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

Question 1: When can Roth IRA contributions (not earnings) be withdrawn?

At any time, tax-free and penalty-free (Correct answer)
Only after the account has been open for 5 years
Only for qualified expenses like education or home purchase
Only after age 59½

Correct answer: At any time, tax-free and penalty-free

Roth IRA contributions (not earnings) can always be withdrawn at any time, tax-free and penalty-free, since they were made with after-tax dollars.

Question 2: What statement about the Form 1095A, Health Insurance Marketplace Statement, is true?

If a taxpayer has been insured by an employment insurance plan during the entire year, they will receive Form 1095-A to complete Form 8962, Premium Tax Credit.
To reconcile advance payments of the premium tax credit or to claim the premium tax credit on their return, taxpayers must attach a Form 1095-A to their tax return.
In order to reconcile advance payments of the premium tax credit or to claim the premium tax credit on their tax return, taxpayers do not need Form 1095-A to complete Form 8962, Premium Tax Credit.
In order to reconcile advance payments of the premium tax credit or to claim the premium tax credit on their tax return, taxpayers will need Form 1095-A to complete Form 8962, Premium Tax Credit. (Correct answer)

Correct answer: In order to reconcile advance payments of the premium tax credit or to claim the premium tax credit on their tax return, taxpayers will need Form 1095-A to complete Form 8962, Premium Tax Credit.

Form 1095-A, Health Insurance Marketplace Statement, is essential for taxpayers who purchased health coverage through the Health Insurance Marketplace. This form provides critical information needed to complete Form 8962, Premium Tax Credit (PTC). Taxpayers use Form 8962 to reconcile any advance payments of the premium tax credit they received or to claim the credit on their tax return, making Form 1095-A indispensable for this process.

Question 3: How many IRA rollovers are you allowed to perform in a 12-month period?

Two
Three
One (Correct answer)
Unlimited

Correct answer: One

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

Question 4: Which type of distribution from an IRA is NOT eligible to be rolled over?

A distribution from an inherited IRA to a spouse beneficiary
A required minimum distribution (RMD) (Correct answer)
A lump-sum distribution from a traditional IRA
A rollover from a prior employer's 401(k)

Correct answer: A required minimum distribution (RMD)

Required minimum distributions (RMDs) are not eligible for rollover; they must be withdrawn and cannot be re-deposited into an IRA.

Question 5: What is the 'backdoor Roth IRA' strategy?

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

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 6: Which of the following is NOT considered earned income for IRA contribution purposes?

Alimony received under a pre-2019 divorce decree
Net self-employment income
Social Security benefits (Correct answer)
Taxable combat pay

Correct answer: Social Security benefits

Social Security benefits are not considered earned income and cannot be used to fund IRA contributions.

Question 7: What is a 'Roth IRA ladder' strategy?

Investing in bonds of different maturities inside a Roth IRA
Gradually increasing Roth contributions each year
Doing annual Roth conversions and waiting five years to access each year's converted principal penalty-free before age 59½ (Correct answer)
Opening multiple Roth IRAs at different institutions

Correct answer: Doing annual Roth conversions and waiting five years to access each year's converted principal penalty-free before age 59½

A Roth conversion ladder involves converting pre-tax funds annually, waiting five years for each conversion, then accessing that principal tax-free and penalty-free before age 59½.

Question 8: What is a Roth IRA conversion and what tax event does it trigger?

Moving pre-tax funds from a traditional IRA or employer plan to a Roth IRA, triggering ordinary income tax on the converted amount (Correct answer)
A tax-free exchange between two Roth IRAs
Moving money from a Roth IRA to a traditional IRA, tax-free
An automatic annual conversion based on income

Correct answer: Moving pre-tax funds from a traditional IRA or employer plan to a Roth IRA, triggering ordinary income tax on the converted amount

A Roth conversion moves pre-tax funds to a Roth IRA, and the converted amount is included in ordinary income in the year of conversion.

Question 9: What is a 'conduit trust' vs. an 'accumulation trust' in the context of an IRA beneficiary trust?

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
A conduit trust invests only in bonds; an accumulation trust invests in equities

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

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

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 11: What is the penalty for failing to take a required minimum distribution (RMD) from a traditional IRA?

25% of the amount not withdrawn (Correct answer)
10% of the RMD amount
50% of the amount not withdrawn
Flat $500 fee

Correct answer: 25% of the amount not withdrawn

Under SECURE Act 2.0, the penalty for missing an RMD was reduced from 50% to 25% of the amount that should have been withdrawn.

