Certified IRA Specialist I (CIS I) — Questions and Answers

Question 1: Which of the following correctly describes a 'recharacterization' of an IRA contribution?

Transferring a contribution plus earnings from one IRA type to another as if originally made to the second type (Correct answer)
Withdrawing an excess contribution with net income attributable
Converting a Traditional IRA to a Roth IRA
Rolling over an IRA to an employer plan

Correct answer: Transferring a contribution plus earnings from one IRA type to another as if originally made to the second type

A recharacterization treats a contribution as if it had originally been made to a different IRA type by transferring the contribution plus net income attributable by the tax deadline.

Question 2: What is the contribution limit for a SEP-IRA in 2024?

$66,000 or 25% of compensation, whichever is less
$66,000 or 20% of compensation, whichever is less
$69,000 or 25% of compensation, whichever is less (Correct answer)
$61,000 or 20% of compensation, whichever is less

Correct answer: $69,000 or 25% of compensation, whichever is less

For 2024, the SEP-IRA limit is the lesser of $69,000 or 25% of the employee's compensation.

Question 3: A spouse who inherits an IRA has which unique rollover option not available to non-spouse beneficiaries?

Rolling the inherited IRA into their own IRA (Correct answer)
Avoiding all taxes on distributions
Converting to a Roth IRA immediately
Stretching distributions over 40 years

Correct answer: Rolling the inherited IRA into their own IRA

A surviving spouse can roll the inherited IRA into their own IRA, treating it as their own account and delaying RMDs until they reach RMD age.

Question 4: Which strategy allows a taxpayer to move after-tax money from a traditional IRA into a Roth IRA, often called the 'backdoor Roth'?

Trustee-to-trustee transfer
Roth conversion (Correct answer)
Recharacterization
Direct rollover

Correct answer: Roth conversion

A Roth conversion moves funds from a traditional IRA into a Roth IRA; when non-deductible contributions are converted, the taxable amount can be minimal, enabling the 'backdoor Roth' strategy.

Question 5: A SEP-IRA employer contribution for a self-employed individual is limited to what percentage of net self-employment income (after the deduction)?

20% (Correct answer)
25%
15%
10%

Correct answer: 20%

Self-employed individuals can contribute up to 20% of net self-employment income (which equals 25% of compensation after the SE deduction adjustment).

Question 6: An IRA owner designates a trust as beneficiary. What must the trust satisfy to allow 'look-through' treatment for distribution purposes?

The trust must be court-approved
The trust must be revocable and domestic
The trust must hold only IRA assets
The trust must be irrevocable, have identifiable beneficiaries, and provide a copy to the custodian by October 31 of the year after death (Correct answer)

Correct answer: The trust must be irrevocable, have identifiable beneficiaries, and provide a copy to the custodian by October 31 of the year after death

For look-through treatment, the trust must be valid, irrevocable at death, have identifiable beneficiaries, and documentation must be provided to the custodian by October 31 of the year following the IRA owner's death.

Question 7: Which type of IRA contribution is made with after-tax dollars and grows tax-free?

Roth IRA (Correct answer)
Traditional IRA
SIMPLE IRA
SEP-IRA

Correct answer: Roth IRA

Roth IRA contributions are made with after-tax dollars, so qualified distributions are entirely tax-free.

Question 8: What IRS form is used to report non-deductible traditional IRA contributions and Roth conversions?

Form 5498
Form 8606 (Correct answer)
Schedule D
Form 1099-R

Correct answer: Form 8606

Form 8606 is used to report non-deductible IRA contributions, Roth conversions, and distributions from IRAs that have a basis.

Question 9: At what age must traditional IRA owners begin taking Required Minimum Distributions (RMDs)?

73 (Correct answer)
75
70½
72

Correct answer: 73

As of the SECURE 2.0 Act, the RMD age was raised to 73 for individuals who turn 72 after December 31, 2022.

Question 10: At what age must traditional IRA holders begin taking Required Minimum Distributions (RMDs)?

Age 75
Age 70½
Age 73 (Correct answer)
Age 72

Correct answer: Age 73

Following the SECURE 2.0 Act, the RMD starting age for traditional IRAs is 73 for individuals born between 1951 and 1959.

Question 11: What does 'IRA basis' refer to?

