TEST 1

James and Doris Stewart, both age 40, will contribute a total of $13,000 to their IRAs for 2023. They both work outside the home, and they file a joint tax return. James is a teacher at the local high school and contributes to a TSA. Doris's employer has no retirement plan. Their adjusted gross earnings for this year will be $124,000. What amount can they deduct for their IRA contributions?

$10,400 Doris is entitled to deduct the full $6,500 spousal IRA amount and James is in the phaseout range for active spouses: $136,000 - $124,000 = $12,000; $12,000/$20,000 phaseout range = 0.6; 0.6 x $6,500 = $3,900; $3,900 + $6,500 = $10,400. Notice that the Stewarts are in the phaseout range for active participants. Also, one of the spouses is not an active participant in a qualified retirement plan. Thus, the nonparticipant spouse can deduct the full amount and the active participant can deduct at least something. Thus, $6,500 is too small. Also, $13,000 is too large because at least some of the active participant's ability is phased out.

Charles turns 73 this year. His IRA was worth $100,000 at the end of last year. What is his RMD for this year? (The Uniform Table factor is 26.5 at age 73.)

$100,000/ 26.5 = $3,774.

Over a period of 10 years, Mark contributed a total of $20,000 to a nondeductible IRA. The current value of Mark's IRA is $50,000, and Mark, who is now age 45, has decided to use $30,000 of his IRA assets for the down payment on a second home. Assuming Mark's marginal tax bracket is 22%, how much does he owe in taxes and penalties?

$5,760 Mark's effective tax rate is 32%; i.e., 22% plus the 10% early withdrawal penalty. He has a basis of $20,000 out of $50,000. Thus, 40% of the distribution will be tax-free, which means it is also penalty-free. If 40% of the distribution is tax-free, then 60% is taxable and also subject to the 10% EWP. 60% of $30,000 is $18,000. 32% of $18,000 is $5,760.

Richard, age 45, and his wife Betty, age 44, plan to contribute a total of $13,000 to their IRAs for 2023. They both work outside the home, and they file a joint income tax return. Richard is a teacher at the local high school and participates in a 403(b) plan. Betty's employer does not provide a retirement plan. They expect that their adjusted gross income for the year will be $150,000. What amount, if any, can they deduct for their IRA contributions?

$6,500 An individual is not denied a deduction for his or her IRA contribution simply because of the other spouse's active participation, unless the couple's combined AGI exceeds $218,000 (phasing out to $228,000 in 2023). Based on their AGI, Betty will be able to deduct a contribution of up to $6,500 to an IRA. Richard cannot deduct any of his IRA contribution because their AGI is beyond the 2023 phaseout range for active participants of $116,000-$136,000. Because their combined AGI is too high for Richard to make a deductible IRA contribution, he should consider contributing to a Roth IRA. Their AGI is well below the start of the phaseout range for married people filing jointly who contribute to a Roth IRA.

Norman and Brenda Walker are married taxpayers filing jointly. They are both 44 years old. Norman earned $132 this year, and Brenda earned $100,000. Brenda is an active participant in the qualified plan offered by her employer, and she contributed $1,500 to her IRA for this tax year. How much can be contributed to a spousal IRA and deducted for Norman for 2023?

$6,500 The maximum deductible contribution to a spousal IRA for Norman is $6,500. The deductible amount phases out at AGI of $218,000-$228,000 (for 2023) for Norman, who is the nonactive participant spouse.

Sam, age 62, begins receiving his Social Security income. His PIA is $1,500 per month. Because he has filed at age 62, his payment will be reduced by 25% to $1,125. His wife Linda, age 67, would like to begin spousal benefits. Her monthly income would be

$750.00. Because Linda has attained FRA, she would be eligible for 50% of Sam's full PIA, or $750.00.

