CFP Case Studies & Practical Application 3

Question 1

Robert and Susan are married filing jointly with combined income of $320,000. Their financial planner recommends tax-loss harvesting. They realize $15,000 in losses and $8,000 in short-term gains. What is the net tax outcome?

Accepted Answer

$7,000 net loss, with $3,000 deducted against ordinary income and $4,000 carried forward

Answer

Net capital losses offset capital gains first; remaining losses up to $3,000 reduce ordinary income annually, with excess carried forward indefinitely.

Question 2

A client age 52 wants to access $50,000 from her 401(k) to fund a business venture. She separated from service this year. Which option avoids the 10% early withdrawal penalty?

Accepted Answer

Rule of 55 separation-from-service exception

Answer

The Rule of 55 allows penalty-free distributions from a current employer's 401(k) when an employee separates from service in or after the year they turn 55.

Question 3

A high-net-worth client holds $3M in appreciated stock with a $200,000 basis. She wants to diversify without triggering capital gains. Which advanced strategy is most appropriate?

Accepted Answer

Establish a Charitable Remainder Trust (CRT) funded with the stock

Answer

A CRT allows the client to contribute appreciated stock, avoid immediate capital gains tax, receive an income stream, and claim a partial charitable deduction.

Question 4

John, age 62, is considering claiming Social Security. His FRA benefit is $2,400/month. His wife (age 60) has no work history. What is the primary financial planning consideration for the claiming decision?

Accepted Answer

Delay to 70 to increase his benefit by 32% and maximize the survivor benefit for his wife

Answer

Delaying to 70 earns 8%/year delayed credits and maximizes the survivor benefit, which is critical since his wife has no independent Social Security earnings record.

Question 5

A client has a $500,000 whole life policy with $180,000 cash value and a $120,000 cost basis. She wants to surrender it and purchase a diversified investment portfolio. What is the tax consequence?

Accepted Answer

$60,000 ordinary income on the gain inside the policy

Answer

Surrendering a life insurance policy triggers ordinary income tax on the gain (cash value minus cost basis), which is $180,000 − $120,000 = $60,000.

CFP - Certified Financial Planner Practice Test

CFP - Certified Financial Planner Practice Test

CFP Case Studies & Practical Application 3