CFP Certified Financial Planner 2 — Questions and Answers
Question 1: A client aged 58 wants to withdraw from her 401(k) to pay medical bills. Which exception allows penalty-free early withdrawal?
- Unreimbursed medical expenses exceeding 7.5% of AGI (Correct answer)
- Any medical expense regardless of amount
- Medical expenses only for the account holder, not dependents
- Medical withdrawals are never penalty-free before age 59½
Correct answer: Unreimbursed medical expenses exceeding 7.5% of AGI
Unreimbursed medical expenses exceeding 7.5% of AGI qualify for the 10% early withdrawal penalty exception under IRC Section 72(t).
Question 2: Under the CFP Board's Code of Ethics, which duty requires a CFP professional to act in the client's best interest at all times?
- Fiduciary duty (Correct answer)
- Suitability duty
- Disclosure duty
- Competency duty
Correct answer: Fiduciary duty
The fiduciary duty requires CFP professionals to place the client's interests above their own in all financial planning relationships.
Question 3: Which Social Security strategy allows a married couple to maximize lifetime benefits when one spouse has significantly higher earnings?
- Lower-earning spouse claims early while higher earner delays to age 70 (Correct answer)
- Both spouses claim at age 62 to maximize total years of income
- Higher earner claims at 62 while lower earner delays to full retirement age
- Both spouses delay to age 70 regardless of earnings difference
Correct answer: Lower-earning spouse claims early while higher earner delays to age 70
Having the lower earner claim early provides income while the higher earner's delayed credits grow 8% per year, maximizing the survivor benefit.
Question 4: A client has a $500,000 portfolio with a standard deviation of 12% and an expected return of 8%. What does a coefficient of variation of 1.5 indicate?
- 1.5 units of risk per unit of expected return (Correct answer)
- 1.5% probability of loss in any given year
- The portfolio outperforms the market by 1.5 times
- The portfolio has a Sharpe ratio of 1.5
Correct answer: 1.5 units of risk per unit of expected return
The coefficient of variation (standard deviation ÷ mean return) measures risk per unit of return, so 1.5 means 1.5 units of risk for each unit of expected return.
Question 5: Which type of annuity provides the highest initial payout but leaves a surviving spouse with no continued income?
- Life only (straight life) annuity (Correct answer)
- Joint and survivor annuity
- Period certain annuity
- Refund annuity
Correct answer: Life only (straight life) annuity
A life-only annuity pays the highest monthly benefit but stops at the annuitant's death, providing no income to a surviving spouse.
Question 6: In estate planning, what is the primary advantage of a Charitable Remainder Trust (CRT) for a client with highly appreciated stock?
- Avoids immediate capital gains tax on the donated asset and provides an income stream (Correct answer)
- Completely eliminates estate taxes on all assets
- Allows the client to reclaim assets at any time tax-free
- Provides a dollar-for-dollar tax credit equal to the asset's market value
Correct answer: Avoids immediate capital gains tax on the donated asset and provides an income stream
A CRT allows the donor to transfer appreciated assets, avoid immediate capital gains tax, receive an income stream, and take a partial charitable deduction.
Question 7: Which disability income insurance definition of disability is most favorable to the insured?
- Own-occupation definition (Correct answer)
- Any-occupation definition
- Modified own-occupation after 2 years
- Gainful employment definition
Correct answer: Own-occupation definition
The own-occupation definition pays benefits if the insured cannot perform the duties of their specific occupation, even if they can work in another field.
CFP Certified Financial Planner 2
A client aged 58 wants to withdraw from her 401(k) to pay medical bills.
Which exception allows penalty-free early withdrawal?