 401 k plans in 2024 at 23 000 each so the couple could trim 46 000 in total off their 2024 taxable income bringing the total number down from 383 900 to 337 900 comfortably within the 24 tax bracket if the couple had needed to make an additional contribution and they were over the age of 50 they are each allowed by the irs to make a catch up contribution of 8 000 in 2024 2after retirement the taxes the couple will pay on distributions will correspond to their post retirement income which likely will be quite a bit less than their combined salaries to the extent their retirement distributions stay below the threshold for higher income tax brackets they will profit off the difference between the marginal rates they would have paid in the present and any lower marginal rates they pay in the future qualifying investments vs roth irasinvestments qualifying for tax deferred status typically include annuities stocks bonds iras registered retirement savings plans rrsps and certain types of trusts traditional iras and variants geared toward self employed people such as sep and simple ira plans all fall under the category of qualifying investments roth iras on the other hand operate a bit differently when people contribute to roth iras they use post tax income meaning they don t get a tax deduction in the year of the contribution where qualifying investments offer tax advantages by deferring payment of taxes roth iras offer a tax advantage by allowing contributors to pay a tax on their investment funds upfront in exchange for qualified distributions under a roth ira distributions that meet certain criteria avoid any further taxation eliminating any taxation of the appreciation of contributed funds 3it s important to note that roth iras have lower contribution limits than defined contribution plans such as 401 k s roth and traditional iras both have annual contribution limits of 7 000 for 2024 for individuals aged 50 and over they can deposit a catch up contribution of 1 000 in 2024 2 | |
what are qualifying ratios | qualifying ratios are measuring devices that banks and other financial institutions use in their loan underwriting process an applicant s qualifying ratio expressed as a percentage figure plays a key role in determining whether they ll be approved for financing and often for the terms of the loan as well lenders use qualifying ratios percentages that compare a borrower s debt obligations to their income in deciding whether to approve loan applications | |
how qualifying ratios work | qualifying ratio requirements can vary across lenders and loan programs they are often used in combination with a borrower s credit score in evaluating an application | |
when it comes to consumer financing the debt to income ratio and the housing expense ratio are two of the most common and significant qualifying ratios standard credit products personal loans credit cards will focus on a borrower s debt to income ratio mortgage loans will use both the housing expense ratio and the debt to income ratio | online lenders and credit card issuers often use computer algorhythms in their underwriting process this automated system often lets loan applications be approved in minutes qualifying ratios in personal loansin the underwriting process for all types of personal loans and credit cards the lender will focus on two factors the borrower s debt to income ratio and their credit score the two are usually given equal weight the debt to income ratio dti which may be calculated monthly or annually considers a borrower s current regular debt obligations against their total or gross income comparing how much they have outgoing vis a vis the regular amount they have coming in over the same period to obtain the ratio you divide the outstanding debt payments by the total income or as a formula assuming the more common monthly calculation image by sabrina jiang investopedia 2021while each lender has its own specified parameters for loan approval high quality lenders generally will require a debt to income ratio of approximately 36 or less subprime and other alternative financing lenders may allow for debt to income ratios of up to approximately 43 qualifying ratios in mortgage loansmortgage loan underwriting analyzes two types of ratios along with a borrower s credit score mortgage lenders will look at a borrower s housing expense ratio they will also consider a borrower s debt to income ratio in mortgage financing the housing expense ratio is also referred to as as the front end ratio while the debt to income ratio is often known as the back end ratio the housing expense ratio is generally a comparison of the borrower s total housing related expenses to their gross or pre tax income lenders have numerous expenses that they may consider when determining an applicant s overall housing expense ratio they usually focus on the mortgage principal and interest payments however they may also look at other regular costs such as homeowners and hazard insurance utility bills property taxes homeowners association fees and mortgage insurance the sum of these housing expenses is then divided by the borrower s income to arrive at the housing expense ratio the figures can be calculated using monthly payments or annual payments underwriters use the housing expense ratio not only to grant approval for the mortgage but also to determine how much principal an applicant is eligible to borrow most lenders typically require a housing expense ratio to be approximately 28 or less a higher housing expense ratio may be acceptable based on compensating factors such as a low loan to value ratio for the property and or an excellent credit history for the borrower the realities of the local real estate market may play a part too in expensive regions such as new york city or san francisco it s not unusual for housing expenses to total one third of people s income the debt to income ratio in mortgage loans is the same measure used in personal loan products lenders generally also look for a debt to income ratio of 36 for mortgage loans as well some government sponsored loan programs may have looser standards for debt to income fannie mae accepts debt to income ratios of approximately 45 for the mortgages it backs and federal housing administration loans accepts debt to income ratios of approximately 50 | |
