A mutual fund has breakpoints at $25,000, $50,000, $100,000, and $250,000. Which of the following transactions might be considered a breakpoint sale?
The client purchases $48,000 worth of shares
The client redeems $24,000 worth of shares
The client purchases $252,000 worth of shares
The client purchases $96,000 worth of shares
$7,500
Failure to meet the required minimum distribution (RMD) results in a 50% penalty tax on the shortfall. In this case, taking only $25,000 when $30,000 should have been taken leaves $5,000 exposed to the 50% penalty tax. $5,000 × 50% equals $2,500. In addition to the penalty tax, the ordinary income tax on the amount withdrawn must also be paid (20% × $25,000 = $5,000). Total tax liability on this withdrawal equals $7,500 ($2,500 penalty tax plus $5,000 ordinary income tax).
$2,000
For the first trade in a newly opened margin account, there must be at least $2,000 in equity. The rule is as follows: transaction greater than $4,000, deposit 50%; between $2,000 and $4,000, deposit $2,000; and if the transaction is less than $2,000, deposit 100% of the purchase price. In this case, the transaction was between $2,000 and $4,000, and so a deposit of $2,000 is required.
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