Non-deductible contributions made to a traditional IRA that have already been taxed (Correct answer)
The total amount of earnings in the IRA
The market value of all assets held in the IRA
The original purchase price of investments inside the IRA

Correct answer: Non-deductible contributions made to a traditional IRA that have already been taxed

IRA basis refers to non-deductible contributions in a traditional IRA — amounts already taxed — which are tracked using IRS Form 8606 to avoid double taxation.

Question 12: Can a SIMPLE IRA be rolled over to a traditional IRA at any time?

Only after the two-year participation period has been satisfied (Correct answer)
Only after age 59½
No, never
Yes, with no restrictions

Correct answer: Only after the two-year participation period has been satisfied

SIMPLE IRA funds cannot be rolled to a traditional IRA or other retirement plan during the first two years of participation; after two years, rollovers are permitted.

Question 13: Which of the following people is eligible to contribute to a Roth IRA?

A single 45-year-old with $120,000 in wages and no workplace retirement plan (Correct answer)
A single filer with $200,000 in W-2 wages
A retiree with $80,000 in Social Security income and no earned income
A dependent child with no earned income

Correct answer: A single 45-year-old with $120,000 in wages and no workplace retirement plan

A single filer earning $120,000 in wages is well within the Roth IRA income phase-out range and has earned income, making them fully eligible.

Question 14: True or False: You are allowed to make contributions to both a Traditional IRA and a Roth IRA in the same year.

True (Correct answer)
False

Correct answer: True

This statement is true. You can contribute to both a Traditional IRA and a Roth IRA in the same year, provided your total contributions across both accounts do not exceed the annual IRA contribution limit set by the IRS. However, income limitations may affect your ability to deduct Traditional IRA contributions or contribute directly to a Roth IRA. This flexibility allows for diverse retirement planning strategies.

Question 15: What is a 'net unrealized appreciation' (NUA) strategy and how does it relate to IRA rollovers?

A strategy to distribute employer stock from a 401(k) in-kind rather than rolling it to an IRA, taxing appreciation at capital gain rates instead of ordinary income rates (Correct answer)
A way to avoid all taxes on employer stock
A method to reduce RMDs by 50%
An IRA investment strategy using index funds

Correct answer: A strategy to distribute employer stock from a 401(k) in-kind rather than rolling it to an IRA, taxing appreciation at capital gain rates instead of ordinary income rates

NUA allows the appreciation on employer stock distributed from a 401(k) to be taxed at capital gains rates rather than ordinary income rates, which can be more favorable than rolling to an IRA.

Question 16: What does it mean to 'roll over' an IRA?

Transfer funds from one retirement account to another (Correct answer)
Convert a Roth to traditional IRA
Split an IRA among multiple beneficiaries
Withdraw funds and pay taxes

Correct answer: Transfer funds from one retirement account to another

A rollover moves funds from one retirement account to another, typically without triggering taxes if done correctly within 60 days.

Question 17: What is the 'pro-rata rule' in the context of traditional IRA distributions?

Each spouse must take equal RMDs
RMDs increase proportionately with age
Non-deductible contributions are distributed first
Distributions are proportionately taxed based on the ratio of pre-tax and after-tax IRA funds (Correct answer)

Correct answer: Distributions are proportionately taxed based on the ratio of pre-tax and after-tax IRA funds

The pro-rata rule requires that distributions from a traditional IRA be taxed proportionally based on the ratio of pre-tax money to total IRA balances across all traditional IRAs.

Question 18: How does contributing to a traditional IRA reduce your current tax bill?

It eliminates capital gains taxes
It provides a direct tax credit
Deductible contributions reduce your taxable income (Correct answer)
It defers payroll taxes

Correct answer: Deductible contributions reduce your taxable income

Deductible traditional IRA contributions lower your adjusted gross income (AGI), reducing the amount of income subject to federal income tax.

Question 19: Which of the following medical expenses qualifies for the early IRA withdrawal penalty exception?

Medical expenses exceeding 7.5% of AGI (Correct answer)
Any medical expense
Only hospital expenses
Only prescription drug costs

Correct answer: Medical expenses exceeding 7.5% of AGI

IRA withdrawals used to pay unreimbursed medical expenses that exceed 7.5% of AGI are exempt from the 10% early withdrawal penalty.