what is a qualifying relative | a qualifying relative designated by the internal revenue service irs can be claimed as a dependent by a taxpayer assuming the taxpayer provided considerable financial support for the relative during the tax year the tax cuts and jobs act suspended the deduction for qualifying relative exemptions for tax years 2018 through 2025 however taxpayers may claim other tax benefits such as the child tax credit earned income tax credit and child and dependent care credit 1understanding qualifying relativesa taxpayer can claim a dependent and receive potential tax credits that may accompany the addition of that person to the household a qualifying relative is one of two types of dependents you can claim on your tax return the other dependent is a qualifying child 2before claiming someone as a qualifying relative you must examine how much income your relative makes how much support you provide for them and your relationship with them the irs uses several tests to define a qualifying relative irs qualifying relative teststo claim someone as a qualifying relative they must meet certain criteria set out by the internal revenue service irs if you claim a qualifying relative your dependent cannot claim their own dependents cannot be married and file a joint return and must be a citizen national or resident alien of the united states or a resident of canada or mexico other criteria you and they must meet are irs guidelinesirs publication 501 exemptions standard deductions and filing information provides details about meeting the qualifying tests information about being a qualifying child filing as head of household special custody and residency situations and other deductions this official publication gives detailed information on how to file when multiple taxpayers provide support for the same person limits of earning a salary hourly wages or receiving money from other sources to stay under the limit for a qualifying relative and what qualifies a person as living temporarily away from the taxpayer 3 | |
what is the difference between a qualifying child and a qualifying relative | a taxpayer must choose to claim a dependent as a qualifying child or qualifying relative if a dependent meets these criteria they are considered a qualifying child and not a qualifying relative | |
what is a qualifying transaction | a qualifying transaction is a process in which a private company in canada issues public stock this process involves the creation of a capital pool company cpc that acquires all of the outstanding shares of the private company making it a subsidiary and a public company understanding a qualifying transactionprivate companies go public to raise capital to finance their operations and growth financing is either done through equity financing which is the issuance of shares to the public or debt financing which involves a loan in the u s equity financing is accomplished through an initial public offering ipo in canada equity financing can also be achieved in a different way through a qualifying transaction and the creation of a capital pool company cpc a capital pool company cpc is a listed company with experienced directors and capital but no commercial operations essentially it is a shell company whose sole purpose is to later acquire a privately held company through a qualifying transaction the directors of the cpc focus on acquiring a privately held company and upon the completion of the acquisition that company has access to the capital and the listing prepared by the capital pool company the private company then becomes a fully owned subsidiary of the cpc qualifying transactions must be completed by a cpc within 24 months after the date of the cpc s first listing which involves filing a prospectus and applying for a new listing on the tsx venture exchange the qualifying transaction may be structured as a share for share exchange an amalgamation where the private company and cpc form one corporation plan of arrangement where the capital structure of the private company is complex or unique and requires court and shareholder approval or an asset purchase where the cpc purchases assets from a third party in exchange for cash and or securities of the cpc in each case the shareholders of the private company become security holders of the cpc qualifying transactions to go publiccapital pool companies and associated qualifying transactions are the most frequently used method of going public on the tsx venture exchange in canada as opposed to initial public offerings ipos this method of going public is more efficient than a traditional initial public offering ipo because unlike in an ipo private companies are not required to incur upfront costs before marketing shares to prospective investors because the capital pool company will by nature have no business of its own whatever line of trade that the private company engages in becomes the business of the cpc qualifying transactions usually formally begin when the shareholders and the cpc create a letter of intent loi outlining the terms of the agreement usually the cpc must include a plan for financing the transaction in every loi capital pool company requirements for a qualifying transactioncpcs have certain rules and requirements to follow when turning a private company public law stipulates that a cpc must have three individuals that can contribute the greater of 100 000 or 5 of the total funds raised for the shares in addition the cpc must sell the shares at twice the price of the seed shares to the public to a minimum of 200 investors these investors have to purchase a minimum of 1 000 shares each this sale must result in a value between 200 000 and 4 750 000 this raised capital then has to be used for an acquisition | |
what is a qualifying widow widower | the federal qualifying widow or widower tax filing status is available for two years for widows and widowers surviving spouses with dependents after their spouse s death the surviving spouse may file jointly with the deceased spouse for the tax year in which the spouse has died and they can claim the standard deduction for a married couple filing jointly 1 for the next two tax years the surviving spouse can file as a qualifying widow or widower if they maintain a household for the couple s dependent children 2understanding qualifying widow widowerthe qualifying widow or widower tax filing status is not available in the year of the spouse s death to qualify the spouse must have qualified for the married filing jointly status in the year of the spouse s death 2 additional irs requirements include advantages of qualifying widow widoweran individual may pay less in federal income taxes when filing as a qualifying widow or widower the qualifying widow or widower can enjoy the same standard deduction amount as married couples filing jointly and as of 2018 qualifying widows and widowers enjoy the same tax bracket as married couples filing jointly this gives widowed spouses two years to transition financially to the higher tax burden of a single unmarried filer for example if the deceased spouse passed away in 2019 the surviving spouse can use the qualifying widow or widower status to enjoy married filing jointly standard deductions and tax brackets for the tax years 2020 and 2021 34lower taxes are especially helpful when the surviving spouse is paying funeral costs final expenses and general expenses associated with maintaining a home and rearing children the reduced tax burden makes it easier for a surviving spouse to continue to provide for their children and to transition to a single unmarried filer or head of household status in addition if the qualifying dependent is born or dies during the year a taxpayer may still file under the qualified widow or widower status again they must have paid more than one half the costs of maintaining the home during the child s life or before the child s birth also the child must have lived with the qualifying taxpayer during the year 3 |
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