Investment Advisor Retirement Planning and Tax Strategies 2

Question 1

Tax-loss harvesting involves:

Accepted Answer

Selling losing investments to realize losses that can offset capital gains

Answer

Tax-loss harvesting is the strategy of selling investments at a loss to generate capital losses that can offset capital gains and reduce tax liability.

Question 2

The 'wash sale rule' prevents an investor from claiming a tax loss if they purchase a substantially identical security within how many days before or after the sale?

Accepted Answer

30 days

Answer

The IRS wash sale rule disallows a tax loss if the investor buys the same or substantially identical security within 30 days before or after the loss sale.

Question 3

Which type of capital gain is taxed at preferential long-term rates in the US?

Accepted Answer

Gains on assets held more than one year

Answer

Assets held for more than one year qualify for long-term capital gains tax rates, which are generally 0%, 15%, or 20% — lower than ordinary income rates.

Question 4

A Roth IRA conversion involves moving assets from a Traditional IRA to a Roth IRA. The converted amount is:

Accepted Answer

Subject to ordinary income tax in the year of conversion

Answer

A Roth conversion is taxable — the pre-tax Traditional IRA funds converted are included in ordinary income in the conversion year.

Question 5

Which account type is most appropriate for assets with high expected growth to maximize long-term after-tax wealth?

Accepted Answer

Roth IRA or Roth 401(k)

Answer

Roth accounts are ideal for high-growth assets because all gains grow and are withdrawn tax-free, maximizing after-tax wealth on appreciated investments.

Investment Advisor Practice Test

Investment Advisor Practice Test

Investment Advisor Retirement Planning and Tax Strategies 2