Question 12: 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 13: A self-employed individual with a SEP-IRA can ALSO contribute to a traditional or Roth IRA.

False, unless the SEP-IRA is empty
False, they are mutually exclusive
True, but only if income allows (Correct answer)
True, always

Correct answer: True, but only if income allows

A self-employed person with a SEP-IRA can also contribute to a traditional or Roth IRA, subject to income and eligibility rules.

Question 14: Which exception to the early withdrawal penalty applies to individuals who have separated from service and are at least age 55?

The rule of 55 (applies to 401(k) plans, NOT IRAs) (Correct answer)
Substantially equal periodic payments
First-time homebuyer exception
IRA exception for medical expenses

Correct answer: The rule of 55 (applies to 401(k) plans, NOT IRAs)

The 'Rule of 55' applies to qualified plans like 401(k)s, NOT to IRAs; the comparable IRA exception is substantially equal periodic payments (SEPP).

Question 15: What is a Qualified Longevity Annuity Contract (QLAC) and how does it affect RMDs?

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

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 16: How are traditional IRA distributions taxed when received by the account owner?

As long-term capital gains
As qualified dividends
Tax-free if held more than five years
As ordinary income (Correct answer)

Correct answer: As ordinary income

All deductible contributions and earnings distributed from a traditional IRA are taxed as ordinary income at the recipient's marginal tax rate.

Question 17: A Roth IRA conversion triggers which immediate tax consequence?

Capital gains tax on appreciation
Ordinary income tax on the converted taxable amount (Correct answer)
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 18: An IRA owner who turns 73 in 2024 must take their first Required Minimum Distribution (RMD) by what deadline?

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

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 19: Can a non-working spouse contribute to an IRA if the other spouse has earned income?

Only if they are age 59½ or older
Only if they file separately
Yes, through a spousal IRA (Correct answer)
No, only working individuals can contribute

Correct answer: Yes, through a spousal IRA

A spousal IRA allows a non-working spouse to contribute based on the working spouse's earned income, provided they file jointly.

Question 20: Which of the following statements regarding the PTC for premiums is accurate?

Form 1095-A, Health Insurance Marketplace Statement, is not needed to complete Form 8962, Premium Tax Credit (PTC)
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

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 21: What is the deadline to make an IRA contribution for a given tax year?

December 31 of that tax year
January 31 of the following year
The tax filing deadline (typically April 15) of the following year (Correct answer)
March 31 of the following year

Correct answer: The tax filing deadline (typically April 15) of the following year

You have until the federal tax filing deadline, generally April 15, to make IRA contributions for the prior tax year.

Question 22: What is a Substantially Equal Periodic Payment (SEPP) plan used for?

Taking penalty-free distributions before age 59½ using IRS-approved methods (Correct answer)
Converting a traditional IRA to Roth in equal installments
Splitting an IRA between multiple beneficiaries
Increasing IRA contributions gradually over time

Correct answer: Taking penalty-free distributions before age 59½ using IRS-approved methods

A SEPP plan (also known as 72(t) distributions) allows account holders to take penalty-free distributions before 59½ using one of three IRS-approved calculation methods.

Question 23: What is the maximum annual contribution to a Roth IRA for someone under age 50 in 2024?

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

Correct answer: $7,000

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

Question 24: A minor child of the IRA owner inherits an IRA. Under the SECURE Act, what rules apply?

They have 25 years to distribute the account
No RMDs are required until they turn 21
They use the lifetime stretch until majority, then the 10-year rule kicks in (Correct answer)
Standard 10-year rule applies immediately

Correct answer: They use the lifetime stretch until majority, then the 10-year rule kicks in

Minor children of the IRA owner are EDBs and can use the lifetime stretch until they reach the age of majority, after which the 10-year rule applies.

Question 25: What is the two-year rule that applies specifically to SIMPLE IRAs?

Employer matching vests over two years
Account must be open two years before Roth conversion
Rollovers to a non-SIMPLE IRA are prohibited during the first two years of participation (Correct answer)
Contributions cannot be withdrawn for two years after account opening

Correct answer: Rollovers to a non-SIMPLE IRA are prohibited during the first two years of participation

During the first two years of SIMPLE IRA participation, funds may only be rolled over to another SIMPLE IRA to avoid a 25% early withdrawal penalty.

Question 26: An individual has both deductible and nondeductible Traditional IRA funds. When they take a distribution, how is the taxable amount calculated?