Maxine is 36 years old. She first entered the workforce two years ago and has been continuously employed since then. Which of the following benefits would Maxine be entitled to under OASDI-HI? 1)Survivor's benefit for Maxine's dependent child 2)Lump-sum death benefit for Maxine's spouse or child 3)Survivor's benefit for Maxine's dependent parent who is age 62 or older 4)Survivor's retirement benefit for Maxine's spouse or former spouse who is age 60 or older

1 & 2

An income-tax-penalty-free distribution cannot be made from a tax-sheltered annuity (TSA) until the employee does which of the following? 1) separates from service after attaining age 55 2) attains age 55 3) becomes disabled or dies 4) takes a distribution under most hardship withdrawal rules

1 & 3 Penalty-free distributions can be made from a TSA or 401(k) when an employee separates from service after attaining age 55, attains age 59½, becomes disabled or dies, or takes a hardship distribution for deductible medical expenses only. All other hardship withdrawals are subject to early withdrawal penalty rules

Which of the following statements accurately describe basic provisions of Medicare Part B? 1) Coverage includes benefits for physicians' services. 2) Individuals who are eligible for Part A are automatically eligible for Part B. 3) Coverage includes benefits for inpatient hospital services. 4) Participants pay a monthly premium.

1,2,& 4

Under IRC Section 403(b), which of the following organizations can offer a 403(b) plan? I. 501(c) tax-exempt organizations II. Public education III. Churches that use retirement income accounts IV. For-profit organizations

1,2,3

Your client has asked you what sources exist for long-term care insurance. Which of the following are generally considered potential sources for the funds to cover at least some of the cost of long-term care (LTC)? 1) Medicaid 2) health insurance 3)Medicare 4) group long-term care insurance offered through employers

1,3,& 4

Homer and Marge are married. Homer died this year at age 66. Marge, age 62, is his sole beneficiary for his IRA. What is/are Marge's option(s) for handling the required minimum distributions (RMDs) from his IRA assets? 1) Marge must begin distributions in the year following the year Homer died. 2)Marge can move Homer's account into her previously existing IRA. She will not be subject to RMDs until she reaches age 73. 3) Marge's only requirement is to have the account totally distributed by December 31 of the year with the 10th anniversary of Homer's death. 4)Marge can move Homer's IRA into an inherited IRA. She would have to start RMDs when Homer would have been 73.

2 & 4

Which of the following are correct statements about income replacement percentages? 1) Income replacement percentages are typically much higher for those with higher pre-retirement incomes. 2) Income replacement percentages vary between low-income and high-income retirees. 3) Income replacement ratios should not be used as the only basis for planning. 4) Income replacement ratios are useful for younger clients as a guide to their long-range planning and investing.

2,3, & 4

Which of the following are correct statements about survivor benefits from a qualified retirement plan? 1)Profit sharing plans that accept direct transfers from pension plans are not required to provide a qualified joint and survivor annuity (QJSA). 2)The QJSA may be waived if the spouse gives written consent to the effect of the election and the naming of another beneficiary. 3)Defined benefit, money purchase, cash balance, and target benefit plans must provide a QJSA. 4)The QJSA payable to the spouse must be at least 50%, but not more than 100%, of the annuity amount payable during the joint lives and actuarially equivalent to a single life annuity over the life of the participant.

2,3,4

Dan died at age 69. His beneficiary was his son Robert, age 44. Robert has come to you to ask about his required minimum distribution (RMD) options. Which of the following would be acceptable RMD options for Robert? 1)Robert must begin distributions in the year following the year Dan died. 2)Robert can move Dan's account into an inherited IRA. He must begin taking RMDs in the year following the year Dan died based on Robert's life expectancy in the year following the year of death and then reduced by 1 for each subsequent year. 3)Robert's only requirement is to have the account totally distributed by 4)December 31 of the year with the 10th anniversary of Dan's death. Robert will have no mandatory RMDs until the 10th year after Dan's death.

3 & 4

Which of the following limit ownership to spouses only? 1)tenancy in common 2)joint tenancy 3)tenancy by the entirety 4)community property

3 & 4

Under a special catch-up provision for unused deferrals, an eligible employee who participates in a 457 plan can make higher contributions in the last ___________ years prior to retirement.

3 Years

Which of the following are exempt from the 10% penalty on qualified plan distributions made before age 59½? 1) Distributions made to an employee because of "immediate and heavy" financial need 2) In-service distributions made to an employee age 55 or older 3) Distributions due to a terminal illness 4) Substantially equal periodic payments made to a participant following separation from service, based on the participant's remaining life expectancy

3, 4

All of the following are reasons reverse mortgages may become more common in the future EXCEPT A) reverse mortgage fees must be rolled into the loan. B) reverse mortgages are a potential tool for combating sequence of return risk. C) many older Americans have large amounts of equity in their homes but lack liquid assets capable of sustaining their lifestyle. D) government regulatory changes in 2013 standardized Home Equity Conversion Mortgage (HECM) rules to a great extent.

