CFP Certified Financial Planner 3 — Questions and Answers
Question 1: A couple has $1.2 million in combined estate assets in 2024. Which estate planning tool most efficiently utilizes both spouses' federal estate tax exemptions?
- Bypass trust (credit shelter trust) (Correct answer)
- Revocable living trust
- QTIP trust only
- Testamentary trust for minor children
Correct answer: Bypass trust (credit shelter trust)
A bypass trust funds up to the deceased spouse's exemption amount, sheltering it from estate tax at the surviving spouse's death and utilizing both exemptions.
Question 2: What is the wash-sale rule's primary impact on tax-loss harvesting strategies?
- Disallows the loss if a substantially identical security is purchased within 30 days before or after the sale (Correct answer)
- Eliminates all capital loss deductions for high-income taxpayers
- Restricts loss harvesting to taxable accounts only
- Requires a 60-day waiting period before repurchasing any equity security
Correct answer: Disallows the loss if a substantially identical security is purchased within 30 days before or after the sale
The wash-sale rule disallows the claimed loss if a substantially identical security is bought within 30 days before or after the sale, deferring the loss to the replacement shares.
Question 3: Which life insurance policy type offers permanent coverage with a fixed premium, guaranteed death benefit, and no cash value investment risk to the policyholder?
- Whole life insurance (Correct answer)
- Variable universal life insurance
- Indexed universal life insurance
- Term life insurance
Correct answer: Whole life insurance
Whole life insurance provides a guaranteed death benefit, fixed premiums, and guaranteed cash value growth with no market risk transferred to the policyholder.
Question 4: A self-employed client earns $200,000 net profit in 2024. What is the maximum contribution to a Solo 401(k) plan (ignoring catch-up)?
- $69,000 (Correct answer)
- $23,000
- $58,000
- $46,000
Correct answer: $69,000
The 2024 Solo 401(k) limit is $69,000, combining up to $23,000 in employee deferrals plus up to 25% of net self-employment income as employer contributions.
Question 5: In portfolio theory, which measure indicates the proportion of a portfolio's total risk that is attributable to market (systematic) risk?
- R-squared (R²) (Correct answer)
- Beta
- Alpha
- Standard deviation
Correct answer: R-squared (R²)
R-squared measures the percentage of a portfolio's variance explained by a benchmark, indicating how much of total risk is systematic market risk.
Question 6: Which education funding strategy allows tax-free growth and withdrawals for qualified education expenses while also permitting rollovers to a Roth IRA starting in 2024?
- 529 college savings plan (Correct answer)
- Coverdell Education Savings Account
- UGMA/UTMA custodial account
- Series EE savings bonds
Correct answer: 529 college savings plan
The SECURE 2.0 Act allows unused 529 plan funds to be rolled over to a Roth IRA for the beneficiary, subject to lifetime limits and annual contribution caps.
Question 7: A client owns a rental property with a $300,000 adjusted basis and $80,000 in accumulated depreciation. If sold for $450,000, what is the tax treatment of the depreciation?
- Recaptured as ordinary income at a maximum 25% rate (Correct answer)
- Taxed as long-term capital gain at 0%, 15%, or 20%
- Fully excluded from income under Section 121
- Deductible against future rental income only
Correct answer: Recaptured as ordinary income at a maximum 25% rate
Section 1250 unrecaptured depreciation on real property is taxed as ordinary income at a maximum rate of 25%, separate from the remaining capital gain.
CFP Certified Financial Planner 3
A couple has $1.2 million in combined estate assets in 2024.
Which estate planning tool most efficiently utilizes both spouses' federal estate tax exemptions?