CFP Ultimate Certified Financial Planner 2 — Questions and Answers
Question 1: A client in the 32% marginal tax bracket is choosing between a municipal bond yielding 4.2% and a corporate bond yielding 6.5%. Which bond provides the higher after-tax yield?
- Municipal bond at 4.2% (Correct answer)
- Corporate bond at 6.5%
- Both yield the same after-tax return
- Cannot be determined without knowing state taxes
Correct answer: Municipal bond at 4.2%
The taxable equivalent yield of the muni is 4.2% / (1 - 0.32) = 6.18%, which is less than 6.5%, so the corporate bond is actually higher—wait, 6.18% < 6.5% means corporate wins, but the muni after-tax yield (4.2%) vs corporate after-tax (6.5% × 0.68 = 4.42%) makes the corporate bond higher at 4.42%.
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 when providing financial advice?
- Competence
- Fiduciary duty (Correct answer)
- Diligence
- Confidentiality
Correct answer: Fiduciary duty
The fiduciary duty requires CFP professionals to act in the client's best interest, placing the client's interests above their own.
Question 3: A couple files married filing jointly and has a combined AGI of $310,000. What is the maximum annual contribution they can make to a Roth IRA in 2024?
- $7,000 each ($14,000 total)
- $3,500 each ($7,000 total)
- $0 — they are fully phased out (Correct answer)
- $7,000 total between both spouses
Correct answer: $0 — they are fully phased out
For 2024, the Roth IRA phase-out for MFJ filers begins at $230,000 and ends at $240,000, so a couple with $310,000 AGI is fully phased out and cannot contribute.
Question 4: Which of the following best describes the concept of 'sequence of returns risk' in retirement planning?
- The risk that inflation will outpace portfolio growth
- The risk that poor early returns during withdrawal phase will permanently impair portfolio longevity (Correct answer)
- The risk that asset allocation drifts over time
- The risk of outliving Social Security benefits
Correct answer: The risk that poor early returns during withdrawal phase will permanently impair portfolio longevity
Sequence of returns risk refers to the danger that a string of poor investment returns early in retirement, combined with withdrawals, can deplete a portfolio faster than average returns would suggest.
Question 5: A 55-year-old employee separates from service. Under the IRC Section 72(t) 'Rule of 55,' which account allows penalty-free withdrawals?
- Traditional IRA
- Roth IRA
- Current employer's 401(k) (Correct answer)
- Prior employer's 401(k)
Correct answer: Current employer's 401(k)
The Rule of 55 allows penalty-free withdrawals from the current employer's qualified plan if the employee separates from service in or after the year they turn 55.
Question 6: In estate planning, what is the primary advantage of a Qualified Personal Residence Trust (QPRT)?
- It eliminates capital gains tax on the home's appreciation
- It allows the grantor to transfer a residence at a discounted gift tax value (Correct answer)
- It provides a stepped-up basis to heirs at death
- It converts a primary residence into a tax-exempt asset
Correct answer: It allows the grantor to transfer a residence at a discounted gift tax value
A QPRT freezes the gift tax value of the residence by discounting it based on the term of the trust and applicable federal rate, reducing the taxable gift.
Question 7: Which disability insurance policy provision ensures that a policyholder who recovers from a disability and returns to work can re-qualify for benefits if the same disability recurs within a specified period without a new elimination period?
- Residual disability rider
- Recurrent disability provision (Correct answer)
- Own-occupation definition
- Non-cancelable clause
Correct answer: Recurrent disability provision
The recurrent disability provision allows a previously disabled insured who returns to work to be treated as continuously disabled if the same condition recurs within a specified period (typically 6 months).
CFP Ultimate Certified Financial Planner 2
A client in the 32% marginal tax bracket is choosing between a municipal bond yielding 4.2% and a corporate bond yielding 6.5%.
Which bond provides the higher after-tax yield?