A

Which one of the following is NOT a characteristic of a rollover? A) Amounts rolled over from a qualified plan to an IRA and subsequently distributed to the participant will be taxed according to the rules that apply to the original qualified plan. B) If a qualified plan distribution is made due to the participant's death, the surviving spouse may roll the distribution into another qualified plan, TSA, SEP, IRA, or governmental 457 plan that accounts for such rollovers separately. C) A rollover generally must be completed within 60 days of the distribution. D) An eligible qualified plan distribution may be rolled over to another qualified plan, TSA, SEP, IRA, or governmental 457 plan that accounts for such rollovers separately

A

Which one of the following types of distributions are eligible for rollover treatment?

A lump sum payment from a profit sharing plan payable upon separation from service is eligible for rollover treatment. The following distributions are not eligible for rollover treatment: 1) Distributions that are part of a series of substantially equal periodic payments are not eligible for rollover treatment. 2) Distributions that are made to comply with the minimum distribution requirements are not eligible for rollover treatment. 3) The nontaxable portion of any IRA distribution is not eligible for rollover treatment. With an IRA, there is no one but the owner to validate that the contributions were after-tax. With an employer retirement plan, the administrator of the plan validates that the contributions were actually after tax.

Which one of the following statements is true regarding non periodic distributions from an annuity contract prior to the annuity start date?

A non-periordic distribution is taxed first as a taxable interest payment until the interest/earnings are completely exhausted and then as a tax-free return of principal. LIFO

Which one of the following statements correctly describes a basic provision of an IRA contribution in 2023?

A nonworking, 45-year-old divorced person who receives taxable alimony may contribute to an IRA the lesser of $6,500 or 100% of any taxable alimony received.

Seven years ago, Jim, a single taxpayer, purchased a new residence that he used as his principal residence. He sold it this year for a realized gain of $300,000. What is the maximum amount of gain that Jim may exclude under Section 121?

A single taxpayer may exclude up to $250,000. The remaining $50,000 of gain must be recognized (taxed).

Which of the following statements regarding capital gains are correct? 1)Net long-term capital gains are subject to a 0% tax rate if the single taxpayer has taxable income under the low $40,000 range. 2)Net short-term gains are subject to a taxpayer's ordinary income tax rate. 3)A maximum rate of 28% applies to long-term gain on collectibles.

ALL 3

Sources of risk include which of the following? 1) fluctuating exchange rates 2) a firm's financing decisions 3) higher interest rates 4) a loss of purchasing power

All of the options are types of systematic or unsystematic risk.

Which one of the following is correct regarding most types of muni bond interest and the taxation of Social Security benefits?

All of the tax-exempt muni bond interest is included in the computation of the taxation of Social Security benefits. All tax-exempt interest income is included in computing the portion of Social Security benefits that are subject to taxation. However, tax-free Roth distributions are not counted when determining provisional income. A maximum of 85% of the Social Security benefits are subject to taxation.

All of these are examples of asset allocation strategies except

Alpha is not an asset allocation strategy, but a way to measure a portfolio manager's return relative to the amount of risk that has been taken.

Which one of the following is a potential problem with a golden parachute?

Any excess payment would be nondeductible by the payor and subject to an excise tax by the employee.

The "required beginning date" (RBD) for IRA distributions is which one of the following?

April 1 of the year following the year in which age 73 was attained

Which one of the following statements regarding Henry, who recently married for the first time, is correct? A) In a community property state, Henry's spouse is deemed to have a vested 50% interest in all of the property Henry owned at the time of the marriage. B) Items received by a gift or inheritance during the marriage are considered community property. C) In a community property state, any property Henry owns at death will go to his spouse by right of survivorship. D) In a community property state, Henry's earnings from his job subsequent to the date of his marriage will be considered community property.

D

Assume a client and investment professional have worked together for several years. Recently, the client's personal and financial circumstances have changed. According to the course materials, what is the next asset management step that the investment professional should take?

Gather data

Which one of the following individuals would be best served by a $5,000 Roth conversion?

George, a 28-year-old father of two whose wife is completing school; their income is $24,000 George is young, so converting now would give him the longest time for the Roth account to grow and thus produce tax-free income in retirement. Second, George's gross income is below the standard deduction for a couple married filing jointly

Assume the following asset classes have the correlations to long-term government bonds shown below: Treasury bills:.12 Gold:-.25 Large stocks:.22 Small stocks:.17 Which one of the following best exemplifies the impact of diversification on long-term government bonds?

