CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES, Exams of Business Economics

Download CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES and more Exams Business Economics in PDF only on Docsity! CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ Mary Goodwin's financial situation is as follows: Cash/cash equivalents$15,000 Short-term debts$8,000 Long-term debts$133,000 Tax expense $7,000 Auto note payments $4,000 Invested assets $60,000 Use assets $188,000 What is her net worth? - correct answers Assets = $263,000; liabilities = $141,000, so net worth is $122,000. Taxes and auto note payments appear on the cash flow statement. 1-3 Salaries$70,000 Auto payments$5,000 Insurance payments$3,800 Food$8,000 Credit card balance$10,000 Dividends$1,100 Utilities$3,500 Mortgage payments$14,000 Taxes$13,000 Clothing$9,000 Interest income$2,100 Checking account$4,000 Vacations$8,400 Donations$5,800 What is the cash flow surplus or (deficit) for Bill? - correct answers Income = $70,000 + $1,100 + $2,100 = $73,200. Expenses = $5,000 + $3,800 + $8,000 + $3,500 + $14,000 + $13,000 + $9,000 + $8,400 + $5,800 = $70,500, so there is a surplus of $2,700. The checking account and credit card balances would be on the statement of financial position. CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ LO 1-3 correct statements about income replacement percentages - correct answers Income replacement percentages are typically much higher for those with lower preretirement incomes. Income replacement percentages vary between low-income and high-income retirees. Income replacement ratios should not be used as the only basis for planning. Income replacement ratios are useful for younger clients as a guide to their long-range planning and investing. The inverse of Option I is true. Those with a lower preretirement income typically need a much higher income replacement percentage in retirement. LO 1-4 If Tom and Jenny want to save a fixed amount annually to accumulate $2 million by their retirement date in 25 years (rather than an amount that grows with inflation each year), what level annual end-of-year savings amount will they need to deposit each year, assuming their savings earn 7% annually? - correct answers Set your calculator to the "End" mode and "1 P/Yr." Inputs: FV = 2000000, I/YR = 7, N = 25, PV = 0, then PMT = $31,621 1-4 Bill and Lisa Hahn have determined that they will need a monthly income of $6,000 during retirement. They expect to receive Social Security retirement benefits amounting to $3,500 per month at the beginning of each month. Over the 12 remaining years of their preretirement period, they expect to generate an average annual after-tax investment return of 8%; during their 25-year retirement period, they want to assume a 6% annual after-tax investment return compounded monthly. They want to start their monthly retirement withdrawals on the first day they retire. CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ Which one of the following is not a key attribute of an investment policy? A) clearly defined B) fluid C) realistic D) long-term perspective - correct answers An investment policy provides guidelines that are standards to be followed. If they are fluid, they are ever-changing and therefore would be difficult to implement and would provide inconsistency in the management of the portfolio. LO 2-1 Fluid All of these are examples of asset allocation strategies except A) alpha. B) tactical. C) core/satellite. D) strategic. - correct answers Alpha is not an asset allocation strategy, but a way to measure a portfolio manager's return relative to the amount of risk that has been taken. alpha LO 2-5 Assume the following asset classes have the correlations to long-term government bonds shown below: Treasury bills:.12 CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ Gold:-.25 Large stocks:.22 Small stocks:.17 Which one of the following best exemplifies the impact of diversification on long-term government bonds? - correct answers The asset with the lowest correlation provides the most diversification. Therefore, gold provides more diversification than any of the other assets. Small stocks do provide more diversification than Treasury bills, but gold provides the most diversification, so it is the best option. LO 2-3 The two major risks associated with individual common stocks are A) default risk and business risk. B) market risk and business risk. C) interest rate risk and exchange rate risk. D) interest rate risk and purchasing power risk. - correct answers The primary risks associated with common stock are business risk and market risk. Interest rate risk, default risk, and purchasing power risk are the major risks of bonds. B LO 2-2 What is the price of a bond with a 7% coupon, a $1,000 par value, and a maturity of 20 years if the market interest rate for similar bonds is 6%? CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ A) $1,115.57 B) $893.23 C) $1,074.39 D) $1,000.00 - correct answers Set the calculator for 2 P/YR and use the END mode. The inputs then are as follows: END 1,000 [FV], 35 [PMT], 20 [SHIFT] [N] = 40, 6 [I/YR], and solve for PV = $1,115.57. Note: The $35 payment is the semiannual payment of the bond. This is computed by taking the 7% coupon rate the par value of $1,000 = $70 and divide that by 2 to get the semiannual