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

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

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

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 28: What happens to the 10% penalty if a distribution from a traditional IRA is used to pay qualified higher education expenses?

The penalty is waived entirely (Correct answer)
The penalty is reduced to 5%
The penalty still applies
The distribution becomes tax-free

Correct answer: The penalty is waived entirely

Distributions used for qualified higher education expenses are exempt from the 10% early withdrawal penalty, though they are still subject to income tax.

Question 29: What is an 'inherited IRA'?

An IRA received from a deceased person's estate (Correct answer)
An IRA opened by a minor child
An IRA transferred between spouses during divorce
An IRA opened with inherited money

Correct answer: An IRA received from a deceased person's estate

An inherited IRA is one that is passed to a beneficiary upon the death of the original IRA owner.

Question 30: How does contributing to a traditional IRA reduce your current tax bill?

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

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

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

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 32: What happens to an IRA if the account holder dies without naming a beneficiary?

The IRA automatically transfers to the surviving spouse
The IRA is forfeited to the federal government
The IRA passes through the estate and is subject to probate (Correct answer)
The IRA is split equally among all living relatives

Correct answer: The IRA passes through the estate and is subject to probate

Without a named beneficiary, the IRA passes through the deceased's estate, subjecting it to probate and potentially faster distribution rules.

Question 33: What type of income qualifies for IRA contributions?

Rental income
Earned income such as wages, salaries, and self-employment income (Correct answer)
Interest income
Dividend income

Correct answer: Earned income such as wages, salaries, and self-employment income

IRA contributions must be funded with earned income—money received for work performed, such as wages, salaries, tips, or self-employment income.

Question 34: Which form does a financial institution use to report IRA distributions to the IRS?

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

Correct answer: Form 1099-R

Form 1099-R is used by financial institutions to report IRA and retirement plan distributions to the IRS.

Question 35: 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
73 (Correct answer)
70½
72

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 36: What is the primary advantage of a Roth IRA over a traditional IRA for young investors?

Tax-free growth over many decades (Correct answer)
Higher contribution limits
No income restrictions
Immediate tax deduction

Correct answer: Tax-free growth over many decades

Young investors benefit most from Roth IRAs because tax-free compounding over a long time horizon can result in significantly more wealth.

Question 37: Which strategy allows a taxpayer to move after-tax money from a traditional IRA into a Roth IRA, often called the 'backdoor Roth'?

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

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 38: When is it generally NOT advisable to do a Roth IRA conversion?

When you have many years until retirement
When you can pay the conversion tax from outside funds
When you are in a low tax bracket
When you expect lower tax rates in retirement (Correct answer)

Correct answer: When you expect lower tax rates in retirement

If you expect to be in a lower tax bracket in retirement, it is usually not beneficial to convert and pay taxes now at a higher rate.

Question 39: True or False: Anyone can make contributions to an IRA, regardless of their income level.

False (Correct answer)
True

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 40: How many times per year can an individual perform an indirect (60-day) IRA-to-IRA rollover?

Once per IRA account
Once per year across all IRAs (Correct answer)
Unlimited
Twice per year

Correct answer: Once per year across all IRAs

Under IRS rules (after the Bobrow v. Commissioner case), only one indirect rollover is allowed per year across all of an individual's IRAs combined.

Question 41: What is the maximum annual contribution to a SIMPLE IRA for an employee under age 50 in 2024?

$69,000
$7,000
$23,000
$16,000 (Correct answer)

Correct answer: $16,000

The 2024 SIMPLE IRA elective deferral limit is $16,000 for participants under age 50.

Question 42: What is the 'at least as rapidly' rule in the context of inherited IRAs?

Distributions must accelerate each year
The account must be fully distributed within 10 years
Beneficiaries must take distributions monthly rather than annually
Once RMDs have begun, the beneficiary must continue distributions at least as rapidly as the original owner was taking them (Correct answer)

Correct answer: Once RMDs have begun, the beneficiary must continue distributions at least as rapidly as the original owner was taking them

If the IRA owner died after their RBD (required beginning date), beneficiaries must take distributions at least as rapidly as the owner would have using the owner's remaining life expectancy.

Question 43: What is the deadline for making an IRA contribution that counts toward the prior tax year?

January 31 of the following year
October 15 of the following year
December 31 of the tax 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 44: What is the penalty for withdrawing money from a traditional IRA before age 59½?

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

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 45: How are non-deductible traditional IRA contributions tracked for tax purposes?

