Retirement Planning Certification Exam | 180 Quest

Retirement Planning Certification Exam | 180 Questions with Detailed Answers and Rationales (Verified) | Graded A+ Tax diversification can help a client avoid selling portfolio assets at a loss. The point is that a client lives on after-tax income in retirement. Thus, she would have to sell enough shares of a taxable investment to pay the income taxes and also have the money to live on. If she pulled the money out of an after-tax investment like a Roth account or a regular brokerage account that did not have a large gain, the withdrawal amount during poor investment returns is reduced. The lower withdrawals should help the portfolio last longer in retirement. LO 8-6 Which of the following are true statements about the level of trust in the financial services industry according to different major studies? 1.The trust level of elites has recovered from the lows of the Great Recession, but the mass population's trust level is still low and has not recovered as much as it has for the affluent. 2.Just over 50% of executives at financial firms feel the need for flexible ethics to get ahead at their firms. 3.Trust comes far below expertise in the eyes of prospects when they are looking for an adviser. 4.The financial services industry enjoys a high level of trust in comparison to most other industries when rated by the American public. - ansB 1 AND 2 According to different the Edelman Trust Barometer, the trust level for the affluent has mostly recovered from the Great Recession, but the level of trust for the rest of the population is far lower. Also, 53% of executives reported to the CFA Institute that their career progression would be hindered if they were not flexible in their ethics. On the other side, no one has felt thankful after dealing with a financial services person whose "flexible ethics" misled them. Stories about this and other ethical lapses have led to the financial services industry receiving low marks in trustworthiness. LO 9-1 The donee's basis in gifted property is determined by which of the following valuations? 1. The property's fair market value (FMV) at the time of the gift if the property has appreciated in value while owned by the donor 2. The donor's adjusted basis in the property at the time of the gift if the property has appreciated in value while owned by the donor 3. The property's FMV six months after the gift if not sold prior to that time 4. The property's FMV at the time of the gift if this value is less than the donor's adjusted basis, and the property is sold for a loss from the date of gift value - ansA 2 AND 4 Option I would constitute a step-up in basis, which can only be obtained at death. Option III is incorrect as the donee's basis is determined by circumstances that exist at the time of completion of the gift, not six months afterward. LO 8-1 Which one of the following is correct about forces changing the financial services industry? A) technical specialists are harder to supervise B) in the 1990s, major investment firms started shifting their capital structure toward the firm's owners taking larger and larger participation in investment losses and gains C) the American public has little trouble differentiating between the various credentials held by people in financial services D) in general, money management firms are getting smaller and more niche - ansA Senior management has experienced a more and more difficult time supervising highly technical specialists who engage in complicated financial engineering strategies. In the 1990s investment firms started moving from partnerships to corporations. LO 9-2 Which of the following are key obligations a broker-dealer must meet to satisfy Regulation Best Interest? 1. act in accordance with the fiduciary standard 2. exercise "reasonable diligence, care, and skill" when recommending transactions 3. make "fair and considerate" disclosure of material facts regarding the investment at or before the making of a recommendation to an institutional client 4. a broker-dealer must have and enforce written policies and procedures that identify conflicts of interest and either eliminate or disclose these conflicts - ansD 2 AND 4 A broker-dealer must exercise "reasonable diligence, care, and skill" in recommending transactions and have policies and procedures that address conflicts of interest by either disclosing or eliminating them. Regulation Best Interest is designed to maintain the two approaches in the marketplace: the sales-based and advice-based channels. One of the main points of Regulation Best Interest is to maintain a suitability approach and a fiduciary approach. Disclosure is required to be "full and adequate" disclosure of all material facts concerning its relationship with a retail customer before making a recommendation. LO 9-3 Mary inherited 500 shares of stock from her uncle, Ted, three years ago. Ted had purchased half the stock 12 years ago for $14 per share, and the remainder 11 years ago for $13 per share. The stock price had declined to $10 per share when Ted died. What is Mary's per share basis in the stock, assuming that she sells it this year for $16 per share? $10 - ansThe basis of an asset acquired by inheritance generally is the fair market value on the date of the decedent's death. This is commonly referred to as a "stepped-up" basis, although in this case, the effect is a step down in basis. LO 8-1 Which one of the following correctly describes the federal gift tax annual exclusion? A) It is available only to gifts made by married donors. B) It applies to completed gifts of whole or partial interests and present or future interests. C) It is the maximum amount of present interest gifts allowed to be transferred free of gift taxes per donee per year or the actual amount given to the donee, whichever is less. D) It allows a donor to completely avoid tax liability on a qualifying transfer of any amount. - ansC The federal gift tax annual exclusion is the maximum amount of present interest gifts allowed per donee per year or the actual amount given to the donee, whichever is less, and that amount of the gift to be free of gift taxes. To qualify for the federal gift tax annual exclusion, a donor must make a completed gift of a present interest, which may be either a whole or partial interest. An example of a partial interest would be the income recipient of an irrevocable trust. A completed gift of a future interest does not qualify for an annual exclusion. This exclusion amount is available regardless of marital status. If the amount given is less than the maximum annual exclusion amount, the donor can only exclude the actual amount given. For example, if the amount given is $8,000, only $8,000 is excluded. The maximum amount is indexed annually for inflation, but only changes in $1,000 increments. LO 8-9 Which of these statements regarding the suitability standard and the fiduciary standard are CORRECT? 