interest paid, in this case $35. Also, the yield to maturity (YTM) is less than the coupon rate, thus the bond must be selling at a premium. A LO 2-8 This year, your 63-year-old client had $17,025 of earned income and $30,000 of investment income. He was also drawing Social Security benefits. Which one of the following correctly describes the impact on his Social Security benefits? A) He loses $1 of benefits for every $2 above the "allowable limit." B) There is no reduction to his benefits. C) He loses $1 of benefits for every $1 above the "allowable limit." CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ A) She should delay beyond FRA regardless of her life expectancy in order to maximize her lifetime benefit. B) She should delay only if she expects to live beyond the next 15½ years or so. C) She should begin at FRA if she expects to live beyond the next three years. D) She should begin her benefits at FRA regardless of her life expectancy in order to maximize her lifetime benefit. - correct answers By delaying three years, Susan is forfeiting $1,000 X 36 payments or $36,000 of benefits. She would then gain $240 per month going forward: $36,000/$240 = 150 months, or 12.5 years, from three years from now. If she thinks she is going to live beyond 15.5 years from now, it would pay to delay benefits by three years. B LO 3-3 Sam, age 62, begins receiving his Social Security income. His PIA is $1,500 per month. Because he has filed at age 62, his payment will be reduced by 25% to $1,125. His wife Linda, age 67, would like to begin spousal benefits. Her monthly income would be A) $562.50. B) $1,125.00. C) $1,500.00. D) $750.00. - correct answers Because Linda has attained FRA, she would be eligible for 50% of Sam's full PIA, or $750.00. CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ D LO 3-4 Unsystematic risk A) increases during periods of volatile interest rates. B) is reduced when markets fluctuate less. C) is increased through diversification. D) can be effectively eliminated. - correct answers D Diversification decreases unsystematic risk. Market fluctuations affect market risk, a type of systematic risk. Volatile interest rates affect interest rate risk, which is a type of systematic risk. One of the main points of the CAPM (Capital Asset Pricing Model) is that investors are not rewarded in the long-term for taking unsystematic risk. This does not mean an investor cannot get lucky and purchase the next Amazon or Facebook early. It means on average, over time, unsystematic risk does not benefit the average investor. LO 2-3 Sources of risk include which of the following? fluctuating exchange rates a firm's financing decisions higher interest rates a loss of purchasing power - correct answers All of the options are types of systematic or unsystematic risk. CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ LO 2-3 fluctuating exchange rates a firm's financing decisions higher interest rates a loss of purchasing power Investors who want to bear the least amount of risk from equity investments should acquire stocks with beta coefficients A) less than 0.5. B) less than 1.0. C) greater than 1.0. D) greater than 1.5. - correct answers When seeking investments that have the least amount of risk, the lowest beta should be selected. A LO 2-3 If a security has an average return of 14.2% and a standard deviation of 8.4, what can be said about the security? A) The security's returns can be expected to never be negative. B) CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ Harry must pay the penalty but no tax. C) Harry does not have to pay any tax or penalty on the $2,000 distribution, even though he is only 34. D) Harry must pay tax on the $2,000, but there is no penalty. - correct answers C All Roth IRA contributions are made with after-tax funds, and contributions are considered to be withdrawn first, tax-free, then earnings. Also, the IRC rules allow the aggregation of all Roth IRAs for this calculation. Penalties would apply only to the gains the account experienced or withdrawals of converted amounts within five years of the conversion. LO 7-3 Norman and Brenda Walker are married taxpayers filing jointly. They are both 44 years old. Norman earned $132 this year, and Brenda earned $100,000. Brenda is an active participant in the qualified plan offered by her employer, and she contributed $1,500 to her IRA for this tax year. How much can be contributed to a spousal IRA and deducted for Norman for 2022? A) $4,500 B) $6,000 C) $0 D) $132 - correct answers B The maximum deductible contribution to a spousal IRA for Norman is $6,000. The deductible amount phases out at AGI of $204,000-$214,000 (for 2022) for Norman, who is the nonactive participant spouse. LO 4-2 CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ James and Doris Stewart, both age 40, will contribute a total of $12,000 to their IRAs for 2022. They both work outside the home, and they file a joint tax return. James is a teacher at the local high school and contributes to a TSA. Doris's employer has no retirement plan. Their adjusted gross earnings for this year will be $117,000. What amount can they deduct for their IRA contributions? A) $9,600 B) $8,800 C) $6,000 D) $12,000 - correct answers A Doris is entitled to deduct the full $6,000 spousal IRA amount and James is in the phaseout