CRPC® EXAM TEST BANK 100 PREMIUM MCQS WITH ANSWERS & RATIONALES
(2025 EDITION) BASED ON: CRPC SAMPLE TEST EXAM QUESTIONS – 100% VERIFIED
PUBLISHER: KAPLAN / COLLEGE FOR FINANCIAL PLANNING | CHARTERED RETIREMENT
PLANNING COUNSELOR℠ PROGRAM
1. Which of the following strategies is best for increasing equity exposure throughout retirement
while minimizing risk early in retirement?
A. Target-date glidepath
B. Rising equity glidepath
C. Constant allocation strategy
D. Age-based rebalancing
Correct Answer: B. Rising equity glidepath
Explanation: This strategy increases equity allocation later in retirement, reducing exposure
early when the portfolio is more vulnerable to losses.
2. A bond has a duration of 8 years. If interest rates rise by 1%, what’s the expected price change?
A. 8% increase
B. 0% change
C. 8% decrease
D. 1% decrease
Correct Answer: C. 8% decrease
Explanation: Bond prices move inversely to interest rates. Duration of 8 × 1% = 8% price drop.
3. A "barbell" bond strategy splits investment between:
A. Mid-duration bonds only
B. Long- and intermediate-term bonds
C. Short- and long-term bonds
D. Floating rate bonds
Correct Answer: C. Short- and long-term bonds
Explanation: Barbell strategies use extremes in maturity to balance risk and return.
4. What is the penalty for failing to take the Required Minimum Distribution (RMD)?
A. 25%
B. 10%
C. 50%
D. None
Correct Answer: C. 50%
Explanation: The IRS imposes a 50% penalty on the amount that should have been withdrawn
but wasn’t.
5. Which of the following is NOT a feature of “golden parachute” agreements?
A. Extra pension benefits
B. Stock options
C. Medical insurance
D. Reduced pension benefits
Correct Answer: D. Reduced pension benefits
Explanation: Golden parachutes offer enhanced benefits, not reduced ones.
6. The maximum deductible contribution to a qualified profit-sharing plan in 2015 is:
A. $52,000
B. $53,000
C. $54,000
D. 100% of compensation
Correct Answer: B. $53,000
Explanation: For 2015, the IRS capped employer contributions at the lesser of 100% of
compensation or $53,000.
7. Graham’s rule for nonprofessional investors recommends:
A. Investing only in high-dividend stocks
B. Buying stocks at book value
C. Buying for two-thirds or less of net current assets
D. Selling when P/E ratio is high
Correct Answer: C. Buying for two-thirds or less of net current assets
Explanation: Benjamin Graham advised buying undervalued stocks with a margin of safety.
8. A deferred compensation plan is typically:
A. Tax-free to employer
B. Exempt from ERISA
C. Available only to hourly workers
D. Covered by PBGC
Correct Answer: B. Exempt from ERISA
Explanation: These nonqualified plans avoid ERISA rules and typically benefit executives.
9. A non-springing durable power of attorney:
A. Expires when the principal is incapacitated
B. Becomes active only at death
C. Remains active after incapacity
D. Is limited to health care
Correct Answer: C. Remains active after incapacity
Explanation: Unlike springing POAs, this type is effective immediately and remains so even if
the principal becomes incapacitated.
10. What is the 2015 IRA contribution deductibility for Susan Reynolds, with AGI $105,000 and
filing jointly?
A. $0
B. $3,580
C. $5,500
D. $1,920
Correct Answer: B. $3,580
Explanation: Partial deduction applies within phaseout range; uses the formula based on AGI
and IRS limits.
11. Medicare Part A does NOT cover:
A. First 60 days of hospital stay
B. Hospice care
C. Costs beyond 150 hospital days
D. Skilled nursing care
Correct Answer: C. Costs beyond 150 hospital days
Explanation: After 150 days, the patient is responsible for all costs.
12. A 457(b) plan may not pay benefits to participants who:
A. Terminated employment
B. Are over age 70½
C. Recently turned 59½
D. Retired early
Correct Answer: C. Recently turned 59½
Explanation: Age alone doesn’t qualify for withdrawal. It must be age 70½ or employment
termination.
