CFP Certified Financial Planner MCQ 3 — Questions and Answers
Question 1: A client wants to gift $30,000 to their child in 2024. How much is subject to federal gift tax reporting?
- $0; the entire amount is covered by the annual exclusion
- $12,000; the excess over $18,000 annual exclusion (Correct answer)
- $18,000; only the annual exclusion is reportable
- $30,000; all gifts must be reported
Correct answer: $12,000; the excess over $18,000 annual exclusion
The 2024 annual gift tax exclusion is $18,000 per recipient; the $12,000 excess ($30,000 − $18,000) must be reported on Form 709 and applied against the lifetime exemption.
Question 2: Which retirement plan allows the highest employee elective deferral limit in 2024 among the following options?
- Traditional IRA
- SIMPLE IRA
- 401(k) (Correct answer)
- SEP-IRA
Correct answer: 401(k)
The 2024 employee elective deferral limit for a 401(k) is $23,000 (plus $7,500 catch-up for those 50+), which is higher than SIMPLE IRA ($16,000) or IRA ($7,000) limits.
Question 3: A client's estate is valued at $14 million at death in 2024. Assuming no prior taxable gifts, how much is subject to federal estate tax?
- $14 million
- Approximately $700,000 (excess over $13.61M exemption) (Correct answer)
- $0; married couples are always exempt
- $14 million minus the marital deduction
Correct answer: Approximately $700,000 (excess over $13.61M exemption)
The 2024 federal estate tax exemption is $13.61 million; the estate of $14 million exceeds this by approximately $390,000, which is subject to the 40% estate tax rate.
Question 4: Which asset allocation concept describes shifting a portfolio to more conservative investments as a client approaches retirement?
- Rebalancing
- Tax-loss harvesting
- Glide path (Correct answer)
- Tactical asset allocation
Correct answer: Glide path
A glide path is the planned shift from aggressive to conservative allocations over time, commonly used in target-date funds as investors approach their retirement date.
Question 5: Under ERISA, which party is legally responsible for ensuring a qualified retirement plan operates solely in the interest of plan participants?
- The plan sponsor's CEO
- The plan fiduciary (Correct answer)
- The Department of Labor auditor
- The plan actuary
Correct answer: The plan fiduciary
ERISA imposes fiduciary responsibility on plan fiduciaries (trustees, investment managers, plan administrators) to act solely in the interest of plan participants and beneficiaries.
Question 6: A client purchased stock for $10,000 and sold it 8 months later for $16,000. What is the federal tax treatment of the $6,000 gain?
- Long-term capital gain taxed at 0%, 15%, or 20%
- Short-term capital gain taxed as ordinary income (Correct answer)
- Qualified dividend income at preferential rates
- Section 1231 gain eligible for installment sale treatment
Correct answer: Short-term capital gain taxed as ordinary income
Since the holding period is less than 12 months, the $6,000 gain is a short-term capital gain taxed at the taxpayer's ordinary income tax rate.
Question 7: What is the primary purpose of a buy-sell agreement funded with life insurance for a business with multiple owners?
- To reduce the business's annual income tax liability
- To provide liquidity so surviving owners can purchase a deceased owner's interest (Correct answer)
- To increase the business's credit rating with lenders
- To allow employees to purchase shares at a discount
Correct answer: To provide liquidity so surviving owners can purchase a deceased owner's interest
A buy-sell agreement funded with life insurance ensures that when an owner dies, the insurance proceeds provide liquidity for surviving owners to purchase the deceased's business interest at a pre-agreed price.
CFP Certified Financial Planner MCQ 3
A client wants to gift $30,000 to their child in 2024.
How much is subject to federal gift tax reporting?