FREE Certified Financial Planner Questions and Answers
Jane comes to you for help with financial planning. Within two years, she wants to purchase a brand-new Mercedes Benz for $40,000. She just went through a divorce. She claims that since she can spend her money on whatever she wants, she wants to reward herself. She presently has $5,000 saved toward the objective and is able to easily set aside $250 each month for the following two years. After taxes and fees, the Mercedes will actually cost $46,000. You discover that the monthly payment will be more than twice as much as the $250 per month she is saving toward her goal after performing a 60-month amortization calculation. The cost is significantly more than $250 even with an amortization of 80 months.
Which aspect of the psychology of financial planning ought to you go over with Jane to get a better understanding of her motivation?
Explanation:
Sources of money conflicts – You should talk to Jane about the lack of financial independence she experienced when she was married. The chapter makes it evident that Jane's decision to purchase a pricey car she cannot afford was motivated less by her money beliefs and script and more by the lack of financial independence she experienced during her marriage. The alignment of two or more people toward a common objective is often referred to as goal congruence. Transitions are not the reasons why a client is working toward a goal; rather, they are stages or processes of change that the client goes through.
In order to lower their yearly tax burden, married professionals Mark and Mary, both in their late 50s, are meeting with Ken, a CFP expert, to review alternatives for extra tax-advantaged accounts. Mark is the chief thoracic surgeon at a neighborhood nonprofit hospital, and Helen runs her own private mental health practice. Helen has been contributing fully to a SEP IRA for the past two years, and Mark has been contributing fully to his 403(b) and 457 plans. Mark and May have high-deductible health insurance through Mark's place of employment. Which of the following accounts might offer Mark and Mary more tax-free and deferred benefits?
Explanation:
Account for health savings. If a married couple has a high deductible health insurance plan, they are eligible to contribute up to $8,300 a year to a Health Savings Account (HSA) and postpone or avoid paying taxes on that amount ($7,300 [indexed, 2025] for the family plus $1,000 catch-up for those over 55). An HSA can be utilized tax-free for qualifying medical costs and can postpone taxes until withdrawals are made at age 65 or older. It is funded using pre-tax earnings. Because the benefits must be utilized in the same year that they are funded, an FSA would not be applicable. Since a Roth IRA must be funded with after-tax money and grows tax-free, Marcus and Helen are ineligible to contribute to one. A non-deductible IRA is started using after-tax money, much like a Roth, and the growth is taxed when it is withdrawn.
When in the business cycle do demand and hiring start to slow down, while inflation is trending up and unemployment is still declining but more slowly?
Explanation:
Peak period. When the business cycle is at its height, demand outpaces supply, pushing prices higher (inflation). Demand is then reduced by the decreased supply and inflation, which has a knock-on effect on employment, business investment, and productivity output. A change to the contraction phase is indicated by the deteriorating economic indicators. Productivity reaches its lowest point and unemployment reaches its peak during the cycle's trough phase. Economic indices rising above their trough levels indicate the beginning of the expansion period.
Mark owns a neighborhood convenience store. He recently began selling a popular candy and noticed that the revenue and the inventory counts on hand were not adding up. Mark decided to move the placement of the candy display from in front of the counter, where he could not see the product, to the top of the counter near the register. What risk management technique did Mark demonstrate?
Explanation:
Risk reduction. By transferring the candies to a location where he could better observe the merchandise, Marcel tried to lower his chance of loss. When danger is completely avoided and any potential benefits are forgone, this is known as risk avoidance. These risks frequently consist of costly, high-frequency/probability events that are difficult to hold onto or transmit. Low-frequency, low-probability, and low-cost risk occurrences are typically used to exercise risk retention. It is because Mark is making more money than he is losing that he chooses to retain the risk if he keeps selling the candy in spite of his losses. When insurance is acquired or risk is transferred to another party to cover a loss, this is known as risk transfer. This is typically done for expensive, infrequent, or unlikely situations, such as a fire in a building. Another illustration of risk retention on the part of the insured and risk transfer on the part of the insurance business is an insurance deductible. By requiring the insured to assume the risk of minor claims, it discourages the insured from filing numerous small claims.
James and Lou Olsen are meeting with Tony, a CFP expert and a representative of an investment adviser, to evaluate their financial strategy, which includes investing and retirement planning. Jimmy questions the tax implications of their strategy as they go over it. A referral agreement between Tony and his CPA colleague states that the CPA will pay Wayne $125 for each client he introduces who hires the CPA for tax preparation or planning services. Wayne suggests his CPA colleague to the Olsens. The referral agreement is not mentioned by him.
Which of the following statements most accurately sums up Wayne's behavior during the meeting?
Explanation:
Tony violated the CFP Board's Standards of Conduct for failing to disclose that he might get paid a referral fee if they decide to work with his CPA colleague at the time of the recommendation. According to the Code of Conduct set out by the CFP Board, CFP®. Any significant financial gain must be disclosed to the client at the time of the referral or before the engagement. Wayne showed care by directing the customer to a CPA for assistance with the tax-related aspects of their financial plan. The referral agreement was not disclosed in accordance with the CFP Board's Standards of Conduct for revealing major economic incentives to an adviser in the firm's ADV part 2 brochure. At the time of the recommendation or before being hired for financial planning, Wayne is required to reveal. There is no referral fee de minimis amount that entitles an advisor to a disclosure requirement exemption.
Deborah, 64, just lost her 67-year-old husband William. She is feeling a little overwhelmed as she tries to understand the money that William managed entirely. Although she has some money in the bank, it won't be there for long. Deborah has spent her whole 42-year marriage to William as a stay-at-home mother and wife. William was the only source of income and a self-employed contractor. She is meeting with Dan, a CFP expert, so he can assist her in determining her prospective sources of income. Six months' worth of bank statements and unopened investment account statements Deborah received in the mail is given to Dan. When Dan opens the statements, he discovers that William had taxable investment accounts worth $175,000, $57,000 in SEP IRAs, and $19,000 in Roth IRAs.
Which of the following should Deborah use as her primary source of income, according to Dan's advice?
Explanation:
Social security. Dan ought to advise Deborah to submit an application for Social Security benefits. She will be able to make a claim based on Dan's salary history. She and Dan can devise a strategy for taking the best possible supplemental income withdrawals from the investment accounts while allowing the undistributed balances to grow once she knows how much she can receive from Social Security (which will be less than 100% since she will be claiming benefits before her FRA). Deborah can reduce her tax obligation by first taking Social Security benefits and then supplementing them with withdrawals from her retirement savings. The growth potential of those assets while Deborah is retired will be unduly reduced if she first takes income from her investment accounts, which will also result in her paying more in income taxes. Withdrawals from the taxable account may result in taxable gains taxes, whereas withdrawals from the SEP IRA will be entirely taxable. Taxes wouldn't apply to withdrawals from a Roth IRA. Deborah might be able to use a reverse mortgage as a source of income, but only after she has determined her other sources of income.
Married couple Tommy and Marilyn run a quaint antique shop together. They have copies of their K-1 and 1065 tax forms from their CPA and are meeting with their tax preparer today. What kind of business structure does it have?
Explanation:
Partnership. The Return of Partnership Income is a tax form 1065. Each partner's share of the gains or losses for the tax year is reported in the K-1, a document created from the partnership return. Although K-1 forms are also distributed to shareholders by S-corporations, the income tax return is form 1120S. The owners of limited liability corporations and sole proprietorships do not receive K-1 forms.