13. A Roth IRA distribution is considered "qualified" if:
A. Participant is age 55 and retires
B. Five years passed and is age 59½+
C. The participant uses funds to pay taxes
D. Participant contributed at least $5,000
Correct Answer: B. Five years passed and is age 59½+
Explanation: Distributions are tax-free only if both the 5-year rule and a qualifying condition
are met.
14. The coordination of benefits clause in disability insurance:
A. Always increases payout
B. Limits payout based on other benefits received
C. Only applies to private insurance
D. Is illegal under ERISA
Correct Answer: B. Limits payout based on other benefits received
Explanation: Insurers reduce benefits if the claimant is receiving Social Security or Workers’
Comp.
15. Which benefit is included in Medigap but not in Medicare?
A. Part B coverage
B. Premiums
C. Deductibles and coinsurance
D. Emergency hospital services
Correct Answer: C. Deductibles and coinsurance
Explanation: Medigap policies fill the gaps left by Medicare by covering out-of-pocket costs.
16. The phaseout range for traditional IRA deductibility for a couple in 2015 is:
A. $61,000–$71,000
B. $98,000–$118,000
C. $183,000–$193,000
D. $118,000–$138,000
Correct Answer: B. $98,000–$118,000
Explanation: This is the income range in which deduction eligibility phases out.
17. The portfolio beta for Stock A (β=0.8, 40%) and Stock B (β=1.2, 60%) is:
A. 0.88
B. 1.00
C. 1.04
D. 1.10
Correct Answer: C. 1.04
Explanation: (0.4 × 0.8) + (0.6 × 1.2) = 1.04
18. A cash balance plan is best described as:
A. A type of 401(k) plan
B. A defined contribution plan
C. A defined benefit plan with DC features
D. Not subject to IRS rules
Correct Answer: C. A defined benefit plan with DC features
Explanation: Though structured like a DC plan with individual accounts, it’s legally a DB plan.
19. What percentage of Social Security benefits is taxable for high-income earners?
A. 0%
B. 50%
C. 85%
D. 100%
Correct Answer: C. 85%
Explanation: For married filers with income over $44,000, up to 85% is taxable.
20. What happens if an individual fails to take RMDs on time?
A. They are taxed at 10%
B. The IRS waives the penalty
C. A 50% penalty applies on the shortfall
D. All funds become taxable at once
Correct Answer: C. A 50% penalty applies on the shortfall
Explanation: The IRS imposes a hefty penalty to encourage compliance with RMD rules.
21. Which of the following statements is TRUE about Roth 401(k) contributions?
A. They are tax-deductible in the year contributed
B. They are subject to minimum distribution rules at any age
C. They are taxable at the time of contribution
D. They can be reclassified as traditional 401(k) contributions retroactively
Correct Answer: C. They are taxable at the time of contribution
Explanation: Roth 401(k) contributions are made with after-tax dollars and taxed when
contributed.
22. What is the maximum Social Security benefit a person can receive at full retirement age (FRA)
in 2015?
A. $100,000
B. $1,840/month
C. $2,663/month
D. $210,000
Correct Answer: C. $2,663/month
Explanation: This was the maximum benefit for FRA recipients in 2015.
23. Which factor does NOT affect early retirement reductions in defined benefit pension plans?
A. Final compensation
B. Years of service
C. Participant's health condition
D. Life expectancy
Correct Answer: C. Participant's health condition
Explanation: Reductions are actuarial and not based on health or subjective factors.
24. Which of the following reduces the taxable estate of a decedent?
A. Life insurance owned by the decedent
B. Property held as joint tenants with right of survivorship
C. Revocable living trust assets
D. Lifetime transfers to a spouse
Correct Answer: D. Lifetime transfers to a spouse
Explanation: Unlimited marital deduction allows tax-free transfers to a spouse.