Question 20: Which of the following is a recognized exception to the 10% early withdrawal penalty for a traditional IRA?

Paying for a vacation home
Paying off high-interest credit card debt
Purchasing a new vehicle
First-time home purchase up to $10,000 (lifetime limit) (Correct answer)

Correct answer: First-time home purchase up to $10,000 (lifetime limit)

First-time homebuyers (as defined by the IRS) may withdraw up to $10,000 lifetime from an IRA without incurring the 10% early withdrawal penalty for qualifying purchase costs.

Question 21: Which of the following investments is explicitly prohibited inside an IRA under IRC Section 408?

Real estate investment trusts (REITs)
Exchange-traded funds (ETFs)
Collectibles such as artwork and antiques (Correct answer)
Treasury bonds

Correct answer: Collectibles such as artwork and antiques

IRC Section 408(m) prohibits IRAs from investing in collectibles, including artwork, rugs, antiques, metals (with exceptions for certain coins/bullion), gems, stamps, and alcoholic beverages.

Question 22: If a non-spouse beneficiary inherits a traditional IRA, what rule generally applies under the SECURE Act?

They must take RMDs based on the original owner's age
They must withdraw all funds within 10 years (Correct answer)
They must convert it to a Roth IRA
They can keep the IRA indefinitely

Correct answer: They must withdraw all funds within 10 years

Under the SECURE Act, most non-spouse beneficiaries must fully distribute inherited IRA assets within 10 years of the original owner's death.

Question 23: How many IRA rollovers are you allowed to perform in a 12-month period?

Two
Three
Unlimited
One (Correct answer)

Correct answer: One

The IRS limits taxpayers to one indirect (60-day) IRA rollover per 12-month period across all IRAs combined.

Question 24: What is the 'backdoor Roth IRA' strategy?

An illegal tax evasion scheme
Converting a 401(k) directly to a Roth IRA
Contributing to a Roth IRA through an employer plan
Making a non-deductible traditional IRA contribution and then immediately converting it to a Roth IRA (Correct answer)

Correct answer: Making a non-deductible traditional IRA contribution and then immediately converting it to a Roth IRA

The backdoor Roth involves making a non-deductible traditional IRA contribution and then converting it to a Roth IRA, allowing high earners to bypass Roth income limits.

Question 25: Which IRA type is specifically designed for self-employed individuals and small business owners?

Roth IRA
SEP IRA (Correct answer)
Traditional IRA
Inherited IRA

Correct answer: SEP IRA

A SEP (Simplified Employee Pension) IRA allows self-employed individuals and small business owners to contribute up to 25% of compensation.

Question 26: Which of the following types of income qualifies as compensation for IRA contribution purposes?

Rental income
W-2 wages (Correct answer)
Pension distributions
Dividend income

Correct answer: W-2 wages

W-2 wages (earned income) qualify as compensation for IRA contribution purposes, while passive income sources do not.

Question 27: What is a 'backdoor Roth IRA' strategy used for?

Withdrawing Roth funds before retirement without penalty
Converting a 401(k) directly into a Roth without taxes
Allowing high earners who exceed Roth income limits to indirectly contribute to a Roth IRA (Correct answer)
Bypassing the 5-year rule on Roth contributions

Correct answer: Allowing high earners who exceed Roth income limits to indirectly contribute to a Roth IRA

A backdoor Roth IRA involves making a non-deductible traditional IRA contribution and then converting it to a Roth, bypassing income limits.

Question 28: An individual has both deductible and nondeductible Traditional IRA funds. When they take a distribution, how is the taxable amount calculated?

LIFO — last-in, first-out basis
FIFO — first-in, first-out basis
Pro-rata rule based on total IRA balances (Correct answer)
The oldest contributions are distributed first

Correct answer: Pro-rata rule based on total IRA balances

The pro-rata rule requires that each distribution be treated as coming proportionally from pre-tax and after-tax (basis) amounts across all Traditional IRAs.

Question 29: By what date must a beneficiary be identified to use the life expectancy method for inherited IRA distributions?

Date of death
December 31 of the year of death
April 15 of the year following the year of death
September 30 of the year following the year of death (Correct answer)

Correct answer: September 30 of the year following the year of death

The beneficiary determination date is September 30 of the year following the IRA owner's year of death.

