CIM Tax Strategies 5

Question 1

Cash distributions from a master limited partnership (MLP) are typically treated as:

Accepted Answer

Mostly return of capital that reduces the unitholder's basis

Answer

MLP distributions are mostly return of capital, which defers tax by lowering basis until the units are sold.

Question 2

Why are ETFs generally more tax-efficient than comparable mutual funds?

Accepted Answer

In-kind creation/redemption lets them shed low-basis shares without realizing gains

Answer

In-kind redemptions let ETFs remove low-basis lots without taxable sales, which reduces capital gain distributions.

Question 3

To defer a capital gain through a Qualified Opportunity Fund, the gain generally must be invested within:

Accepted Answer

180 days of the sale

Answer

Eligible gains must generally be reinvested in a QOF within 180 days to qualify for deferral.

Question 4

Earnings in a 529 plan withdrawn for qualified higher education expenses are:

Accepted Answer

Free of federal income tax

Answer

Qualified 529 withdrawals, including earnings, are excluded from federal income tax.

Question 5

Which account offers a 'triple tax advantage': deductible contributions, tax-free growth, and tax-free qualified withdrawals?

Accepted Answer

Health Savings Account (HSA)

Answer

HSAs combine deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses.

CIM - Chartered Investment Manager Practice Test