25. The primary advantage of a nonqualified deferred compensation (NQDC) plan is:
A. Employer receives an immediate deduction
B. It avoids Social Security taxation
C. Deferral of income and tax flexibility
D. It provides tax-free income to employees
Correct Answer: C. Deferral of income and tax flexibility
Explanation: NQDC plans defer income to future years, often when the employee is in a lower
bracket.
26. A plan that allocates contributions using actuarial factors based on both age and
compensation is:
A. Target benefit plan
B. Money purchase plan
C. Cross-tested profit-sharing plan
D. Cash balance plan
Correct Answer: C. Cross-tested profit-sharing plan
Explanation: These plans use actuarial assumptions to allocate contributions favoring older
employees.
27. A standardized Medigap plan is designed to cover:
A. Long-term care services
B. Medicare-approved deductibles and coinsurance
C. Hearing and vision services
D. Private room costs in hospitals
Correct Answer: B. Medicare-approved deductibles and coinsurance
Explanation: Medigap plans cover “gaps” like deductibles, coinsurance, and co-pays not paid
by Medicare.
28. The “bucket approach” to retirement income involves:
A. Segmenting assets based on liquidity and time horizon
B. Consolidating all assets into one growth portfolio
C. Avoiding rebalancing until retirement
D. Creating retirement income without withdrawing principal
Correct Answer: A. Segmenting assets based on liquidity and time horizon
Explanation: It structures funds in "buckets" for short-, medium-, and long-term needs.
29. What happens if you delay Social Security from age 66 to 70?
A. Benefit increases by 4% total
B. Benefit increases by 2% per year
C. Benefit increases by 8% per year
D. Benefit decreases after age 68
Correct Answer: C. Benefit increases by 8% per year
Explanation: Delayed retirement credits increase monthly benefits by 8% annually up to age
70.
30. A person takes $9,000 from a Roth IRA with $8,000 in contributions and $1,000 earnings.
What is taxable and penalized?
A. $0
B. $1,000
C. $9,000
D. $8,000
Correct Answer: B. $1,000
Explanation: Roth contributions come out first tax-free. Earnings are taxed and penalized if
non-qualified.
31. The penalty for early distribution from a qualified plan before age 59½ is:
A. 25%
B. 10%
C. 50%
D. None
Correct Answer: B. 10%
Explanation: Unless an exception applies, early distributions are penalized by 10%.
32. Medicare Advantage Plans require beneficiaries to:
A. Live outside the service area
B. Only have Medicare Part A
C. Have both Part A and Part B
D. Be enrolled in Medicaid
Correct Answer: C. Have both Part A and Part B
Explanation: To enroll in Medicare Advantage (Part C), both A and B are required.
33. What percentage of Social Security benefits are taxable for a couple with AGI of $80,000 and
$15,000 in benefits?
A. 0%
B. 50%
C. 85%
D. 100%
Correct Answer: C. 85%
Explanation: Provisional income exceeds $44,000, triggering taxation of 85% of benefits.
34. Which of the following best describes a flat benefit formula?
A. Benefit tied to investment performance
B. A fixed percentage of final compensation
C. Increases each year regardless of salary
D. Equal contribution for all employees
Correct Answer: B. A fixed percentage of final compensation
Explanation: Flat benefit formulas base benefits on a percentage of salary, usually final average
pay.
35. What is a required feature of a money purchase pension plan?
A. Voluntary annual contributions
B. Employer discretion
C. Mandatory fixed contributions
D. Indexed contribution formula
Correct Answer: C. Mandatory fixed contributions
Explanation: Employers are obligated to contribute based on a fixed percentage or dollar
amount.
36. What is the deductible IRA contribution limit for someone active in a plan with $75,000 AGI
(single)?
A. $5,500
B. $3,000
C. $0
D. $2,000
Correct Answer: C. $0
Explanation: Above the phase-out limit for single filers who are active plan participants.
37. What is the main purpose of an investment policy statement (IPS)?
A. To compare stocks
B. To choose mutual funds
C. To align investment strategy with goals
D. To minimize taxes
Correct Answer: C. To align investment strategy with goals
Explanation: The IPS serves as a strategic roadmap for investment decisions.