Question 30: What is the five-year rule for Roth IRA earnings?

You must hold the Roth IRA for 5 years before any contribution
You must contribute for 5 consecutive years
RMDs begin 5 years after account opening
Earnings can only be withdrawn tax-free if the account is at least 5 years old (Correct answer)

Correct answer: Earnings can only be withdrawn tax-free if the account is at least 5 years old

To withdraw Roth IRA earnings tax-free, the account must be at least 5 years old and the owner must be 59½ or older.

Question 31: What is a Qualified Longevity Annuity Contract (QLAC) and how does it affect RMDs?

A type of Roth conversion annuity
A deferred annuity purchased inside an IRA that reduces the RMD calculation base up to a limit (Correct answer)
An annuity that grows tax-free and eliminates all RMDs
A fixed annuity that replaces the need for an IRA

Correct answer: A deferred annuity purchased inside an IRA that reduces the RMD calculation base up to a limit

A QLAC is a longevity annuity that can be purchased inside an IRA, and up to the QLAC limit is excluded from the RMD calculation until payments begin (up to age 85).

Question 32: What is the penalty for withdrawing from a traditional IRA before age 59½?

10% early withdrawal penalty (Correct answer)
20% early withdrawal penalty
15% early withdrawal penalty
5% early withdrawal penalty

Correct answer: 10% early withdrawal penalty

The IRS imposes a 10% early withdrawal penalty on distributions taken before age 59½, in addition to ordinary income tax.

Question 33: True or False: Anyone can make contributions to an IRA, regardless of their income level.

True
False (Correct answer)

Correct answer: False

This statement is false because there are income limitations for contributing to certain types of IRAs, particularly Roth IRAs, where high earners may be phased out or ineligible. Additionally, to contribute to any IRA, an individual must have earned income, which excludes those with no income from employment or self-employment. Therefore, not everyone can contribute regardless of income.

Question 34: What does 'spousal IRA' allow a married couple to do?

Allow a non-working spouse to contribute to an IRA based on the working spouse's income (Correct answer)
Combine both spouses' incomes to reduce tax liability
Split one IRA account between two spouses
Double the contribution limit for a working spouse

Correct answer: Allow a non-working spouse to contribute to an IRA based on the working spouse's income

A spousal IRA allows a non-working or low-earning spouse to contribute to their own IRA based on the working spouse's earned income.

Question 35: A Roth IRA conversion triggers which immediate tax consequence?

Ordinary income tax on the converted taxable amount (Correct answer)
Capital gains tax on appreciation
No immediate tax consequence
10% early distribution penalty on all converted amounts

Correct answer: Ordinary income tax on the converted taxable amount

The taxable portion of a Roth conversion is included in ordinary income in the year of conversion.

Question 36: Under the SECURE Act, what distribution rule generally applies to non-spouse beneficiaries who inherit a traditional IRA from an owner who died after December 31, 2019?

10-year rule — the account must be fully distributed by the end of the 10th year following the owner's death (Correct answer)
Stretch IRA over beneficiary's lifetime
5-year rule — all funds must be distributed within 5 years
25-year rule for minors

Correct answer: 10-year rule — the account must be fully distributed by the end of the 10th year following the owner's death

The SECURE Act replaced the stretch IRA for most non-spouse beneficiaries with the 10-year rule, requiring full distribution by December 31 of the year containing the 10th anniversary of the owner's death.

Question 37: Which of the following is a qualified exception to the 10% early withdrawal penalty for IRAs?

Permanent disability (Correct answer)
Buying a vacation home
Funding a business startup
Paying off credit card debt

Correct answer: Permanent disability

Permanent disability is one of the IRS-recognized exceptions that waives the 10% early withdrawal penalty.

Question 38: Which type of IRA allows you to contribute after-tax dollars and withdraw funds tax-free in retirement?

Roth IRA (Correct answer)
Traditional IRA
SIMPLE IRA
SEP IRA

Correct answer: Roth IRA

A Roth IRA is funded with after-tax dollars, meaning qualified withdrawals in retirement are completely tax-free.

