CFP Certified Financial Planner MCQ 5 — Questions and Answers
Question 1: Under the CFP Board's financial planning process, which step immediately follows 'Analyzing the Client's Current Course of Action and Potential Alternative Courses of Action'?
- Identifying and selecting goals
- Developing the financial planning recommendation(s) (Correct answer)
- Implementing the financial planning recommendation(s)
- Monitoring progress and updating
Correct answer: Developing the financial planning recommendation(s)
According to the CFP Board's 7-step financial planning process, after analyzing alternatives, the planner develops and presents specific recommendations tailored to the client's situation.
Question 2: A client age 72 fails to take their Required Minimum Distribution (RMD) of $20,000. What is the IRS penalty (post-SECURE 2.0)?
- 50% of the amount not distributed ($10,000)
- 25% of the amount not distributed ($5,000), reduced to 10% if corrected timely (Correct answer)
- 10% early withdrawal penalty on the missed amount
- No penalty; RMDs are now optional under SECURE 2.0
Correct answer: 25% of the amount not distributed ($5,000), reduced to 10% if corrected timely
SECURE 2.0 reduced the RMD failure penalty from 50% to 25%, further reducible to 10% if the shortfall is corrected within the correction window.
Question 3: Which estate planning technique allows a grantor to transfer assets to an irrevocable trust, receive an annuity payment for a fixed term, and pass the remainder to heirs with minimized gift tax?
- Qualified Personal Residence Trust (QPRT)
- Grantor Retained Annuity Trust (GRAT) (Correct answer)
- Charitable Remainder Trust (CRT)
- Irrevocable Life Insurance Trust (ILIT)
Correct answer: Grantor Retained Annuity Trust (GRAT)
A GRAT allows the grantor to transfer assets to an irrevocable trust, receive fixed annuity payments, and pass any growth above the IRS Section 7520 rate to beneficiaries with little or no gift tax.
Question 4: A self-employed individual with net self-employment income of $100,000 wants to maximize retirement savings in 2024 using a Solo 401(k). What is the maximum total contribution?
- $23,000 (employee elective deferral only)
- $46,000 (employer contribution only)
- $69,000 (combined employee + employer contributions, subject to net income limits) (Correct answer)
- $7,000 (SEP-IRA limit based on 25% of net income)
Correct answer: $69,000 (combined employee + employer contributions, subject to net income limits)
A Solo 401(k) allows up to $23,000 in employee deferrals plus a 25% employer contribution on net self-employment income (up to the $69,000 total limit), making it the most powerful retirement vehicle for the self-employed.
Question 5: What is the primary difference between a revocable living trust and an irrevocable trust?
- A revocable trust provides estate tax savings; an irrevocable trust does not
- A revocable trust can be changed or terminated by the grantor; an irrevocable trust generally cannot (Correct answer)
- An irrevocable trust avoids probate; a revocable trust does not
- A revocable trust is only for married couples; an irrevocable trust is for individuals
Correct answer: A revocable trust can be changed or terminated by the grantor; an irrevocable trust generally cannot
A revocable living trust can be amended or revoked by the grantor at any time during their lifetime, while an irrevocable trust generally cannot be changed once established.
Question 6: Which long-term care insurance policy feature adjusts the daily benefit amount each year to help keep pace with inflation?
- Elimination period
- Benefit period extension rider
- Inflation protection rider (compound 3% or 5%) (Correct answer)
- Shared care rider
Correct answer: Inflation protection rider (compound 3% or 5%)
An inflation protection rider, typically at 3% or 5% compound annual growth, automatically increases the daily benefit amount each year to help the policy keep pace with rising long-term care costs.
Question 7: A client asks about the tax treatment of municipal bond interest. Which statement is most accurate?
- Municipal bond interest is fully taxable at both federal and state levels
- Municipal bond interest is exempt from federal income tax and often exempt from state tax if issued in the investor's home state (Correct answer)
- Municipal bond interest is taxed as a capital gain at preferential rates
- Municipal bond interest is only exempt from state tax, never from federal tax
Correct answer: Municipal bond interest is exempt from federal income tax and often exempt from state tax if issued in the investor's home state
Interest from municipal bonds is generally exempt from federal income tax and, in most states, also exempt from state income tax when the bond is issued within the investor's state of residence.
CFP Certified Financial Planner MCQ 5
Under the CFP Board's financial planning process, which step immediately follows 'Analyzing the Client's Current Course of Action and Potential Alternative Courses of Action'?