Certified Financial Planner MCQ Flashcards

A client wants to gift $30,000 to their child in 2024. How much is subject to federal gift tax reporting?

Answer: $12,000; the excess over $18,000 annual exclusion

The 2024 annual gift tax exclusion is $18,000 per recipient; the $12,000 excess ($30,000 − $18,000) must be reported on Form 709 and applied against the lifetime exemption.

Which retirement plan allows the highest employee elective deferral limit in 2024 among the following options?

Answer: 401(k)

The 2024 employee elective deferral limit for a 401(k) is $23,000 (plus $7,500 catch-up for those 50+), which is higher than SIMPLE IRA ($16,000) or IRA ($7,000) limits.

A client's estate is valued at $14 million at death in 2024. Assuming no prior taxable gifts, how much is subject to federal estate tax?

Answer: Approximately $700,000 (excess over $13.61M exemption)

The 2024 federal estate tax exemption is $13.61 million; the estate of $14 million exceeds this by approximately $390,000, which is subject to the 40% estate tax rate.

Which asset allocation concept describes shifting a portfolio to more conservative investments as a client approaches retirement?

Answer: Glide path

A glide path is the planned shift from aggressive to conservative allocations over time, commonly used in target-date funds as investors approach their retirement date.

Under ERISA, which party is legally responsible for ensuring a qualified retirement plan operates solely in the interest of plan participants?

Answer: The plan fiduciary

ERISA imposes fiduciary responsibility on plan fiduciaries (trustees, investment managers, plan administrators) to act solely in the interest of plan participants and beneficiaries.

A client purchased stock for $10,000 and sold it 8 months later for $16,000. What is the federal tax treatment of the $6,000 gain?

Answer: Short-term capital gain taxed as ordinary income

Since the holding period is less than 12 months, the $6,000 gain is a short-term capital gain taxed at the taxpayer's ordinary income tax rate.

What is the primary purpose of a buy-sell agreement funded with life insurance for a business with multiple owners?

Answer: To provide liquidity so surviving owners can purchase a deceased owner's interest

A buy-sell agreement funded with life insurance ensures that when an owner dies, the insurance proceeds provide liquidity for surviving owners to purchase the deceased's business interest at a pre-agreed price.