38. How is "alpha" best defined?
A. The ratio of return to beta
B. Return compared to risk-free rate
C. Actual return minus expected return
D. Average portfolio volatility
Correct Answer: C. Actual return minus expected return
Explanation: Alpha measures excess return relative to expected performance.
39. What is the primary goal of asset allocation?
A. Maximizing taxes
B. Eliminating market volatility
C. Managing risk and return across classes
D. Buying individual securities
Correct Answer: C. Managing risk and return across classes
Explanation: Asset allocation balances risk vs. return using diversified asset classes.
40. The maximum contribution limit for a 401(k) plan in 2015 was:
A. $17,000
B. $18,000
C. $19,000
D. $25,000
Correct Answer: B. $18,000
Explanation: The IRS limit for elective deferrals in 2015 was $18,000, plus catch-up for age
50+.
41. In a defined benefit plan, which of the following is NOT a reason for reduced early retirement
benefits?
A. Participant's health status
B. Final average compensation
C. Years of service
D. Life expectancy assumptions
Correct Answer: A. Participant's health status
Explanation: Benefits are reduced based on actuarial data, not health conditions.
42. What is the maximum employer deduction for a SEP-IRA contribution in 2025 for self-
employed individuals?
A. 25% of net earnings
B. 20% of adjusted net earnings
C. 100% of compensation
D. $75,000
Correct Answer: B. 20% of adjusted net earnings
Explanation: For self-employed, use 20% after adjusting for half of SE tax.
43. Which of the following does NOT require probate?
A. Life insurance with no beneficiary
B. Joint tenancy property
C. Sole-owned real estate
D. Bank account in decedent’s name only
Correct Answer: B. Joint tenancy property
Explanation: Joint tenancy with right of survivorship passes automatically to co-owner.
44. A 55-year-old retires and withdraws from a qualified retirement plan. Which penalty applies?
A. 25% penalty
B. No penalty if separated from service after age 55
C. 10% penalty always
D. 5% tax surcharge
Correct Answer: B. No penalty if separated from service after age 55
Explanation: Exception applies for separation from service after age 55.
45. A traditional IRA distribution is qualified when the individual is at least age:
A. 55
B. 59½
C. 62
D. 70½
Correct Answer: B. 59½
Explanation: Qualified distributions occur at or after age 59½ without penalty.
46. The best description of a “file and suspend” Social Security strategy is:
A. A strategy for spousal rollover
B. File for benefits, then delay to increase primary benefit
C. File for survivor’s benefit, delay own benefit
D. Cancel benefits retroactively
Correct Answer: B. File for benefits, then delay to increase primary benefit
Explanation: Allows spousal benefits while primary worker defers personal benefits.
47. Which of the following is not included in adjusted gross income (AGI)?
A. Alimony received (pre-2019)
B. Taxable interest
C. Taxable Social Security benefits
D. Qualified Roth IRA distribution
Correct Answer: D. Qualified Roth IRA distribution
Explanation: Qualified Roth IRA withdrawals are tax-free and excluded from AGI.
48. Which retirement plan uses a "definitely determinable benefit" formula?
A. Cash balance plan
B. SEP-IRA
C. SIMPLE IRA
D. Roth IRA
Correct Answer: A. Cash balance plan
Explanation: A cash balance plan is a defined benefit plan with specific benefit formulas.
49. What is the earliest age to receive reduced Social Security retirement benefits?
A. 55
B. 59½
C. 62
D. 65
Correct Answer: C. 62
Explanation: Early retirement benefits start at 62 with reduced monthly amounts.
50. What is the impact of the Government Pension Offset (GPO) on a Social Security spousal
benefit?
A. No effect
B. Eliminates the benefit
C. Reduces benefit by 1/3
D. Reduces it by 2/3 of the government pension
Correct Answer: D. Reduces it by 2/3 of the government pension
Explanation: GPO reduces spousal benefits by 2/3 of the pension received from a job not
covered by Social Security.
51. Which of the following distributions is NOT a qualified Roth IRA distribution, even if the five-
year rule is met?