1. The suitability standard takes into account all relevant factors. The fiduciary standard accounts for only the client's risk profile, age, objectives, and time horizon. 2. Disputes under the suitability standard are addressed in public courts while disputes under the fiduciary standard are addressed using arbitration. 3. The main categories under the suitability standard are registered reps and agents. The main categories under the fiduciary standard are registered investment advisers and trustees. 4. The major regulators of under the fiduciary standard are the SEC, DOL, and the states. The major regulators for the suitability standard are FINRA and the states. - ans3 AND 4 The main categories under the suitability standard are registered reps and agents. The main categories under the fiduciary standard are registered investment advisers and trustees. The major regulators of under the fiduciary standard are the SEC, DOL, and the states. The major regulators for the suitability standard are FINRA and the states. The fiduciary issues are settled in public courts while suitability disputes are generally settled through arbitration. The fiduciary standard takes into account all relevant factors. The suitability standard accounts for only the client's risk profile, age, objectives, and time horizon. LO 9-3 Since 1982 the growth rate of state and local governments has A) been increasing at a steady rate. B) increased at a steady rate until 2008 and then has been decreasing at a study rate. C) remained relatively flat. D) been decreasing at a steady rate. - ansA The number of state and local government employees has risen dramatically. About 6.8 million more people are employed by state and local governments today than in 1982. However, over the 38 years from 1982 to 2020, the annual growth rate in state and local government employment has only been 1.11%/year. LO 3-8 Federal employees covered under the Civil Service Retirement System pay Mike must pay income taxes on $12,000 ($32,000 - $20,000 of after-tax contributions). Mike's effective tax rate is 34% (24% + 10% early withdrawal penalty = 34%). Remember, penalties in a nondeductible IRA apply only to earnings. Mike will have to pay $4,080 in taxes and penalties (34% of $12,000 = $4,080). Mike is not a "first-time homebuyer" in this question because he is buying a vacation home. LO 7-3 Lucy received a $1,200 profit sharing contribution this year. Lucy is married to George, an artist who had no earnings this year. Their combined AGI for this year is $220,000. How much of their $12,000 IRA contribution can they deduct for 2022? A) $0 B) $6,000 C) $12,000 D) $200 - ansA Lucy is an active participant because she received a profit sharing contribution. Their AGI is greater than the phaseout limit for active participants in 2022 ($109,000-$129,000). Thus, Lucy cannot make a deductible contribution. George has the full spousal deduction available, but the deductibility of the spousal IRA is also phased out because their AGI is greater than $214,000 in 2022. Lucy and George's total deduction is zero. They do not qualify for any deduction. Additionally, their ability to make Roth IRA contributions was also phased out when their AGI went over $214,000 for 2022. If they had no other traditional IRAs, they could make nondeductible IRA contributions and then convert them to Roth IRAs. They could also skip the IRA rules altogether and invest in nonqualified fixed or variable annuities or cash value life insurance, to defer taxation on accumulations in the policies. LO 4-2 When deciding how much to contribute to a Roth IRA, your clients must consider which of the following? A) their number of children B) their AGI C) their investment experience D) their status as an active participant in an employer-sponsored plan - ansB When deciding how much to contribute to a Roth IRA, you must consider only your AGI and earned income. Active participant status is only considered when calculating the amount of a traditional IRA contribution that is deductible. As long as an individual has earned income and their AGI is below the threshold for their marital status, they may contribute to a Roth IRA. LO 4-3 Susan, age 47, who is married and files jointly, contributes 5% of her salary to her employer's 401(k) plan. Susan and her husband have modified AGI of $117,222. If Susan makes a full $6,000 contribution to an IRA, how much of this contribution will be deductible in 2022? A) $5,500 B) $3,540 C) $0 D) $3,535 - ansB The following formula can be used to calculate the deductible amount of Susan's IRA contribution (bumped up to the nearest $10) for 2022: Allowable IRA Contribution Limit x{(UL - AGI) divided by phaseout range x Max Contribution amount}= Deductible Amount UL = Upper dollar limit of the phaseout range for married individuals filing jointly = $129,000 (for 2022) Phaseout range for married filing jointly = $20,000 (always for married filing jointly) $6,000 x [($129,000 - $117,222)/$20,000] = $3,533, which is bumped up to the nearest $10, which would be $3,540. Notice that the $3,533 is not rounded to the nearest $10. It is bumped up to the next increment of $10. Also, any answer that does not end in "0" will always be wrong. LO 4-2