range for active spouses: $129,000 - $117,000 = $12,000; $12,000/$20,000 phaseout range = 0.6; 0.6 x $6,000 = $3,600; $3,600 + $6,000 = $9,600. Notice that the Stewarts are in the phaseout range for active participants. Also, one of the spouses is not an active participant in a qualified retirement plan. Thus, the nonparticipant spouse can deduct the full amount and the active participant can deduct at least something. Thus, $6,000 is too small. Also, $12,000 is too large because at least some of the active participant's ability is phased out. LO 4-2 CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ Charlie contributed $2,000 to Roth IRA 1 last year, when he was age 24, and $2,000 to Roth IRA 2 this year. Two years from now, Roth IRA 1 will have a balance of $2,650, and Roth IRA 2 will have a balance of $2,590, and Charlie will close Roth IRA 1, receiving the balance of $2,650. Which one of the following statements best describes his tax and penalty status for that year? A) He only pays ordinary taxes because Roth IRA distributions are not subject to a penalty. B) He cannot make any withdrawals because the money has not been in the Roth IRA for five years or longer. C) He will not pay taxes or a penalty. D) He must pay taxes and a penalty on the full distribution. - correct answers C The distribution is not qualified because Charlie is under age 59½, not disabled, not dead, or not making a first-time home purchase and he is withdrawing the money before the waiting period of five tax years. Withdrawals within five years are not prohibited, but taxation may occur and penalties may apply in some cases. None of this withdrawal, however, is included in Charlie's taxable income because the $2,650 sum is less than the aggregate total of his contributions ($4,000). Also, no penalty applies because the withdrawal is accounted for as coming from his contributions. LO 7-3 The "required beginning date" (RBD) for IRA distributions is which one of the following? A) April 1 of the year following the year in which age 73 was attained B) CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ A) passive income, such as interest or dividends, is considered to be earned compensation. B) workers' compensation or unemployment compensation are considered to be earned compensation. C) taxable alimony received from a divorce finalized prior to January 1, 2019, is considered to be earned compensation. D) inheritance money counts as earned income for IRA contribution purposes. - correct answers C For IRA purposes, taxable alimony is earned income, but passive income, workers' compensation, or unemployment compensation are not. Alimony is taxable income if the divorce was finalized prior to January 1, 2019, and not substantially amended since then. LO 4-2 Harry, a single professor who is age 36, started his Roth IRA three years ago, contributing $5,000 for his first year. He has since made a contribution of $5,500 in Year 2 and also in Year 3. He converted a traditional IRA of $17,000 to the Roth IRA last year. His total contributions are $16,000 plus the $17,000 conversion, and the account is now worth $36,497. Harry would like to make a complete withdrawal so that he can buy a new car. He wants to know what his options are and what the tax consequences would be. Which one of the following statements would be the correct information for Harry? A) CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ If Harry's Roth IRA meets the five-year holding period, the distribution will be a qualified distribution. B) If a withdrawal of converted IRA funds is made from the Roth account before five years has elapsed, such a withdrawal may be subject to the 10% penalty. C) Contribution amounts always come out of a Roth IRA ac - correct answers B Contribution amounts always come out of a Roth IRA account first, and then conversion amounts, if any. Because taxes have already been paid on these amounts, there are no income taxes. In this case, Harry can withdraw up to $33,000 income-tax-free. If he withdrew all $36,497 he would only owe income taxes on $3,497. However, if a withdrawal of converted IRA funds is made from the Roth account before five years has elapsed, such a withdrawal would be subject to the 10% penalty unless it meets one of the exceptions. Thus, he would be subject to the 10% early withdrawal penalty on the $17,000 from last year's conversion. If the Roth IRA earnings are withdrawn and the distribution is not "qualified," the earnings will be subject to income taxation and the 10% penalty unless it satisfies an exception. If he withdrew the entire amount, he would owe income tax on $3,497 and the 10% early withdrawal penalty on $20,497. LO 7-3 The vested accrued benefit in George's tax-sheltered annuity is $87,500. He has never taken a loan from the plan but is interested in paying off his credit cards. Which of the following statements correctly describes George's option? = A) George can borrow up to $50,000, but the term of the loan would be limited to five years. B) The amount of the loan would be limited to $43,750 and the term would be limited to five years. C) CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ George could borrow up to $43,750, and since the loan will pay off debt, it could be for longer than five years. D) The amount of the loan would be limited to $50,000, and