Question 39: If you're 65 or older, or if one of the following applies to you:

Receiving unemployment compensation
A beneficiary of a trust
Retired from the military
Blind (Correct answer)

Correct answer: Blind

The IRS provides an additional standard deduction amount for taxpayers who meet certain criteria, such as being age 65 or older, or being blind. This additional deduction is intended to offer a greater tax benefit to individuals who may face increased expenses or have reduced earning capacity due to these circumstances. Therefore, being blind qualifies a taxpayer for this enhanced deduction.

Question 40: What is the income limit for married filing jointly couples to contribute directly to a Roth IRA in 2024?

Phase-out $193,000–$203,000 (Correct answer)
Phase-out $218,000–$228,000
Phase-out $183,000–$193,000
Phase-out $230,000–$240,000

Correct answer: Phase-out $193,000–$203,000

For 2024, married filing jointly couples face a Roth IRA phase-out range of $230,000–$240,000.

Question 41: Who is considered a 'disqualified person' for IRA prohibited transaction purposes?

The IRA owner, their spouse, lineal descendants and ancestors, and fiduciaries (Correct answer)
Only the IRA owner and their spouse
Any person who has traded with the IRA custodian
Any individual with power of attorney

Correct answer: The IRA owner, their spouse, lineal descendants and ancestors, and fiduciaries

Disqualified persons include the IRA owner, their spouse, ancestors, lineal descendants and their spouses, fiduciaries, and certain service providers.

Question 42: Can a minor child with earned income open and contribute to a Roth IRA?

No, IRAs require the account holder to be at least 18
Only if they earn more than $5,000
Yes, any person with earned income can contribute to a Roth IRA regardless of age (Correct answer)
Only if a parent co-signs the account

Correct answer: Yes, any person with earned income can contribute to a Roth IRA regardless of age

There is no minimum age for a Roth IRA; any person with earned income (including minors) can contribute up to their earned income or the annual limit, whichever is less.

Question 43: What penalty applies to early withdrawals from a traditional IRA before age 59½?

20% withholding tax
5% excise tax
15% penalty tax
10% additional tax (Correct answer)

Correct answer: 10% additional tax

Withdrawals from a traditional IRA before age 59½ are generally subject to a 10% early withdrawal penalty in addition to ordinary income tax, unless an exception applies.

Question 44: What might be included in an administrator disclosure statement?

All of the above (Correct answer)
IRA Custodian’s Fees
investments made
contribution limits

Correct answer: All of the above

An IRA administrator disclosure statement is designed to provide comprehensive information to the IRA owner. This typically includes details about the IRA custodian's fees, the current contribution limits set by the IRS, and information regarding the types of investments made or allowed within the IRA. Providing all this information ensures transparency and helps the IRA owner understand their account fully.

Question 45: What does the term 'excess contribution' mean in relation to IRAs?

Contributing to too many IRA accounts
Contributing more than the IRS annual limit (Correct answer)
Contributing during a year you have no earned income
Contributing more than your income allows

Correct answer: Contributing more than the IRS annual limit

An excess contribution occurs when you deposit more into your IRA than the IRS annual contribution limit allows, triggering a 6% excise tax.

Question 46: What is the penalty for withdrawing money from a traditional IRA before age 59½?

15% early withdrawal penalty
5% early withdrawal penalty
10% early withdrawal penalty (Correct answer)
20% early withdrawal penalty

Correct answer: 10% early withdrawal penalty

The IRS imposes a 10% early withdrawal penalty on distributions taken before age 59½, in addition to ordinary income taxes.

Question 47: Can a spouse who does not work outside the home contribute to an IRA?

Only if married for more than 10 years
Yes, through a spousal IRA funded by the working spouse's income (Correct answer)
Yes, but only up to $1,000
No, you must have earned income

Correct answer: Yes, through a spousal IRA funded by the working spouse's income

A spousal IRA allows a non-working spouse to contribute up to the normal annual limit based on the working spouse's compensation.

Question 48: Can a non-deductible traditional IRA contribution be converted to a Roth IRA without paying taxes?

No, all conversions are fully taxable
Yes, the after-tax basis is not taxed, but the pro-rata rule may apply (Correct answer)
Yes, but only on the earnings portion
Yes, always tax-free if converted within 60 days

Correct answer: Yes, the after-tax basis is not taxed, but the pro-rata rule may apply

Only the after-tax (non-deductible) portion of the conversion is tax-free, but the pro-rata rule requires proportional taxation based on all traditional IRA balances.