Gold provides more diversification than large stocks The asset with the lowest correlation provides the most diversification. Therefore, gold provides more diversification than any of the other assets. Small stocks do provide more diversification than Treasury bills, but gold provides the most diversification, so it is the best option.

Harry, who is 34 years old, contributed $2,000 to a Roth IRA six years ago. By this year, the investments in his account had grown to $3,785. Finding himself in a financial bind, Harry is now compelled to withdraw $2,000 from this Roth IRA. What is the tax and penalty status of this withdrawal?

Harry does not have to pay any tax or penalty on the $2,000 distribution, even though he is only 34. All Roth IRA contributions are made with after-tax funds, and contributions are considered to be withdrawn first, tax-free, then earnings. Also, the IRC rules allow the aggregation of all Roth IRAs for this calculation. Penalties would apply only to the gains the account experienced or withdrawals of converted amounts within five years of the conversion.

Charlie contributed $2,000 to Roth IRA 1 last year, when he was age 24, and $2,000 to Roth IRA 2 this year. Two years from now, Roth IRA 1 will have a balance of $2,650, and Roth IRA 2 will have a balance of $2,590, and Charlie will close Roth IRA 1, receiving the balance of $2,650. Which one of the following statements best describes his tax and penalty status for that year?

He will not pay taxes or a penalty None of this withdrawal, however, is included in Charlie's taxable income because the $2,650 sum is less than the aggregate total of his contributions ($4,000). Also, no penalty applies because the withdrawal is accounted for as coming from his contributions.

The MOC Crosswalk is part of the TAP program. Members identify their military experience and training record. Then, they apply that information. To what purpose do members apply the MOC information?

Identify potential civilian occupations

Harry, a single professor who is age 36, started his Roth IRA three years ago, contributing $5,000 for his first year. He has since made a contribution of $5,500 in Year 2 and also in Year 3. He converted a traditional IRA of $17,000 to the Roth IRA last year. His total contributions are $16,000 plus the $17,000 conversion, and the account is now worth $36,497. Harry would like to make a complete withdrawal so that he can buy a new car. He wants to know what his options are and what the tax consequences would be. Which one of the following statements would be the correct information for Harry?

If a withdrawal of converted IRA funds is made from the Roth account before five years has elapsed, such a withdrawal may be subject to the 10% penalty.

Which one of the following is a correct statement about the amount of Social Security retirement benefits available when a fully insured worker's retirement benefit begins at full retirement age (FRA)?

If the spouse is at or above their full retirement age when commencing Social Security benefits, the spouse will receive at least 50% of the worker's PIA. The spouse who starts receiving benefits at their Social Security full retirement age will receive 50% of the worker's PIA unless the spouse's Social Security benefit is higher based on their own earnings. (Note: The FRA began increasing for those workers who reached age 62 in the year 2000.) At full retirement age the worker will receive 100% of PIA. The 50% of PIA is reduced for each month the spouse is under full retirement age when benefits begin. A spouse who is at FRA and entitled to benefits on their own working record would receive the higher of 100% of their own PIA or 50% of the spouse's PIA.

The Simpsons need to save an additional $300,000 (in retirement year 1 dollars) to build a sufficient retirement fund to support their targeted retirement lifestyle. They expect to earn a 7% after-tax return on their retirement savings and want to assume a 5% long-term inflation rate. Their preference is to allocate a level annual savings amount to build this fund. What level annual end-of-year savings amount will the Simpsons need to deposit at the end of each year during their 20-year preretirement period?

In the level payment calculation, inflation is irrelevant. Calculator inputs are: $300,000 [FV], 20 [N], 7 [I/YR]; solve for [PMT] (with calculator set for end-of-year payments) = $7,318.

Jennifer recently separated from service with Acme Inc. at age 52, and rolled her qualified plan lump sum into a new IRA. She had been a plan participant for 12 years. This year, she began working for a new employer that provides a profit sharing plan for employees. Jennifer will be eligible to participate in her new employer's profit sharing plan in June of next year. Which one of the following statements describes an option that will be to Jennifer's benefit?

Jennifer should use the direct rollover to roll the entire IRA over into her new employer's qualified profit sharing plan in accordance with tax requirements and plan provisions if the plan allows her to do so and allows for loans.