A. Death
B. First-time home purchase
C. Attainment of age 59½
D. Retiring at 55
Correct Answer: D. Retiring at 55
Explanation: Retirement at 55 does not qualify; only age 59½, death, disability, or first-home
purchase.
52. Which of the following is a valid reason to delay receiving Social Security benefits?
A. Need funds earlier
B. Concern about trust fund solvency
C. Desire for higher lifetime monthly benefit
D. Mandatory at age 66
Correct Answer: C. Desire for higher lifetime monthly benefit
Explanation: Benefits increase by 8% per year delayed beyond full retirement age.
53. A Keogh plan participant may borrow up to:
A. $50,000 regardless of account size
B. 100% of vested balance
C. 50% of vested account balance, up to $50,000
D. Only if older than 59½
Correct Answer: C. 50% of vested account balance, up to $50,000
Explanation: Qualified plan loan limits apply to Keogh participants as well.
54. An investor seeking the greatest diversification should choose assets with:
A. High alpha
B. High beta
C. Low correlation
D. High standard deviation
Correct Answer: C. Low correlation
Explanation: Diversification improves when asset returns move independently.
55. In 2015, what was the 401(k) catch-up contribution limit for individuals age 50 and older?
A. $1,000
B. $5,000
C. $6,000
D. $7,000
Correct Answer: C. $6,000
Explanation: Participants 50+ could contribute an additional $6,000 beyond the standard
$18,000.
56. A “grantor retained income trust” allows the grantor to:
A. Defer tax on trust assets
B. Name themselves as trustee
C. Receive all income for a period
D. Gift assets without limits
Correct Answer: C. Receive all income for a period
Explanation: A GRIT gives the grantor income interest for a set time before transferring assets.
57. Which of the following is a characteristic of a target benefit plan?
A. Fixed employer contribution
B. Guaranteed retirement benefit
C. Investment risk on employer
D. No favor to older employees
Correct Answer: A. Fixed employer contribution
Explanation: Target benefit plans specify contributions but project a target benefit, favoring
older workers.
58. A taxpayer may claim the standard deduction when:
A. Their itemized deductions exceed standard deduction
B. Their itemized deductions are lower than the standard deduction
C. They have no income
D. They file as married but separately
Correct Answer: B. Their itemized deductions are lower than the standard deduction
Explanation: Taxpayers take the greater of standard or itemized deductions.
59. Which investment characteristic does “beta” measure?
A. Inflation risk
B. Liquidity risk
C. Market (systematic) risk
D. Credit risk
Correct Answer: C. Market (systematic) risk
Explanation: Beta measures volatility compared to the overall market.
60. What defines a nonqualified deferred compensation (NQDC) plan’s biggest advantage for the
employer?
A. Immediate deduction
B. Lower compliance cost
C. Discriminatory design for key employees
D. Tax-free funding
Correct Answer: C. Discriminatory design for key employees
Explanation: NQDC plans are not subject to ERISA’s nondiscrimination rules, so benefits can
be targeted.
61. What is the primary tax advantage of a Health Savings Account (HSA)?
A. Tax-free contributions only
B. Tax-free growth only
C. Tax-free contributions, growth, and withdrawals for qualified expenses
D. Taxable growth, tax-free withdrawal
Correct Answer: C. Tax-free contributions, growth, and withdrawals for qualified expenses
Explanation: HSAs are triple-tax advantaged — contributions are deductible, earnings grow
tax-free, and withdrawals are tax-free when used for qualified medical expenses.
62. In a traditional defined benefit plan, the employer must:
A. Provide equal benefits to all employees
B. Guarantee minimum interest
C. Make actuarially determined contributions
D. Match employee contributions
Correct Answer: C. Make actuarially determined contributions
Explanation: The employer must fund the plan based on actuarial calculations to meet future
obligations.
63. A key feature of a death benefit-only (DBO) plan is:
A. Lifetime retirement income
B. Tax-free income to the employer
C. Benefit paid only upon death before retirement
D. Qualified plan tax treatment
Correct Answer: C. Benefit paid only upon death before retirement
Explanation: A DBO plan is a nonqualified arrangement providing benefits solely upon the
employee’s death.