the loan could be for longer than five years. - correct answers B George wants to pay his credit cards. The amount of the loan cannot exceed 50% of the vested amount in George's account, and the term of the loan would be limited to five years. LO 7-1 An income-tax-penalty-free distribution cannot be made from a tax-sheltered annuity (TSA) until the employee does which of the following? separates from service after attaining age 55 attains age 55 becomes disabled or dies takes a distribution under most hardship withdrawal rules - correct answers ALL OF THE FOLLOWING Penalty-free distributions can be made from a TSA or 401(k) when an employee separates from service after attaining age 55, attains age 59½, becomes disabled or dies, or takes a hardship distribution for deductible medical expenses only. All other hardship withdrawals are subject to early withdrawal penalty rules. Attaining age 55 means the worker is 55 on December 31 of the year of separation-not that the worker was 55 on the day of separation. LO 7-3 Charles turns 73 this year. His IRA was worth $100,000 at the end of last year. What is his RMD for this year? (The Uniform Table factor is 27.4 at age 73.) A) $5,501 B) CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ an unmarried heiress who has always lived on trust fund money, has never had earned income, and just turned 65 C) a professional independent corporate director, age 57 D) a federal government employee, hired in 1989 and age 64 - correct answers A The truck driver is in a covered occupation (covered by Social Security) and is over age 65. Thus, he or she would receive benefits if fully insured. The independent corporate director is incorrect because although this individual is in a covered occupation for Social Security purposes, he or she must be age 65 to be eligible for Medicare benefits. Although the federal government employee is employed in a covered occupation, he or she must be age 65. The unmarried heiress is wrong because although this person is age 65, she is not in a covered occupation for Social Security purposes. LO 5-3 Which of the following statements accurately describe basic provisions of Medicare Part B? Coverage includes benefits for physicians' services. Individuals who are eligible for Part A are automatically eligible for Part B. Participants pay a monthly premium. - correct answers ALL OF THESE Medicare Part B includes coverage for physicians' services; Part A covers hospital charges. Part A is provided to eligible individuals at no charge, but participants must pay a premium for Part CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ B. Individuals who are eligible for Part A are automatically eligible for Part B, and receive it if they pay the related premium. LO 5-3 On December 31 of last year (year 1), Samuel had $360,000 in his IRA. He has named Tully, his wife, as beneficiary. In year 2, Samuel turned 73 on October 17, and Tully turned 56 on January 8. Assume that it is now year 4 and that Samuel dies on April 15. Tully wants you to determine her distribution alternatives. Which one of the statements below correctly describes one of the choices available to Tully? A) Tully must complete distribution by December 31 of the year containing the fifth anniversary of Samuel's death. B) Tully may roll the entire amount into an IRA in her name and defer RMD until she reaches age 72. C) Because Samuel had selected a joint life expectancy calculation and had begun to receive minimum distribution payments on a recalculated basis (and since his life expectancy became zero), Tully must receive distribution of the entire amount. D) Tully must continue distributions, but they must be reca - correct answers B Tully is not required to take a lump sum distribution, receive all distributions by the end of the fifth year following Samuel's death, or even continue distributions-although these are all options available to her. As a spouse, she would have the option to roll over the remaining balance to an IRA in her name and defer RMD until she reaches age 73. LO 7-4 Your client has asked you what sources exist for long-term care insurance. Which of the following are generally considered potential sources for the funds to cover at least some of the cost of long-term care (LTC)? CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ Medicaid Medicare group long-term care insurance offered through employers - correct answers ALL OF THESE These three are possible sources of LTC except health insurance. Medicaid and long-term care insurance provide recipients with benefits such as nursing home care. Medicare provides only 20 days of skilled nursing care at full cost and 80 days thereafter with a substantial copay, in only a limited number of situations. It is designed only to provide temporary care while patients improve enough to go home, but it does provide some level of LTC coverage. LO 5-7 Jennifer recently separated from service with Acme Inc. at age 52, and rolled her qualified plan lump sum into a new IRA. She had been a plan participant for 12 years. This year, she began working for a new employer that provides a profit sharing plan for employees. Jennifer will be eligible to participate in her new employer's profit sharing plan in June of next year. Which one of the following statements describes an option that will be