FiCEP Finance 5

Question 1

A client is enrolled in a High-Deductible Health Plan (HDHP). Which tax-advantaged account is specifically available to them for medical expenses?

Accepted Answer

Health Savings Account (HSA)

Answer

HSAs are exclusively available to individuals enrolled in qualifying HDHPs and offer triple tax advantages for medical expenses.

Question 2

Which credit scoring factor typically carries the greatest weight in a FICO score calculation?

Accepted Answer

Payment history

Answer

Payment history accounts for approximately 35% of a FICO score, making it the single most influential factor.

Question 3

A client has $10,000 in credit card debt at 22% APR and $5,000 in a student loan at 5% APR. The avalanche method would prioritize repayment of which debt first?

Accepted Answer

Credit card debt, because it has the higher interest rate

Answer

The avalanche method targets the highest-interest debt first to minimize total interest paid over time, regardless of balance size.

Question 4

In the context of retirement planning, what does the term 'sequence of returns risk' refer to?

Accepted Answer

The risk that a retiree will outlive their assets due to poor investment returns early in retirement

Answer

Sequence of returns risk is the danger that poor early-retirement investment returns, combined with withdrawals, can permanently deplete a portfolio even if long-term average returns are adequate.

Question 5

A client asks about the difference between a traditional IRA and a Roth IRA. Which statement correctly distinguishes them?

Accepted Answer

Traditional IRA contributions may be tax-deductible now; Roth IRA qualified withdrawals are tax-free

Answer

Traditional IRAs offer potential upfront tax deductions with taxable withdrawals, while Roth IRAs use after-tax contributions for tax-free qualified distributions.

FiCEP - Financial Counseling Certification Program Practice Test

FiCEP - Financial Counseling Certification Program Practice Test

FiCEP Finance 5