Question 49: What is the IRS form used by IRA custodians to report IRA distributions to the IRS and the account owner?

Form 1099-R (Correct answer)
Form 8606
Form W-2
Form 5498

Correct answer: Form 1099-R

Form 1099-R is used to report IRA distributions, including rollovers and conversions, to both the IRS and the recipient.

Question 50: Which of the following assets CAN be rolled over from a 401(k) to a traditional IRA?

After-tax contributions (non-Roth) (Correct answer)
Outstanding 401(k) loan balance
Required minimum distribution for the current year
Hardship withdrawals

Correct answer: After-tax contributions (non-Roth)

After-tax (non-Roth) contributions from a 401(k) can be rolled over to a traditional IRA or directly to a Roth IRA in a tax-efficient manner.

Question 51: What are the income limits for contributing directly to a Roth IRA for single filers in 2024?

Phase-out begins at $130,000, ends at $145,000
Phase-out begins at $146,000, ends at $161,000 (Correct answer)
Phase-out begins at $153,000, ends at $168,000
Phase-out begins at $138,000, ends at $153,000

Correct answer: Phase-out begins at $146,000, ends at $161,000

For 2024, single filers can fully contribute to a Roth IRA if MAGI is below $146,000, with phase-out ending at $161,000.

Question 52: Can a qualified distribution from a Roth IRA be included in the calculation of provisional income that determines Social Security taxation?

Only if over $85,000
Yes, always
Only for married filers
No, qualified Roth distributions are excluded from provisional income (Correct answer)

Correct answer: No, qualified Roth distributions are excluded from provisional income

Qualified Roth IRA distributions are tax-free and are not included in the provisional income calculation used to determine if Social Security benefits are taxable.

Question 53: What happens if an individual contributes more than the allowed IRA limit in a given year?

The IRA is disqualified
The excess is automatically refunded
A 10% penalty applies
A 6% excise tax is imposed on the excess amount (Correct answer)

Correct answer: A 6% excise tax is imposed on the excess amount

The IRS imposes a 6% excise tax each year on excess IRA contributions until they are corrected.

Question 54: Which transaction allows an IRA owner to move funds directly from a Traditional IRA to a Roth IRA without the funds passing through the owner's hands?

Direct conversion (trustee-to-trustee transfer) (Correct answer)
Qualified charitable distribution
Recharacterization
60-day rollover

Correct answer: Direct conversion (trustee-to-trustee transfer)

A direct (trustee-to-trustee) conversion moves funds directly between the custodians, avoiding the 60-day rule and withholding complications.

Question 55: If you are self-employed, what is the maximum percentage of net self-employment income you can contribute to a SEP IRA?

10%
25% (Correct answer)
50%
15%

Correct answer: 25%

Self-employed individuals can contribute up to 25% of their net self-employment income to a SEP IRA, subject to annual dollar limits.

Question 56: What happens if a non-spouse beneficiary inherits a Roth IRA?

They can treat it as their own Roth IRA
They must convert it to a traditional IRA
They are subject to the 10-year rule but qualified distributions remain tax-free (Correct answer)
They must pay taxes on all distributions immediately

Correct answer: They are subject to the 10-year rule but qualified distributions remain tax-free

Non-spouse Roth IRA beneficiaries must follow the 10-year rule like traditional IRA beneficiaries, but qualified distributions from the inherited Roth IRA remain income tax-free.

Question 57: What is the standard IRA contribution limit for individuals under age 50 in 2024?

$6,000
$6,500
$5,500
$7,000 (Correct answer)

Correct answer: $7,000

The IRS raised the annual IRA contribution limit to $7,000 for 2024 for individuals under age 50.

Question 58: Are Roth IRAs subject to required minimum distributions (RMDs) during the account owner's lifetime?

No, Roth IRAs have no lifetime RMDs for the original owner (Correct answer)
Only if the balance exceeds $1 million
Yes, starting at age 73
Yes, starting at age 72

Correct answer: No, Roth IRAs have no lifetime RMDs for the original owner

Roth IRAs are not subject to RMDs during the original owner's lifetime, making them ideal for tax-free growth and wealth transfer.

Question 59: What is a 'Roth conversion' and what tax consequence does it trigger?