Which one of the following statements regarding different forms of property co-ownership is correct?

Joint tenancy with right of survivorship (JTWROS), tenancy by the entirety (TBE), and community property (CP) are all forms of co-ownership that can be used by a husband and wife.

John was killed in a car accident at age 45. His wife Lottie, age 40, is the primary beneficiary of his retirement account at work and his IRA. Thanks to you, John had sufficient life insurance, so there does not seem to be any immediate need for Lottie to take withdrawals from John's retirement assets. You and Lottie discuss her options for titling her inherited retirement accounts. Which of the following would give Lottie the most flexibility for tax-efficient distributions from John's retirement assets?

Move all of John's assets into an inherited IRA titled John Q. Jones (deceased July 4, 202X) FBO Lottie S. Jones. Then when Lottie is past age 59½, move the money into her own account.

Julian is transitioning from military to civilian life. He does not plan to enlist in the reserves. While in the service Julian developed a significant medical problem. As a result, he has asked you whether he can indefinitely retain his SGLI benefits so he will not require medical underwriting on new coverage. Will this be possible, and if so, what must Julian do?

No, he must transition to VGLI coverage within 240 days VGLI coverage is available once a service member has separated (active duty or reserve). Those who apply more than 240 days after discharge or separation must meet good health requirements. Any service member who waits longer than one year and 120 days to apply will not be eligible for coverage.

Which federal agency oversees the pay structure for most federal government employment positions?

Office of Personnel Management

To understand the long-term care (LTC) market, a financial planner must be familiar with the wide array of financial products designed to serve the unique needs of this market. As such, which one of the following statements is correct?

Payments from a qualified LTC policy paying up to an annually adjusted per-day limit for charges from an LTC facility will be income tax free.

Which one of the following statements is correct regarding managing a taxable account?

Qualified dividends are generally subject to a preferential tax rate of 0%, 15%, or 20%.

Bill and Lisa have determined that they will need a monthly income of $6,000 during retirement. They expect to receive Social Security retirement benefits amounting to $3,500 per month at the beginning of each month. Over the 12 remaining years of their preretirement period, they expect to generate an average annual after-tax investment return of 8%; during their 25-year retirement period, they want to assume a 6% annual after-tax investment return compounded monthly. They want to start their monthly retirement withdrawals on the first day they retire. What is the lump sum needed at the beginning of retirement to fund this income stream?

Set calculator on BEG and 12 periods per year, then input the following: 2,500 [PMT] 25 [SHIFT] [N] 6 [I/YR] 0 [FV] Solve for PV = $389,957

What is the price of a bond with a 7% coupon, a $1,000 par value, and a maturity of 20 years if the market interest rate for similar bonds is 6%?

Set the calculator for 2 P/YR and use the END mode. The inputs then are as follows: 1,000 [FV], 35 [PMT], 20 [SHIFT] [N] = 40, 6 [I/YR], and solve for PV = $1,115.57. Note: The $35 payment is the semiannual payment of the bond. This is computed by taking the 7% coupon rate the par value of $1,000 = $70 and divide that by 2 to get the semiannual interest paid, in this case $35. Also, the yield to maturity (YTM) is less than the coupon rate, thus the bond must be selling at a premium.

If Tom and Jenny want to save a fixed amount annually to accumulate $2 million by their retirement date in 25 years, what level annual end-of-year savings amount will they need to deposit each year, assuming their savings earn 7% annually?

Set your calculator to the "End" mode and "1 P/Yr." Inputs: FV = 2000000, I/YR = 7, N = 25, PV = 0, then PMT = $31,621

Susan has reached full retirement age (FRA). She is trying to decide between starting Social Security benefits of $1,000 per month now, or delaying receipt for three years and using her savings to provide current income. By delaying three years her benefit would increase to $1,240 per month. Ignoring the time value of money and cost-of-living adjustments, use the break-even calculation to determine how much longer Susan will need to live in order for delaying to "pay off."

She should delay only if she expects to live beyond the next 15½ years or so.

The vested accrued benefit in George's tax-sheltered annuity is $87,500. He has never taken a loan from the plan but is interested in paying off his credit cards. Which of the following statements correctly describes George's option?

The amount of the loan would be limited to $43,750 and the term would be limited to five years The amount of the loan cannot exceed 50% of the vested amount in George's account, and the term of the loan would be limited to five years.