64. Which of the following assets is NOT included in probate?
A. Individually owned brokerage account
B. Revocable trust assets
C. Life insurance with no named beneficiary
D. Checking account without TOD
Correct Answer: B. Revocable trust assets
Explanation: Trust-held assets bypass probate since legal title is held by the trust.
65. Medicare Part A covers psychiatric hospital care for how many lifetime days?
A. 60
B. 90
C. 150
D. 190
Correct Answer: D. 190
Explanation: Medicare Part A includes up to 190 lifetime days of psychiatric hospital care.
66. Under COBRA, how long must group health coverage be offered after a qualifying event?
A. 12 months
B. 18 months (36 in certain cases)
C. 24 months
D. 60 days
Correct Answer: B. 18 months (36 in certain cases)
Explanation: COBRA allows 18 months of continued coverage, or 36 months under specific
conditions like divorce.
67. What defines the “provisional income” used to calculate taxation of Social Security benefits?
A. Earned income + investment income
B. AGI + tax-free interest + 50% of Social Security
C. AGI + Roth withdrawals
D. Only taxable Social Security income
Correct Answer: B. AGI + tax-free interest + 50% of Social Security
Explanation: Provisional income is used to determine how much of Social Security is taxable.
68. A pure deferred compensation plan is also known as:
A. A life insurance only plan
B. A 401(k) plan
C. An "in lieu of" plan
D. A post-retirement benefit
Correct Answer: C. An "in lieu of" plan
Explanation: This term reflects compensation deferred in lieu of current salary.
69. In a Roth IRA, the first money withdrawn is considered:
A. Interest
B. Conversion amounts
C. Contributions
D. Penalty earnings
Correct Answer: C. Contributions
Explanation: IRS ordering rules consider contributions withdrawn first — tax-free and penalty-
free.
70. Which of the following is not a characteristic of a Top Hat (unfunded SERP) plan?
A. Selective to top executives
B. Must comply with full ERISA vesting rules
C. May have substantial forfeiture risks
D. Funded solely by employer promise
Correct Answer: B. Must comply with full ERISA vesting rules
Explanation: Top Hat plans are exempt from most ERISA rules including funding and vesting.
71. Which of the following defines “constructive receipt” in nonqualified deferred compensation
taxation?
A. Income is received after retirement
B. Income is taxed when paid
C. Income is accessible or controlled by the employee
D. Income is gifted before taxation
Correct Answer: C. Income is accessible or controlled by the employee
Explanation: Constructive receipt means the taxpayer has access/control even if not physically
in possession.
72. For married couples filing jointly, the capital gain exclusion for sale of principal residence is:
A. $250,000
B. $500,000
C. $400,000
D. Unlimited
Correct Answer: B. $500,000
Explanation: Couples can exclude up to $500,000 in gain if eligibility rules are met.
73. The “cost-of-living adjustment rider” in a disability policy does what?
A. Increases premium annually
B. Terminates coverage when inflation rises
C. Periodically increases benefit during disability
D. Indexes coverage to CPI during employment
Correct Answer: C. Periodically increases benefit during disability
Explanation: COLA riders adjust benefits to inflation while the insured is disabled.
74. What is the result of naming a domestic partner as IRA beneficiary?
A. They must take full distribution immediately
B. Treated the same as a spouse
C. May inherit but with limited rollover options
D. Cannot be named as a beneficiary
Correct Answer: C. May inherit but with limited rollover options
Explanation: Non-spouse beneficiaries can’t roll the IRA into their own name — they must
take as inherited IRA.
75. A “bucket approach” to retirement income is beneficial for:
A. Maximizing Roth IRA growth
B. Timing the purchase of annuities
C. Segmenting funds based on time horizons
D. Maximizing tax loss harvesting
Correct Answer: C. Segmenting funds based on time horizons
Explanation: Buckets help manage income needs by separating funds for short-, mid-, and
long-term use.