Moving funds from a Roth to a traditional IRA with no tax due
A tax-free exchange between two Roth accounts at different brokerages
Converting after-tax 401(k) contributions to a Roth without any tax
Moving funds from a traditional IRA to a Roth IRA, with the converted amount taxed as ordinary income (Correct answer)

Correct answer: Moving funds from a traditional IRA to a Roth IRA, with the converted amount taxed as ordinary income

A Roth conversion moves pre-tax traditional IRA funds into a Roth IRA, and the converted amount is included in ordinary taxable income for that year.

Question 60: True or False: To qualify for the Retirement Savings Contribution Credit, you must make IRA contributions.

True
False (Correct answer)

Correct answer: False

This statement is false. While IRA contributions can help you qualify for the Retirement Savings Contribution Credit (also known as the Saver's Credit), they are not the only type of contribution that counts. Contributions to other retirement plans, such as 401(k)s, 403(b)s, and SEP IRAs, can also qualify you for this credit, provided you meet the income and other eligibility requirements. The credit encourages saving in various retirement accounts.

Question 61: How is the RMD amount calculated for a traditional IRA?

Account balance divided by life expectancy factor from IRS tables (Correct answer)
Fixed 4% of account balance
Same fixed dollar amount each year
Account balance multiplied by your tax rate

Correct answer: Account balance divided by life expectancy factor from IRS tables

RMDs are calculated by dividing the prior year-end account balance by the life expectancy factor from the IRS Uniform Lifetime Table.

Question 62: Which of the following statements regarding the PTC for premiums is accurate?

Married individuals are required to file a joint return to qualify for the credit
No PTC is allowed for any period during which an individual is not lawfully present in the United States (Correct answer)
For at least 6 months during the year the individual was enrolled in a qualified health plan
Form 1095-A, Health Insurance Marketplace Statement, is not needed to complete Form 8962, Premium Tax Credit (PTC)

Correct answer: No PTC is allowed for any period during which an individual is not lawfully present in the United States

The Premium Tax Credit (PTC) is a refundable tax credit designed to help eligible individuals and families afford health insurance coverage purchased through the Health Insurance Marketplace. A fundamental eligibility requirement for receiving the PTC is that the individual must be lawfully present in the United States. Consequently, no PTC is allowed for any period during which an individual does not meet this lawful presence criterion.

Question 63: An IRA owner who turns 73 in 2024 must take their first Required Minimum Distribution (RMD) by what deadline?

December 31, 2024
April 15, 2025
April 1, 2025 (Correct answer)
December 31, 2025

Correct answer: April 1, 2025

Under SECURE 2.0, the RMD beginning date is April 1 of the year following the year the owner turns 73.

Question 64: What is a 'conduit trust' vs. an 'accumulation trust' in the context of an IRA beneficiary trust?

A conduit trust invests only in bonds; an accumulation trust invests in equities
They are the same type of trust with different names
A conduit trust passes all IRA distributions to the trust beneficiaries; an accumulation trust allows distributions to be held in the trust (Correct answer)
A conduit trust is only for Roth IRAs; an accumulation trust is only for traditional IRAs

Correct answer: A conduit trust passes all IRA distributions to the trust beneficiaries; an accumulation trust allows distributions to be held in the trust

A conduit trust passes IRA distributions through to the individual trust beneficiaries, while an accumulation trust can retain distributions within the trust, which has different tax implications.

Question 65: Which form must be filed to track non-deductible traditional IRA contributions?

Form 8606 (Correct answer)
Form 5329
Form 1040-SR
Form W-2P

Correct answer: Form 8606

Form 8606 is used to record non-deductible IRA contributions and to calculate the taxable portion of future distributions using the pro-rata rule.

Question 66: How does an inherited IRA differ from a regular IRA for a non-spouse beneficiary under the SECURE Act?

The beneficiary can stretch distributions over their lifetime
The beneficiary must withdraw all funds within 10 years (Correct answer)
The beneficiary can roll the inherited IRA into their own IRA
The beneficiary must take RMDs starting immediately regardless of age

Correct answer: The beneficiary must withdraw all funds within 10 years

The SECURE Act of 2019 eliminated the stretch IRA for most non-spouse beneficiaries, requiring full distribution within 10 years of the original owner's death.

