Series 66 Exam: Taxation, AMT, Retirement & UTMA 📚

https://youtube.com/playlist?list=PLK1IazV_JQbFIUC3IzZ7OzYhsgxRDAYoW&si=Rdj3hELBSVvkTa1I
Taxation for Investment Advisors
Dean discussed the importance of understanding taxation for investment advisors, emphasizing the need to be aware of capital gains, qualified dividends, and tax basis without overstepping into legal or tax professionals' roles. He explained concepts like long-term capital gains, cost basis, and the ability to offset gains and losses against taxable income, while noting that qualified dividends are taxed at lower rates if held for 60 to 90 days. Dean also highlighted the significance of marginal tax brackets and shared personal anecdotes to illustrate how taxes impact different income levels.

AMT and Tax Assessment Insights
Dean discussed the importance of understanding the alternative minimum tax (AMT) as an investment advisor, emphasizing its role in suitability assessments for clients. He explained that AMT recalculation could lead to higher tax obligations and highlighted the irrelevance of pension or retirement distribution types, as all distributions are taxed as ordinary income. Dean also addressed the emergence of new test questions related to the income-related monthly adjustment for Social Security and Medicare surcharges, noting that these questions are being validated for future use.
Business Structures and Tax Implications
Dean discussed various business structures and their tax implications, focusing on C corporations, LLCs, and S corporations. He explained that C corporations are taxed on their earnings and dividends are taxed to shareholders, while LLCs and S corporations have a flow-through of tax consequences. Dean also covered real estate investment trusts (REITs), master limited partnerships, wealth transfer tax, and retirement plans like traditional IRAs and Roths. He emphasized that business structures should primarily focus on making money rather than tax benefits, and highlighted key distinctions between different types of entities and retirement plans.

Retirement Plans and Savings Options
Dean discussed retirement plans, focusing on solo 401(k)s for closely held businesses and the differences between defined benefit and defined contribution plans. He explained the qualifications for 403(b) and 457 plans, as well as the benefits and risks associated with variable annuities. Dean also covered the Employee Retirement Income Security Act (ERISA) and its importance in protecting pension plans from fiduciary mismanagement. He concluded by comparing Coverdale and 529 plans for educational savings, noting that 529s are generally more favorable due to their tax benefits and eligibility for financial aid.

UTMA and UGMA Legal Aspects
Dean discussed key aspects of the Uniform Transfer to Minors Act (UTMA) and Uniform Gift to Minors Act (UGMA), emphasizing that test questions typically focus on account ownership, tax ID requirements, and custodial arrangements rather than complex comparisons. He highlighted the importance of understanding different types of ownership, including joint tenancy, tenancy in common, and community property, as well as the implications of transfers on death and qualified domestic relations orders. Dean also shared insights on philanthropy, explaining how donor-advised funds, like the Fidelity Gift Fund, can be used to maximize charitable contributions by avoiding capital gains taxes, a strategy he noted was employed by high-profile individuals like MacKenzie Scott.

Portfolio Performance Measures Overview
Dean explained various portfolio performance measures, including risk-adjusted return, time-weighted versus dollar-weighted returns, and total return. He used examples to illustrate concepts like the Sharpe ratio, annualized return, and the internal rate of return. Dean also discussed expected returns based on market returns and beta, and mentioned potential regulatory pushback he faced regarding the use of internal rate of return in communications with institutional investors.
Inflation-Adjusted Returns and Benchmarks
Dean explained the concept of inflation-adjusted returns and demonstrated how to calculate after-tax returns on bonds. He emphasized that performance measures like current yield are more testable than complex calculations like discounted cash flow. Dean also discussed the relevance of benchmarks in performance-based compensation and criticized Ken Fisher's approach of avoiding such compensation structures. The session concluded with plans to continue reviewing test specifications and to schedule a tutoring session with Jasmine later that day.