76. What defines the key feature of a money purchase plan?
A. Variable contribution levels
B. Annual discretionary funding
C. Employer required to contribute fixed amount
D. Funded by employees
Correct Answer: C. Employer required to contribute fixed amount
Explanation: Money purchase pension plans mandate fixed employer contributions annually.
77. Under federal tax law, what is the current estate tax exclusion (as of 2025 reference)?
A. $5 million
B. $11.7 million
C. $12.92 million
D. $25 million
Correct Answer: C. $12.92 million
Explanation: For 2025, the estate tax exemption is $12.92 million per individual (subject to
change by legislation).
78. In a Keogh plan, what is the formula for the self-employed owner’s contribution?
A. 25% of net income
B. 100% of compensation
C. 20% of net income after ½ SE tax deduction
D. 15% of AGI
Correct Answer: C. 20% of net income after ½ SE tax deduction
Explanation: The special rule adjusts for SE tax to calculate deductible contribution.
79. When using the “restricted application” strategy for Social Security:
A. A spouse can claim only their own benefit
B. A higher earner files only for spousal benefit while deferring their own
C. Benefits must be taken at 62
D. It is available for anyone under 62
Correct Answer: B. A higher earner files only for spousal benefit while deferring their own
Explanation: This allows higher earners to collect spousal benefits while delaying their own
benefit growth.
80. A Social Security beneficiary below full retirement age earns above the income limit. What
happens?
A. All benefits are lost
B. No reduction
C. $1 is lost for every $2 earned over the limit
D. $1 is lost for every $1 earned
Correct Answer: C. $1 is lost for every $2 earned over the limit
Explanation: Before reaching full retirement age, benefits are reduced based on earned income
above a set threshold.
81. What is the key advantage of using a GRAT (Grantor Retained Annuity Trust)?
A. Provides lifetime income tax-free
B. Removes future appreciation from estate with minimal gift tax
C. Guarantees income for surviving spouse
D. Allows unlimited contributions to heirs
Correct Answer: B. Removes future appreciation from estate with minimal gift tax
Explanation: GRATs transfer future appreciation out of the estate efficiently, minimizing gift
tax.
82. An annuity that allows withdrawals but adjusts income based on market performance is:
A. Fixed annuity
B. Indexed annuity
C. Variable annuity
D. Immediate annuity
Correct Answer: C. Variable annuity
Explanation: Variable annuities tie income and account value to underlying investment
performance.
83. What is a major downside of holding municipal bonds in a Roth IRA?
A. Low credit quality
B. Municipal interest is already tax-exempt
C. High penalty risk
D. Taxability of withdrawals
Correct Answer: B. Municipal interest is already tax-exempt
Explanation: Since Roth IRAs are already tax-free, tax-exempt bonds waste the tax shelter.
84. Which of the following is subject to income tax but not estate tax?
A. Gift made during life
B. Inherited Roth IRA
C. Traditional IRA distribution
D. Life insurance proceeds
Correct Answer: C. Traditional IRA distribution
Explanation: Distributions are taxed as ordinary income, but traditional IRAs may already be
included in the estate tax.
85. If an estate exceeds the exemption amount, what is the marginal estate tax rate?
A. 15%
B. 25%
C. 35%
D. 40%
Correct Answer: D. 40%
Explanation: The top federal estate tax rate is currently 40% for amounts above the exemption.
86. The best asset to gift to a charity from a tax planning perspective is:
A. Cash
B. Highly appreciated stock
C. Primary residence
D. Depreciated property
Correct Answer: B. Highly appreciated stock
Explanation: Donor avoids capital gains and gets a full charitable deduction based on fair
market value.
87. Which investment is least suitable for a risk-averse retiree?
A. Money market fund
B. Treasury bonds
C. Equity-indexed annuity
D. Leveraged emerging markets ETF
Correct Answer: D. Leveraged emerging markets ETF
Explanation: This is highly volatile and speculative — not aligned with conservative risk
profiles.
88. A couple uses the "split-interest trust" strategy to:
A. Split ownership between children
B. Maximize income and future charity benefit
C. Qualify for Medicaid
D. Bypass probate
Correct Answer: B. Maximize income and future charity benefit
Explanation: These trusts combine income for donor or heirs and a future interest for charity.
