Financial Advisor Personal Financial Advisor 4 — Questions and Answers
Question 1: What is the annual gift tax exclusion amount per recipient for 2024?
- $13,000
- $15,000
- $17,000
- $18,000 (Correct answer)
Correct answer: $18,000
The annual gift tax exclusion for 2024 is $18,000 per recipient, allowing gifts up to this amount without using the lifetime exemption.
Question 2: A client has $100,000 in credit card debt at 22% APR and $80,000 in a savings account earning 4.5%. What should the advisor recommend first?
- Invest the savings in equities for higher returns
- Pay off the high-interest credit card debt using savings funds (Correct answer)
- Consolidate the debt into a home equity loan
- Continue making minimum payments and maximize retirement contributions
Correct answer: Pay off the high-interest credit card debt using savings funds
Paying off 22% APR debt with savings earning 4.5% provides a guaranteed 22% 'return,' far exceeding any savings or investment rate.
Question 3: What is the step-up in cost basis rule for inherited assets?
- Inherited assets are taxed at the original owner's cost basis
- The cost basis of inherited assets is reset to fair market value at the date of death (Correct answer)
- Inherited assets receive a carryover basis from the decedent
- All inherited assets are tax-free regardless of gains
Correct answer: The cost basis of inherited assets is reset to fair market value at the date of death
Inherited assets receive a step-up in cost basis to the fair market value on the date of the original owner's death, eliminating capital gains tax on appreciation during the decedent's lifetime.
Question 4: Which type of annuity provides a guaranteed income stream that cannot be outlived but has no residual value for heirs?
- Variable annuity with GMWB rider
- Deferred fixed annuity
- Immediate life-only annuity (Correct answer)
- Indexed annuity with a death benefit
Correct answer: Immediate life-only annuity
A life-only immediate annuity pays income for as long as the annuitant lives but ceases at death, leaving nothing for beneficiaries.
Question 5: What is the primary advantage of a Health Savings Account (HSA) over a Flexible Spending Account (FSA)?
- HSA contributions are not tax-deductible
- HSA funds roll over indefinitely and can be invested for long-term growth (Correct answer)
- FSA annual limits are lower than HSA limits
- HSA funds can be used for non-medical expenses without penalty at any age
Correct answer: HSA funds roll over indefinitely and can be invested for long-term growth
Unlike FSAs, HSA funds roll over each year without a use-it-or-lose-it rule, can be invested, and accumulate tax-free for future medical or retirement expenses.
Question 6: Under the Employee Retirement Income Security Act (ERISA), which of the following is a primary responsibility of a plan fiduciary?
- Maximizing employer contributions to minimize taxes
- Acting solely in the interest of plan participants and beneficiaries (Correct answer)
- Selecting investment options that generate the highest commissions
- Reporting plan information only to the Department of Labor
Correct answer: Acting solely in the interest of plan participants and beneficiaries
ERISA requires plan fiduciaries to act exclusively in the best interest of plan participants and beneficiaries when managing retirement plan assets.
Question 7: A client has a net worth of $2 million and annual expenses of $80,000. What is their financial independence ratio?
- 40 years
- 25 years
- 4%
- 25x (Correct answer)
Correct answer: 25x
The financial independence ratio is $2,000,000 / $80,000 = 25x, meaning the client has 25 times their annual expenses saved—a common benchmark for financial independence.
Financial Advisor Personal Financial Advisor 4
What is the annual gift tax exclusion amount per recipient for 2024?