Download CRPC Practice Exam 2025: Comprehensive Review of Key Financial Concepts and more Exams Law in PDF only on Docsity!
CRPC Practice Exam 2025 LATEST GET A+
Which of the following are correct statements about the capital utilization strategy? I. It produces an annual retirement income over a finite number of years. II. Assuming the yield remains the same, the larger the retirement income that is paid, the shorter the number of years over which it will be paid. III. When the capital utilization approach is used, the planner must be careful in making assumptions about the life expectancy of the client. IV. The effect of taxes on retirement savings and distributions should be considered when the before-tax approach is used to calculate the future value of retirement assets. Which one of the following is not a key element of an investment policy? A) a provision for periodic review B) the acceptable risk tolerance level C) a target asset allocation D) names of specific stocks to be in the portfolio --D The key elements in an investment policy are a clear statement of the client's goal, suitable investment vehicles and strategies, the acceptable risk tolerance level for the client, asset allocation guidelines, and a provision for periodic review. One way to remember the essential elements of an investment policy is the acronym "GRASP" (Goals, Risk, Asset Allocation, Strategies/Suitable Investment-meaning the investment categories that may or may not be used- and Periodic Review). Specific investments would be determined after the investment policy is created. Which one of the following is a characteristic of Treasury inflation-protected securities (TIPS)? A) They are sold at a discount. B) The increase in principal is taxable each year. C) Their returns are tied to the producer price index.
D) They are issued with maturities up to 40 years. Your client owns a bond fund with a duration of 6.5. If interest rates increase 1.5%, what is the expected change in price for this fund? A) 6.5% decrease B) 9.75% increase C) 9.75% decrease D) 6.5% increase --C 1.5% - 6.5 = - 9.75%. Recall that duration needs to have a negative sign in order to represent the inverse relationship between bond prices and interest rates. In this case, an increase in rates means the bonds or bond funds will fall in price. Therefore, this fund will decrease in price about 9.75%. Also, you can remember that bond prices move opposite to interest rates. An increase in interest rates means the price of bonds will go down. The process of rebalancing is a key factor in Strategic asset allocation. Strategic asset allocation involves obtaining the best asset mix for a client over a long period. For example, this might be 60% stocks and 40% bonds. When these percentages change due to market movements, this strategic asset allocation requires the portfolio to be rebalanced back to the target mix, in this case 60/40 stocks/bonds. What does Jensen's alpha tell you? the percentage a manager over- or underperformed based on the amount of risk taken The percentage of return that can be attributed to systematic risk is referred to as the
Assume your client has a 5% bond, par value of $1,000, and 15 years to maturity. Comparable bonds are yielding 6%. What is the value of this bond? A) $1, B) $ C) $ D) $ --B If the calculator is set for 1 P/YR, then all factors, other than FV, need to be adjusted for semiannual payments. The keystrokes would be: 1,000 [FV], 25 [PMT], 3 [I/YR], 30 [N], then solve for [PV] = - 902. If the calculator is set at 2 P/YR, then [I/YR] is 6 and [N] is entered as 15 [SHIFT] [N]. Which of the following is correct regarding the additional payroll tax for high wage earners that was brought about by the Affordable Care Act? A) The tax applies to those with an AGI in excess of $500,000. B) The tax is 1.9%. C) The tax is split between the employer and employee. D) The tax was designed to provide additional funding for Medicare. --D This tax is an additional Medicare tax. The 0.9% tax is employee paid and applies to high earners only (AGI in excess of $250,000 for joint filers and $200,000 for single filers, not indexed). Mark, a financial adviser, has a client who has worked in two positions during his lifetime. The client's first position was a state or local government position that was not covered by Social Security. The client is receiving a pension from that employment. His second position was covered by Social Security and he is eligible for Social Security retirement benefits. Mark should advise his client that
his eligibility for Social Security retirement benefits may be reduced due to the windfall elimination provision (WEP). Worked in a position that was not covered by Social Security, and the client is receiving a pension from that employment, If you have a client who has worked in a position that was not covered by Social Security, and the client is receiving a pension from that employment, his eligibility for Social Security benefits based on his own work history covered by Social Security may be reduced due to the windfall elimination provision (WEP). The government pension offset provision (GPO) impacts Social Security benefits owed to spouses, ex-spouses, or to survivor benefits. If he has one or more survivors entitled to a benefit, the Social Security Administration recalculates the benefit to omit the WEP, which results in a higher survivor benefit. Reductions due to the WEP are NOT reflected in Social Security benefit estimates. One way to differentiate between the two is focusing on the "W" in WEP. The "W" can remind you of "worker." Thus, the WEP reduces Social Security retirement benefits based on your own work history. That leaves the GPO as the one that reduces a spousal Social Security benefit based on what the spouse is getting from a retirement plan based on employment that did not pay into Social Security (such as public school teachers in several states). Suzy begins her Social Security retirement benefit at full retirement age (FRA). What is the amount that she will receive? primary insurance amount (PIA) Workers who begin their Social Security retirement benefits at full retirement age will receive their primary insurance amount (PIA). This amount is based their lifetime average earnings, or AIME. If they delay their benefits until after attaining FRA they will begin to be credited with DRCs. Those who are only currently insured (not fully insured) are not eligible for Social Security retirement benefits. Henry, a fully insured worker for Social Security purposes, will retire next month at the age of
- Henry is concerned that he may lose some of his Social Security benefits because of the earnings limitation test.