89. What is the primary reason retirees convert traditional IRA assets to Roth IRAs?
A. To reduce Required Minimum Distributions
B. To increase income taxes now
C. To enable capital gains tax treatment
D. To get deductions later
Correct Answer: A. To reduce Required Minimum Distributions
Explanation: Roth IRAs are not subject to RMDs during the owner’s lifetime, offering tax
flexibility.
90. Which type of life insurance is most appropriate for estate liquidity needs?
A. Variable universal life
B. Whole life
C. Second-to-die (survivorship) life insurance
D. Term insurance
Correct Answer: C. Second-to-die (survivorship) life insurance
Explanation: Pays when both spouses die — ideal for funding estate taxes or legacy planning.
91. What happens to a traditional IRA if no beneficiary is named and the owner dies?
A. It is forfeited
B. It passes to the spouse by default
C. It goes to the estate
D. It becomes a Roth IRA
Correct Answer: C. It goes to the estate
Explanation: Without a named beneficiary, the IRA becomes part of the taxable estate and may
be subject to probate.
92. What is the maximum qualified charitable distribution (QCD) limit from an IRA per year?
A. $50,000
B. $75,000
C. $100,000
D. Unlimited
Correct Answer: C. $100,000
Explanation: QCDs allow individuals age 70½+ to transfer up to $100,000 per year directly to
charity without tax.
93. Which retirement income strategy best protects against sequence of returns risk?
A. Constant withdrawal method
B. Bond ladder
C. Time segmentation (bucket approach)
D. Reverse mortgage
Correct Answer: C. Time segmentation (bucket approach)
Explanation: By using near-term “buckets” for income and longer-term for growth, retirees
buffer early market shocks.
94. Which income stream is guaranteed and inflation-protected by the federal government?
A. Annuity with COLA
B. Social Security benefits
C. Municipal bond income
D. Treasury bond ladder
Correct Answer: B. Social Security benefits
Explanation: Social Security is backed by the federal government and includes annual COLA
adjustments.
95. What does a Roth conversion typically do in the conversion year?
A. Reduce current tax liability
B. Increase taxable income
C. Create a deduction
D. Lower Medicare premiums
Correct Answer: B. Increase taxable income
Explanation: Converted amounts are taxable in the year of conversion, possibly triggering
higher brackets or Medicare surcharges.
96. A 75-year-old retiree who forgets to take the RMD is subject to what penalty (pre-SECURE
2.0)?
A. 10%
B. 25%
C. 50%
D. 5%
Correct Answer: C. 50%
Explanation: The pre-SECURE 2.0 penalty was 50% of the shortfall amount.
97. What is the maximum Social Security spousal benefit?
A. 25% of worker’s benefit
B. 50% of worker’s benefit
C. Equal to the worker’s benefit
D. Depends on income
Correct Answer: B. 50% of worker’s benefit
Explanation: A spouse who waits until full retirement age can receive up to 50% of the
worker’s PIA (primary insurance amount).
98. The main benefit of using a revocable trust is:
A. Tax reduction
B. Protection from creditors
C. Avoidance of probate
D. Reduced Medicare premiums
Correct Answer: C. Avoidance of probate
Explanation: Revocable trusts simplify estate settlement by avoiding the public probate
process.
99. What is the main planning advantage of Qualified Longevity Annuity Contracts (QLACs)?
A. Provide income starting at age 50
B. Eliminate RMDs altogether
C. Defer RMDs and provide late-life income
D. Eliminate tax on annuity income
Correct Answer: C. Defer RMDs and provide late-life income
Explanation: QLACs allow retirees to defer part of their IRA beyond age 73 (RMD age), up to
certain limits.
100. The most appropriate strategy for managing a client’s concentrated stock position is:
A. Buy and hold
B. Gifting the stock to charity
C. Doing nothing to avoid taxes
D. Buying options on unrelated assets
Correct Answer: B. Gifting the stock to charity
Explanation: This avoids capital gains, provides a deduction, and reduces the concentrated risk.