At the end of last year, Bill Greer has the following financial information: Salaries $70,000 Auto payments $5,000 Insurance payments $3,800 Food $8,000 Credit card balance $10,000 Dividends $1,100 Utilities $3,500 Mortgage payments $14,000 Taxes $13,000 Clothing $9,000 Interest income $2,100 Checking account $4,000 Vacations $8,400 Donations $5,800 What is the cash flow surplus or (deficit) for Bill?

The checking account and credit card balances would be on the statement of financial position. $2,700

If an investor wants to accumulate $250,000 over the next 12 years, can invest $8,000 at the end of each year, and expects to earn an 11% compound return over the 12 years, what lump sum must she deposit today in the investment to meet her goal?

The correct calculator inputs are $8,000, +/-, [PMT]; 11 [I/YR] 12 [N]; $250,000 [FV]; solve for PV = $19,521.

Which one of the following statements correctly describes the method for calculating the exclusion ratio for a fixed annuity?

The investment in the annuity contract is divided by the total expected return

If a security has an average return of 14.2% and a standard deviation of 8.4, what can be said about the security?

The security's returns can be expected to be between 5.8% and 22.6% approximately 68% of the time. The standard deviation is subtracted from and added to the average return and there is no guarantee that an investor will never have a negative return. Volatility is measured by beta.

What is the tax treatment for a shareholder participating in a common stock's dividend reinvestment program?

The shareholder is treated as if he or she received a cash dividend equal to the fair market value of the shares purchased under the plan.

This year, your 63-year-old client had $17,025 of earned income and $30,000 of investment income. He was also drawing Social Security benefits. Which one of the following correctly describes the impact on his Social Security benefits?

There is no reduction to his benefits. The client's earnings (earned income) are below the allowable limit for the current year ($21,240 for 2023). Remember that according to the work penalty rule, only earned income is counted toward the "allowable limit."

Chris and Eve Bronson have analyzed their current living expenses and estimated their retirement income need, net of expected Social Security benefits, to be $90,000 in today's dollars. They are confident that they can earn a 7% after-tax return on their investments, and they expect inflation to average 4% over the long term. Determine the lump sum amount the Bronsons will need at the beginning of retirement to fund their retirement income needs, using the worksheet below. (1) Adjust income deficit for inflation over the pre retirement period:-$ 90,000 present value of retirement income deficit 25 number of periods until retirement 4%% inflation rate Future value of income deficit in first retirement year$239,925(2) Determine retirement fund needed to meet income deficit: $239,925 payment (future value of income deficit in first retirement year)30 number of periods in retirement 2.8846% I/YR computed using 4% inflation and a 7% growth rate The lump sum needed at the beginning of the Bronson's' retirement period is ?

This PVAD calculation requires that the calculator be set for beginning-of-period payments. First, the annual retirement income deficit is expressed in retirement-year-one dollars, resulting in a $239,925 income deficit in the first retirement year. This income deficit grows with inflation over the 30-year retirement period, and the retirement fund earns a 7% return. The calculator inputs are $239,925, [PMT]; 30, [N]; 2.8846, [I/YR]. Solve for [PV], to determine the retirement fund that will generate this income stream. If you enter 2.8846 directly into the calculator, you will get $4,911,265. If you use the equation to compute I/YR, and then hit the I/YR button you will get $4,911,256 Answer

On December 31 of last year (year 1), Samuel had $360,000 in his IRA. He has named Tully, his wife, as beneficiary. In year 2, Samuel turned 73 on October 17, and Tully turned 57 on January 8. Assume that it is now year 4 and that Samuel dies on April 15. Tully wants you to determine her distribution alternatives. Which one of the statements below correctly describes one of the choices available to Tully?

Tully may roll the entire amount into an IRA in her name and defer RMD until she reaches age 73.

Dan, age 41, has been contributing $2,000 annually to his IRA for seven years; his contributions have been fully deductible. The most recent year-end account value was $18,100. He also has accumulated $16,800 in his profit sharing plan account at work; the plan permits loans. This year, Dan needs approximately $5,000 to replace the 15-year-old shingles on the roof of his home and is considering either withdrawing this amount from his IRA or borrowing it from his profit sharing plan account. Which one of the following best describes the potential tax liability from these two options?

Withdrawing the funds from his IRA will result in a tax liability. Dan will be subject to ordinary income tax and an early withdrawal penalty on the $5,000 withdrawal amount.