The maximum percentage of Social Security benefits that may be taxed is 85%, which occurs when an individual's provisional income exceeds the upper limit of the tax threshold ($34,000 for single filers and $44,000 for married filers). Which of the following are correct statements about the effect that income and asset ownership have on Social Security benefit payments? I. The value of assets owned by a worker does not affect the amount of Social Security benefits that he or she will receive. II. The reduction is $1 of benefits for each $1 of income earned above the allowable limit for an individual who begins receiving Social Security benefits prior to the year he or she attains full retirement age. III. Investment income received by a worker does not affect the amount of Social Security benefits that he or she will receive. V. The reduction is $1 of benefits for each $2 of income earned above the allowable limit for individuals who begin receiving Social Security benefits in the year they attain their Social Security full retirement age, but prior to the month in which they actually attain that age. -- I and III Unearned income, such as income from investment assets, has no effect on the amount of Social Security benefits that will be paid to a worker. Similarly, the value of assets owned by the worker does not affect eligibility for Social Security benefits. Option II is incorrect. Option IV is incorrect. The reduction is $1 of benefits for each $3 of income earned above the allowable limit for an individual who begins receiving Social Security benefits in the year he or she attains his or her Social Security full retirement age, for the months prior to the month in which Social Security full retirement age is attained. (The reduction in benefits does not apply to the month in which an individual attains his or her Social Security full retirement age.) Which of the following are factors to consider when making the decision on when to receive Social Security benefits? I. earnings of dependents
II. income benefit provided III. additional sources of income V. condition of health -- ALL Each of these is a worthwhile consideration. What children or other dependents earn usually has no impact on the decision of when to receive Social Security benefits because most retirees do not have children under 18 in their home. However, many grandparents today have grandchildren who are their dependents. Also, second marriages to a younger spouse can mean someone eligible for Social Security retirement benefits has a child who is eligible for child retirement benefits. If that child earned more than $18,240 in 2020, the child's retirement benefit would be cut accordingly. Over a period of 10 years, Mike contributed a total of $20,000 to a nondeductible IRA. The current value of his IRA is $32,000, and Mike, who is 50 years old, has decided to use his IRA assets toward the purchase of a second home in the mountains. Assuming Mike's marginal tax bracket is 24%, how much will he owe in taxes and penalties? -- $4, Mike must pay income taxes on $12,000 ($32,000 - $20,000 of after-tax contributions). Mike's effective tax rate is 34% (24% + 10% early withdrawal penalty = 34%). Remember, penalties in a nondeductible IRA apply only to earnings. Mike will have to pay $4,080 in taxes and penalties (34% $12,000 = $4,080). Mike is not a "first-time homebuyer" in this question because he is buying a vacation home. Lucy received a $1,200 profit sharing contribution this year. Lucy is married to George, an artist who had no earnings this year. Their combined AGI for this year is $220,000. How much of their $12,000 IRA contribution can they deduct for 2020? -- $ Lucy is an active participant because she received a profit sharing contribution. Their AGI is greater than the phaseout limit for active participants in 2020 ($104,000-$124,000). Thus, Lucy cannot make a deductible contribution. George has the full spousal deduction available, but the
UL = Upper dollar limit of the phaseout range for married individuals filing jointly = $124, (for 2020) Phaseout range for married filing jointly = $20,000 (always for married filing jointly) $6,000 [($124,000 - $112,222)/$20,000] = $3,533, which is bumped up to the nearest $10, which would be $3,540. Notice that the $3,533 is not rounded to the nearest $10. It is bumped up to the next $10. Also, any answer that does not end in "0" will always be wrong. Which one of the following statements is correct regarding a nondeductible IRA? A) To qualify for a nondeductible IRA, a person's AGI must be below a specified amount. If the AGI is within the phaseout range, they may make a partial contribution. If the AGI is above certain limits, which vary depending upon the filing status of the taxpayer, contributions to a