to Jennifer's benefit? A) Jennifer should leave the rollover funds in the rollover IRA until she is age 65, then she can distribute the IRA and benefit from lump sum forward averaging treatment. B) Jennifer should leave the rollover funds in the IRA for three more years. At age 55, she can distribute the account and escape the 10% early withdrawal penalty. C) Jennifer should use the direct rollover to roll the entire IRA over into her new employer's qualified profit sharing plan i - correct answers C If the qualified plan allows for loans, rolling the IRA into the qualified plan would give her a resource to meet a financial need without incurring income tax or a tax penalty. Forward- CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ least 50%, but not more than 100%, of the annuity payable during the joint lives of the participant and spouse. Profit sharing plans that accept direct transfers from pension plans are subject to the QJSA requirements. LO 7-4 Which one of the following is NOT a characteristic of a rollover? A) Amounts rolled over from a qualified plan to an IRA and subsequently distributed to the participant will be taxed according to the rules that apply to the original qualified plan. B) A rollover generally must be completed within 60 days of the distribution. C) If a qualified plan distribution is made due to the participant's death, the surviving spouse may roll the distribution into another qualified plan, TSA, SEP, IRA, or governmental 457 plan that accounts for such rollovers separately. D) An eligible qualified plan distribution may be rolled over to another qualified plan, TSA, SEP, IRA, or governmental 457 plan that accounts for such rollovers separately. - correct answers A Amounts distributed from an IRA are taxed according to the rules that apply to IRAs, regardless of the type of plan from which the funds may have been rolled over. LO 7-3 Which of the following are exempt from the 10% penalty on qualified plan distributions made before age 59½? distributions made to a beneficiary after the participant's death substantially equal periodic payments made to a participant following separation from service, based on the participant's remaining life expectancy - correct answers ALL OF THESE CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ The 10% premature distribution penalty does not apply to distributions on account of death or annuitized payments based on an individual's remaining life expectancy. Options I and II are incorrect. The law does not recognize heavy and immediate financial need as an exception to the penalty. The age 55 exception does not apply to in-service distributions; i.e., the employee must have separated from the service of the employer. LO 7-3 Many retirees have difficulty dealing with Bengen's original safe initial withdrawal rate because A) for every $100,000, it generates only $10,000 of annual income. B) it does not provide adequate income. C) it requires constant monitoring. D) it is too risky for most people. - correct answers The biggest problem most people have with a 4% initial withdrawal rate is that it doesn't normally represent a lot of income. For example, it takes $300,000 of capital to produce $1,000/month. LO 7-6 When using the "bucket approach" to withdrawals from retirement savings, the "first" bucket should be comprised of A) intermediate- and long-term bonds. B) a diversified stock portfolio. C) short-term, liquid investments. CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ D) a mix of stock and bonds. - correct answers C In the "three bucket approach," a portfolio is segmented based on when the money will be needed. The first bucket is comprised of short-term, low-yielding, liquid investments that can be used to cover near term income needs (1-2 years' worth of living expenses). LO 7-6 Qualified longevity annuity contracts (QLACs) may be suitable if your client A) can self-insure. B) is in poor health. C) has extremely limited retirement income resources. D) has a family history of longevity. - correct answers D QLACs are not for everyone. Each individual will need to consider their level of wealth and ability to "self-insure" for longevity, and what he or she is trying to accomplish with their retirement dollars. Those in poor health or with ample assets do not need the guarantees of an annuity. On the flip side, a QLAC may not be suited for those with extremely limited retirement income resources. However, for those who are healthy and have a family history of longevity, and those entering retirement with Social Security as their only source of guaranteed income, purchasing a longevity annuity could markedly improve their financial security late in life. LO 7-6 The Simpsons need to save an additional $300,000 (in retirement year 1 dollars) to build a sufficient retirement fund to support their targeted retirement lifestyle. They expect to earn a 7% after-tax return on their retirement savings and want to assume a 5% long-term inflation rate. Their preference is to allocate a level annual savings amount to build this fund. What level annual end-of-year savings amount will the Simpsons need to deposit at the end of each year during their 20-year preretirement period? CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ of credits needed to be fully insured, you always subtract 22 from the age and then ensure this is at least the minimum requirement of six credits. The maximum is 40. After 40 credits you are fully insured for life; however, to be eligible for disability benefits you also need to have a recent attachment to the labor force. For those 31 and over, that usually means at least 20 of the most recent 40 credits. Options I and II are available to a currently insured worker. Options III and IV are only available to a fully insured worker. LO 3-2 Which of the following statements regarding capital gains are correct? 