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

Correct answer: Form 8606

Form 8606 is used to track non-deductible traditional IRA contributions to establish basis and avoid double taxation on withdrawals.

Question 46: True or False: Married individuals who file jointly with their spouse may combine their IRA assets into a jointly funded spousal IRA.

True
False (Correct answer)

Correct answer: False

This statement is false. While spouses can each contribute to their own separate IRAs, even if one spouse has no earned income (known as a spousal IRA contribution), they cannot combine their assets into a single jointly funded IRA account. IRAs are individual retirement accounts, meaning each account must be held by one person, even if contributions are made on behalf of a spouse.

Question 47: What is the 'indirect rollover' trap that can result in unexpected taxes?

Rolling over more than once per year
Both B and C (Correct answer)
Depositing the funds in a regular bank account instead of an IRA within 60 days
Choosing the wrong investment after the rollover

Correct answer: Both B and C

An indirect rollover can result in taxes if funds are deposited to a non-IRA account or not rolled over within 60 days, or if the once-per-year rule is violated.

Question 48: Can a minor child with earned income open and contribute to a Roth IRA?

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

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

Split an IRA among multiple beneficiaries
Convert a Roth to traditional IRA
Transfer funds from one retirement account to another (Correct answer)
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 50: When must a SEP-IRA contribution be made for it to count for a given tax year?

By December 31 of the tax year
By the employer's tax return deadline including extensions (Correct answer)
By April 15 of the following year
By October 15 of the following year

Correct answer: By the employer's tax return deadline including extensions

SEP-IRA contributions can be made up to the employer's tax return deadline including extensions, which can be as late as October 15.

Question 51: Which of the following people is eligible to contribute to a Roth IRA?

A retiree with $80,000 in Social Security income and no earned income
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 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 52: What is the contribution limit for a SEP-IRA in 2024?

$66,000 or 25% 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
$66,000 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 53: Which of the following best describes 'tax-deferred growth' in a traditional IRA?

Investment gains are not taxed until you withdraw the money (Correct answer)
Taxes are paid annually on dividends
You never pay taxes on IRA gains
Growth is taxed at the capital gains rate

Correct answer: Investment gains are not taxed until you withdraw the money

In a traditional IRA, investment earnings compound without being taxed each year; taxes are only owed when you take distributions.

Question 54: A spouse who inherits an IRA has which unique rollover option not available to non-spouse beneficiaries?

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

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 55: Under the Tax Cuts and Jobs Act, alimony received from divorce agreements finalized after December 31, 2018 is treated as:

Not earned income for IRA contribution purposes (Correct answer)
Earned income eligible for IRA contributions
Partially earned income up to $6,000
Earned income only if the payer elects it

Correct answer: Not earned income for IRA contribution purposes

Alimony from post-2018 divorce agreements is no longer deductible by the payer or included in the recipient's income, so it does not count as earned income for IRA purposes.

Question 56: What is a 'per stirpes' beneficiary designation?

Designating the oldest child as sole beneficiary
Naming a charity as a contingent beneficiary
A designation where a deceased beneficiary's share passes to their descendants rather than to the other named beneficiaries (Correct answer)
Splitting the IRA equally among all living beneficiaries

Correct answer: A designation where a deceased beneficiary's share passes to their descendants rather than to the other named beneficiaries

A per stirpes designation ensures that if a primary beneficiary predeceases the IRA owner, that beneficiary's share passes to their children rather than being redistributed among surviving primary beneficiaries.

Question 57: Which IRA type requires the employer to match employee contributions dollar-for-dollar up to 3% of compensation, or make a 2% non-elective contribution?

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

Correct answer: SIMPLE IRA

SIMPLE IRA rules require the employer to either match contributions up to 3% of compensation or contribute 2% non-electively for all eligible employees.

Question 58: 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?

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

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.

Question 59: For 2024, at what modified adjusted gross income (MAGI) does the traditional IRA deductibility phase-out begin for a single filer covered by a workplace retirement plan?

$60,000
$73,000
$77,000 (Correct answer)
$87,000

Correct answer: $77,000

For 2024, the deductibility phase-out for single filers covered by a workplace plan begins at $77,000 MAGI and is fully phased out at $87,000.

Question 60: If a non-spouse beneficiary inherits a traditional IRA, what rule generally applies under the SECURE Act?

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

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 61: 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 6% excise tax is imposed on the excess amount (Correct answer)
A 10% penalty applies

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 62: 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 method to reduce RMDs by 50%
A way to avoid all taxes on employer stock
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 63: What is the five-year rule for Roth IRA qualified distributions?