nondeductible IRA are prohibited. B) If a person is an active participant, qualification for contributions to nondeductible IRAs would depend upon AGI and filing status of the taxpayer. C) A nondeductible IRA is the same as a Roth IRA. D) In many cases, a person who is eligible to deduct an IRA contribution may choose to make a Roth IRA contribution instead. -- D A person may always choose not to deduct their IRA contribution regardless of AGI or whether or not the person is an active participant. However, why contribute to a nondeductible IRA if you are eligible to make a contribution to a Roth IRA? The taxation of withdrawn earnings on Roth IRAs can be tax free. On the other hand, people who make too much to contribute to a deductible IRA or a Roth IRA can always contribute to a nondeductible IRA if they have earned income. A nondeductible IRA would be eligible to convert to a Roth IRA. Finally, if the plan is not to convert to a Roth IRA, why not contribute to a nonqualified fixed or variable annuity instead of a nondeductible IRA? There is no annual limit on the amount that can be contributed to a nonqualified annuity and it would keep the accounting for any other IRAs simple. Which one of the following is a correct statement about a Roth IRA for 2020? A) As with conventional IRAs, distributions from a Roth IRA must begin by April 1 of the year following the year the participant reaches age 72 in 2020 and later.
B) Taxable withdrawals of up to $10,000 from a Roth IRA for the purchase of a first home can be penalty free. C) If a nonqualifying distribution is made prior to age 59½, the principal is subject to the 10% penalty, but it is not considered to be taxable income. D) An individual can contribute $6,000 annually to a regular IRA and another $6,000 annually to a Roth IRA. --B Up to $10,000 of withdrawals from a Roth IRA are not penalized if used to purchase a home for a first-time homebuyer whether or not the five-year holding period has been met. Total IRA contributions are aggregated and cannot exceed $6,000. Principal in a Roth IRA is not subject to the 10% penalty. A Roth IRA is not subject to the required minimum distribution rules for the original owner (although Roth 401(k)s are). Inherited Roth IRAs are subject to the RMD rules for beneficiaries. All of the following are correct statements regarding longevity annuities except: A) owners can put no more than 25% of their retirement plan money into a longevity annuity with an overall cap of $135,000 in 2020. B) accumulations in these annuities are exempt from minimum distribution rules at age 72 in 2020 and beyond. C) payments from longevity annuities are larger than those received from a regular annuity due to the delay in receipt of the annuity payments. D) owners must begin receiving income by age 75. -- D Owners must begin receiving income from a longevity annuity by age 85. All of the other statements are correct. Reverse mortgages can be used for which one of the following purposes? A) to generate a monthly income guaranteed for life
When are living wills applicable? A living will is applicable only when the declarant is in a terminal or similar condition. If the declarant is not in a terminal or similar condition, the medical provider is not required to comply with a patient's living will. Which one of the following is covered under Medicare Part A and Part B? A) most immunizations B) home health care C) hearing aids D) most prescription drugs --B Medicare Part A covers the following post-hospital home health care: 100 home health visits per benefit period. In general, Medicare Part A covers expenses such as inpatient hospital care, post- hospital skilled nursing care, post-hospital home health care, hospice care, psychiatric hospital care, and blood in excess of three pints. Medicare's Supplemental Medical Insurance (Part B) provides coverage for physicians' services and for the following services that are not already covered under Part A: home health care; medical services, which include physician services, therapist (physical, speech) services, supplies, and ambulances; outpatient hospital services; and certain costs for blood that are not covered by Medicare Part A. Medical expenses not covered by Part B include most routine physicals, most immunizations, eyeglasses (and eye exams), hearing aids (and hearing exams), cosmetic surgery, dental care, orthopedic shoes, and most prescription drugs. Which one of the following is correct regarding Medicaid? A) It is a government health insurance program designed for individuals with low income or minimal assets. B) Medicaid covers long-term care expenses using the same eligibility requirements as Medicare C) Medicaid eligibility begins at age 65. D) You must be retired in order to qualify for Medicaid.