Question 67: Which type of income qualifies as earned income for traditional IRA contribution purposes?

Self-employment net earnings (Correct answer)
Capital gains distributions
Rental income
Dividend income

Correct answer: Self-employment net earnings

Net self-employment earnings count as earned income for IRA contribution purposes, while passive income such as dividends, capital gains, and rent do not.

Question 68: What is a 'mega backdoor Roth' strategy?

Contributing the maximum to a Roth IRA every year for multiple decades
Rolling a SEP-IRA to a Roth IRA
Making after-tax 401(k) contributions above the normal limit and rolling them to a Roth IRA or converting in-plan (Correct answer)
Combining multiple Roth IRAs to maximize returns

Correct answer: Making after-tax 401(k) contributions above the normal limit and rolling them to a Roth IRA or converting in-plan

The mega backdoor Roth allows after-tax 401(k) contributions (beyond normal limits) to be converted to Roth status, potentially adding tens of thousands in Roth savings annually.

Question 69: At what age must an account holder begin taking required minimum distributions (RMDs) from a traditional IRA under current law (post-SECURE Act 2.0)?

75
72
73 (Correct answer)
70½

Correct answer: 73

Under SECURE Act 2.0 (effective 2023), the RMD age for traditional IRAs was raised to 73 for those born between 1951 and 1959.

Question 70: Which of the following is NOT a qualifying reason for an early IRA distribution to avoid the 10% penalty?

Purchasing a vacation home (Correct answer)
First-time home purchase up to $10,000
Permanent disability
Payment of college tuition

Correct answer: Purchasing a vacation home

Purchasing a vacation home does not qualify as an exception to the 10% early distribution penalty.

Question 71: What is the maximum annual contribution to a Roth IRA for someone under age 50 in 2024?

$5,000
$8,000
$6,000
$7,000 (Correct answer)

Correct answer: $7,000

For 2024, the IRA contribution limit for individuals under 50 is $7,000 per year.

Question 72: What is a 'see-through trust' in the context of IRA beneficiary designations?

A transparent investment strategy for IRAs
A trust used exclusively for Roth IRA assets
An IRA held in a revocable trust
A trust that meets IRS requirements so that individual trust beneficiaries are treated as designated beneficiaries for distribution purposes (Correct answer)

Correct answer: A trust that meets IRS requirements so that individual trust beneficiaries are treated as designated beneficiaries for distribution purposes

A see-through (or look-through) trust allows the trust to be treated as a designated beneficiary if it meets specific IRS requirements, including that all beneficiaries are identifiable individuals.

Question 73: What is the deadline for making an IRA contribution that counts toward the prior tax year?

October 15 of the following year
December 31 of the tax year
January 31 of the following year
April 15 of the following year (Correct answer)

Correct answer: April 15 of the following year

IRA contributions for a given tax year can be made up to the tax filing deadline, typically April 15 of the following year.

Question 74: Can a beneficiary of an inherited IRA make new contributions to the inherited account?

No, beneficiaries cannot make new contributions to an inherited IRA (Correct answer)
Only if they roll it into their own IRA first
Yes, up to the annual IRA limit
Yes, but only if they are a spouse

Correct answer: No, beneficiaries cannot make new contributions to an inherited IRA

No contributions can be made to an inherited IRA; beneficiaries can only take distributions from the account.

Question 75: An IRA owner dies and names their spouse as primary beneficiary. The spouse, who is age 58 at the time, inherits the IRA. To avoid the 10% early withdrawal penalty on needed distributions, what is the best strategy?

Roll it into their own IRA immediately
Keep it as an inherited spousal IRA until age 59½, then roll into own IRA (Correct answer)
Convert to a Roth IRA
Take all distributions within 5 years

Correct answer: Keep it as an inherited spousal IRA until age 59½, then roll into own IRA

Keeping the inherited IRA as a spousal inherited IRA allows distributions without the 10% penalty before 59½; after reaching 59½, rolling into the spouse's own IRA avoids RMDs until the spouse reaches their RMD age.

Certified IRA Specialist I (CIS I)

The CIS I exam tests knowledge of Individual Retirement Account fundamentals for financial services professionals, covering IRA contributions, distributions, rollovers and transfers, and federal reporting requirements.

Questions

180 min

Time Limit

80%

To Pass

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