Gift splitting allows

a married couple to double their allowable annual exclusions.

Which one of the following is not a form of an annuity?

a selective annuity

Which one of the following U.S. citizens is currently eligible for Medicare Part A coverage at no cost?

a self-employed truck driver, age 66 The truck driver is in a covered occupation (covered by Social Security) and is over age 65. Thus, he or she would receive benefits if fully insured. The independent corporate director is incorrect because although this individual is in a covered occupation for Social Security purposes, he or she must be age 65 to be eligible for Medicare benefits. Although the federal government employee is employed in a covered occupation, he or she must be age 65. The unmarried heiress is wrong because although this person is age 65, she is not in a covered occupation for Social Security purposes.

A Medicare Part A patient must pay

all costs for a hospital stay beyond 150 days. The patient must pay all costs related to a hospital stay beyond 150 days. The annual deductible describes a gap in Medicare Part B coverage, not Part A. Medicare pays for the cost of the first 60 days in a hospital, but the patient must pay the Part A deductible. Medicare will pay the approved charges for the first 20 days in a skilled nursing facility. The gap results from the cost of care that exceeds 20 days (the patient pays the per day copayment) or the need for custodial care.

All of the following are ways that a person can voluntarily transfer estate assets to another person or entity at death except

by gift.

Unsystematic risk

can be effectively eliminated.

A fundamental duty owed to a client is to always look out for what is in the client's best interest. Which fiduciary duty best personifies this?

duty of loyalty

Which one of the following is not a key attribute of an investment policy?

fluid

A springing durable power of attorney

gives the attorney-in-fact authority only when the principal is deemed incompetent.

Qualified longevity annuity contracts (QLACs) may be suitable if your client

has a family history of longevity.

The continuing evolution of investment advice and the regulation surrounding it will most likely lead to

increased client expectations of advisers and downward pressure on fees.

A lump sum payment of the proceeds of a life insurance policy that is made to the beneficiary upon the insured's death

is generally exempt from income taxation.

Many retirees have difficulty dealing with Bengen's original safe initial withdrawal rate because

it does not provide adequate income.

Investors who want to bear the least amount of risk from equity investments should acquire stocks with beta coefficients

less than 0.5. When seeking investments that have the least amount of risk, the lowest beta should be selected.

The two major risks associated with individual common stocks are

market risk and business risk Interest rate risk, default risk, and purchasing power risk are the major risks of bonds.

This year, Irwin sold several securities that left him with the following types of gains and losses: Long-term capital gain: $18,000 Short-term capital gain: $11,800 Long-term capital loss: $12,200 Short-term capital loss: $12,000 What is the net capital gain or loss on Irwin's security sales?

net long-term gain of $5,600

When using the "bucket approach" to withdrawals from retirement savings, the "first" bucket should be comprised of

short-term, liquid investments.

Your client has established a balanced portfolio with various amounts allocated to different asset classes, and periodically she rebalances the portfolio to keep the same approximate percentages in the different asset classes. Her approach is

strategic This is a correct example of a strategic approach. Tactical means choosing various sectors that you believe will do best, and changing as you believe is necessary. The dynamic approach is to change asset allocation amounts as the market changes, typically used by institutional investors. Core/satellite is a combination of strategic and tactical.

For purposes of determining if an individual may contribute to an IRA,

taxable alimony received from a divorce finalized prior to January 1, 2019, is considered to be earned compensation. For IRA purposes, taxable alimony is earned income, but passive income, workers' compensation, or unemployment compensation are not. Alimony is taxable income if the divorce was finalized prior to January 1, 2019, and not substantially amended since then.

Which one of the following actions would probably not constitute the unauthorized practice of law by a non-attorney financial planner?

telling a client that property titled in joint tenancy with right of survivorship will pass outside of probate at his or her death, but that community property will be included in the deceased's probate estate

The valuation date for gifts is

the date on which the transfer is completed.

Cyrus passed away early this year, leaving a sizable estate. His will left, among other things, 2,000 shares of GE to his daughter, Bianca. These shares had been purchased as a single lot in 2005. Bianca and her husband sold the stock. What was their cost basis in these shares?

the market value on the day Cyrus died The basis of an asset acquired by inheritance generally is the fair market value on the date of death

All of the following assets would be included in a decedent's gross estate except

the proceeds from a life insurance policy on the decedent that was always owned by the decedent's spouse, with the spouse as the named beneficiary.