--A
Medicaid is a government health insurance program designed for individuals with low income or minimal assets regardless of age or employment status. Medicaid is a major player in funding LTC expenses, paying a little over half of all LTC expenses incurred in America. As a general rule, a Medigap insurance policy is designed to cover which one of the following Medicare-approved charges that are not paid by Medicare? A) Medicare Part D deductibles B) deductibles or coinsurance amounts C) Medicare Part B excess amounts D) 100% of skilled nursing coinsurance --B The costs not covered by either Part A or Part B of Medicare are referred to as Medicare gaps or Medigaps. Medigap insurance is designed to supplement Medicare's benefits by filling in some of what Medicare does not cover. A Medigap policy pays for Medicare-approved charges that are not paid by Medicare because of deductibles or coinsurance amounts for which the beneficiary is responsible. The cost and services covered by Medigap policies varies from vendor to vendor and from plan to plan. Some, but not all, Medigap policies cover such items as Part D deductibles, skilled nursing coinsurance amounts, and Medicare Part B excess amounts. Which of the following are usually covered by long-term care insurance? I. treatment for preexisting health problems (within the first six months of the policy) II. personal (custodial) care III. skilled nursing home care IV. care for all mental disorders, in all situations -- II & III The delivery of long-term care (LTC) generally takes one of two forms: skilled care or personal care. Skilled care is typically provided in a nursing home setting. Because of medical screening, people who need LTC now or in the near future with preexisting conditions (option I) (e.g.,
Susan knows now is not the right time for retirement. She cannot afford to retire until she turns
- The right time may be when clients feel that they are losing their ability to perform up to standards, the economics of working become less favorable, or the worker's personal health is an issue. If Susan retires, neither she nor Brent will have health care coverage; also, neither will qualify for Medicare until age 65 (almost two more years for Brent). Although Susan's health is excellent, Brent's health is fair. Susan is very concerned about how her spouse and family situation will be affected. A client who doesn't feel appreciated by his or her company is typically asking whether he or she wants to be retired, is the work satisfying, and does he or she have control over working conditions. A golden parachute A golden parachute is an agreement between an executive and his or her company requiring the company to pay certain benefits in the event of a change in control of the company. The agreement, therefore, provides a guarantee of financial security to the executive in the event of a takeover. The agreement typically provides severance pay, which takes the form of cash, stock, compensation, extra pension benefits, medical and life insurance, other fringe benefits, and various combinations of all of these benefits. Nonqualified deferred compensation benefits: It is an arrangement whereby an executive makes salary deferrals and an employer makes matching contributions that are invested in blue chip securities held in an escrow account. It is an arrangement that will provide an executive with retirement benefits in addition to those provided by the employer's qualified pension plan. It is an arrangement between a business and an executive that will informally fund an executive's top hat benefits and pay them in the event of a change in ownership of the business. Which of the following are correct statements about the legal requirements for a loan to a participant from a retirement plan?
I. The term of a loan for a medical emergency must not exceed five years. II. Loans from SEP IRAs are not permitted. III. The term of a loan used to acquire a principal residence may exceed five years. IV. Loans from a SIMPLE 401(k) plan are permitted. All of the statements are true. The term of the loan must not exceed five years; however, loans to acquire the participant's principal residence may be for a longer (unspecified) period. If a loan requiring repayment within five years is not repaid in five years, it may be treated as a distribution and taxed (and penalized) as such. Loans from IRAs, SEP IRAs, and SIMPLE IRAs are not permitted under current tax law; however, loans from a qualified plan, including a SIMPLE 401(k) plan, are permitted. Which one of the following distributions from a 403(b) tax sheltered annuity would not be subject to the 10% premature withdrawal penalty? A) a 46-year-old employee who separated from service and received a full distribution B) hardship withdrawal for higher education expenses C) up to $5,000 taken a week before the birth of the worker's child D) distributions paid to an alternate payee pursuant to a qualified domestic relations order --D Distributions under a QDRO would not be subject to the 10% premature withdrawal penalty. An employee would have to be at least age 55 to not have the 10% penalty upon separation from service, and withdrawals from a TSA for higher education expenses would still be subject to the 10% penalty. Thus, if a retirement account withdrawal must be used to fund qualified higher education expenses, it is better to use IRA money than employer retirement account money. At least the IRA withdrawal for higher education expenses escapes the 10% early withdrawal penalty. The SECURE Act added an exception to the 10% penalty for withdrawals up to $5, within a year after the birth or adoption of a child. In this case, the withdrawal was taken before the birth of the child.