Conversions must be held five years regardless of age
Contributions must be held five years before withdrawal
The Roth IRA must have been open for at least five tax years before distributions are qualified (Correct answer)
Earnings can only be withdrawn after five years of employment

Correct answer: The Roth IRA must have been open for at least five tax years before distributions are qualified

For Roth IRA earnings to be distributed tax-free and penalty-free, the account must have been open for at least five tax years AND the account holder must be age 59½ or older.

Question 64: How does a SEP-IRA differ from a traditional IRA in terms of contribution limits?

SEP-IRA limits contributions to $15,000 per year
SEP-IRA has the same limit as a traditional IRA
SEP-IRA allows contributions up to 25% of compensation or $69,000 (2024) (Correct answer)
SEP-IRA contributions are not tax-deductible

Correct answer: SEP-IRA allows contributions up to 25% of compensation or $69,000 (2024)

A SEP-IRA allows employers to contribute up to 25% of an employee's compensation or $69,000 for 2024, far exceeding traditional IRA limits.

Question 65: What is a 'Roth conversion' and what tax consequence does it trigger?

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

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 66: A taxpayer can contribute to an IRA even if they also participate in an employer-sponsored retirement plan.

True, but only to a Roth IRA
True, always
False, never
True, but the deductibility may be limited (Correct answer)

Correct answer: True, but the deductibility may be limited

A taxpayer covered by a workplace retirement plan can still contribute to a traditional IRA, but their deduction may be phased out based on income.

Question 67: What is a 'conduit IRA' and why was it important historically?

An IRA that accepts only Roth contributions
An IRA with no investment restrictions
An IRA shared between spouses
An IRA used to hold rollover funds separately to preserve the ability to roll them back into an employer plan (Correct answer)

Correct answer: An IRA used to hold rollover funds separately to preserve the ability to roll them back into an employer plan

A conduit IRA held only employer plan rollover funds to preserve the option to roll them back into a new employer plan, though most employer plans now accept rollovers from commingled IRAs.

Question 68: Which of the following is a qualified exception to the 10% early withdrawal penalty for IRAs?

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

Correct answer: Permanent disability

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

Question 69: What is the tax treatment of investment earnings inside a traditional IRA?

Tax-deferred growth (Correct answer)
Tax-free growth
Taxed annually as ordinary income
Subject to capital gains tax each year

Correct answer: Tax-deferred growth

Earnings inside a traditional IRA grow tax-deferred, meaning taxes are not owed until funds are withdrawn.

Question 70: What happens if you fail to complete a 60-day IRA rollover within the deadline?

The account is frozen for one year
The IRS grants a standard 90-day grace period
The distribution is treated as taxable income and may be subject to a 10% penalty (Correct answer)
The funds are returned to the original IRA automatically

Correct answer: The distribution is treated as taxable income and may be subject to a 10% penalty

Missing the 60-day rollover window makes the distribution taxable income, and if under age 59½, the 10% early withdrawal penalty also applies.

Question 71: How does an inherited IRA differ from a regular IRA for a non-spouse beneficiary under the SECURE Act?

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

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 72: Can IRA distributions be rolled over back into an IRA if the account holder changes their mind?

No, once withdrawn it cannot be returned
Yes, but only once every 5 years
Yes, within 60 days (Correct answer)
Yes, within 30 days

Correct answer: Yes, within 60 days

An IRA distribution can be rolled back into an IRA within 60 days to avoid taxation and penalties.

Question 73: What might be included in an administrator disclosure statement?

IRA Custodian’s Fees
All of the above (Correct answer)
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 74: An IRA owner fails to take their full RMD by December 31. What is the excise tax rate on the shortfall under SECURE 2.0?

50%
10%
6%
25%, reducible to 10% if corrected timely (Correct answer)

Correct answer: 25%, reducible to 10% if corrected timely

SECURE 2.0 reduced the RMD excise tax from 50% to 25%, further reducible to 10% if the missed RMD is corrected within the correction window.

Question 75: What is 'earned income' for IRA contribution purposes?

Wages, salaries, tips, self-employment income, and alimony received (Correct answer)
Investment dividends and capital gains
Social Security benefits and pension income
Only W-2 wages from an employer

Correct answer: Wages, salaries, tips, self-employment income, and alimony received

Earned income for IRA purposes includes wages, salaries, tips, self-employment income, and taxable alimony — not passive investment income.

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

35 min

Time Limit

80%

To Pass

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