Which one of the following is a correct statement about rollovers? A) Corrective distributions of excess deferrals from 401(k) plans are eligible for rollover treatment. B) A rollover within 60 days of receipt of a qualified plan distribution is not subject to income tax withholding. C) Hardship distributions from a 401(k) plan are eligible for rollover treatment. D) A direct rollover may be accomplished by providing a distributee with a check payable to the custodian or trustee of the rollover plan or IRA, and appropriate instructions. --D IRS regulations indicate that providing a distributee with a check made payable to a trustee for delivery is an acceptable way to accomplish a direct rollover. Providing the distributee with a check and instructing the distributee to deliver the check to the trustee of an eligible retirement plan is a reasonable means of accomplishing a direct rollover. Under current rules, mandatory 20% withholding is imposed on a qualified plan or TSA distribution (if the distribution is eligible for rollover treatment) if the plan issues a distribution check to the participant. Corrective distributions of excess deferrals and hardship distributions from 401(k) plans do not qualify as eligible rollover distributions. Which one of the following statements regarding IRA distributions is correct? A) Distributions under a QDRO are exempt from the 10% early withdrawal penalty. B) Distributions from an IRA following separation from service after age 54 are exempt from the 10% early withdrawal penalty. C) Withdrawals from an IRA to pay for qualified education expenses are exempt from the 10% early withdrawal penalty. D) Withdrawals from an IRA to pay for qualified education expenses are exempt from the 10% early withdrawal penalty and taxation. --C Withdrawals from an IRA to pay for qualified education expenses are exempt from the 10% early withdrawal penalty, but would be subject to taxation if contributions had been deductible. The exemptions for distributions following separation from service after age 54 and QDROs applies to qualified plans and 403(b) plans, but not IRAs. IRA distributions under a marital separation in accordance with a court order does qualify for the 10% early withdrawal penalty for IRAs.
Mike recently terminated employment with ENCO Inc. He has a $70,000 account balance in ENCO Inc.'s simplified employee pension (SEP) plan. Which one of the following steps should Mike take to roll over his SEP account into an IRA? A) Transfer his SEP account, net of the mandatory 20% withholding, directly to an IRA. B) Ask for payment from the qualified plan to be made in the form of a check payable to the custodian of his conduit IRA. C) Roll over all of the distribution he receives, within 60 days of receipt, into an IRA. D) Elect payment in the form of a direct rollover to an IRA. --C The direct rollover rules do not apply to plans that use IRAs as funding vehicles, i.e., SEPs, SARSEPs, and SIMPLE IRAs. The 20% withholding rules don't apply to rollover distributions from a SEP. A SEP is not a qualified plan, so he could not transfer it to an IRA. You have a client, age 56, who has decided to take early retirement. She would like to maximize distributions from her IRA without having to pay the 10% penalty tax on premature distributions. Which, if any, of the following words of advice should you give her? I. At age 59½, she can stop taking substantially equal periodic payments until age 72, if she wishes. II. Use of the fixed annuitization method or the required distribution method will maximize the amount of substantially equal periodic payments she receives. --neither I nor II The client must take a series of substantially equal payments for the longer of five years (until age 61) or until she reaches age 59½, after which she can stop taking substantially equal periodic payments until age 72 (RMD age) if she wishes. Of the three methods that may be used to calculate substantially equal periodic payments, use of the fixed amortization or fixed annuitization methods will maximize payments to your client. In contrast, use of the required distribution method will minimize payments to your client.