1. Net long-term capital gains are subject to a 0% tax rate if the single taxpayer has taxable income under the low $40,000 range. 2. Net short-term gains are subject to a taxpayer's ordinary income tax rate. 3. A maximum rate of 28% applies to long-term gain on collectibles. - correct answers C Net long-term capital gains are subject to a 0% tax rate if the single taxpayer has taxable income under $41,675 (for 2022). Net short-term gains are subject to a taxpayer's ordinary income tax rate. A maximum rate of 28% applies to long-term gain on collectibles. LO 8-1 Seven years ago, Jim, a single taxpayer, purchased a new residence that he used as his principal residence. He sold it this year for a realized gain of $300,000. What is the maximum amount of gain that Jim may exclude under Section 121? A) $0 B) $250,000 C) $50,000 D) $300,000 - correct answers B CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ A single taxpayer may exclude up to $250,000. The remaining $50,000 of gain must be recognized (taxed). LO 8-5 Which one of the following statements is true regarding nonperiodic distributions from an annuity contract prior to the annuity start date? A) A nonperiodic distribution is taxed under the exclusion ratio rules. B) A nonperiodic distribution is first considered a tax-free return of principal and then a taxable interest payment. C) A nonperiodic distribution is prorated equally between a tax-free return of principal and a taxable interest payment. D) A nonperiodic distribution is taxed first as a taxable interest payment until the interest/earnings are completely exhausted and then as a tax-free return of principal. - correct answers D A nonperiodic distribution (withdrawal) from an annuity is not prorated equally between a tax- free return of principal and a taxable interest payment; it is first considered a taxable interest payment and then a tax-free return of principal (LIFO). LO 8-4 Cyrus passed away early this year, leaving a sizable estate. His will left, among other things, 2,000 shares of GE to his daughter, Bianca. These shares had been purchased as a single lot in 2005. Bianca and her husband sold the stock. What was their cost basis in these shares? A) the market value on the day Cyrus died B) CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ Cyrus's cost basis less a 25% excise tax C) Cyrus's cost basis D) the market price as of the sale date - correct answers A The basis of an asset acquired by inheritance generally is the fair market value on the date of death. This is referred to as a "stepped-up basis." For stocks, the FMV is the average between the high and the low for that day. LO 8-1 Which one of the following statements correctly describes the method for calculating the exclusion ratio for a fixed annuity? A) The number of expected payments is divided by the investment in the annuity contract. B) The investment in the annuity contract is divided by the number of expected payments. C) The total expected return is divided by the investment in the annuity contract. D) The investment in the annuity contract is divided by the total expected return. - correct answers D The exclusion ratio for a fixed annuity contract is not calculated by dividing the number of expected payments by the investment in the contract. It is calculated by dividing the investment in the contract by the total expected return. The "total expected return" is an industry term meaning the monthly payment times the life expectancy. For example, if the monthly payment is $1,000/month and the life expectancy is 20 years, the total expected return would be $240,000 ($1,000/month X 12 X 20). The exclusion ratio for a variable annuity contract is calculated by dividing the investment in the contract by the number of expected payments. CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ The valuation date for gifts is A) the date the donor originally purchased the gifts. B) the date on which the donee takes possession of the gifts. C) six months after the date of the transfer. D) the date on which the transfer is completed. - correct answers D The date of completion of the gift is the valuation date for gift tax purposes. LO 8-9 A fundamental duty owed to a client is to always look out for what is in the client's best interest. Which fiduciary duty best personifies this? - correct answers DUTY OF LOYALTY The fiduciary duty that best personifies looking out for the client's best interest first is the fiduciary duty of loyalty. This duty requires being loyal to the client first and foremost, and always looking out for what is in their best interest. The duty of care is analogous to medical care. It looks at the degree of skill and diligence, not the adviser's feelings about the client's situation. LO 9-4 Which of the following limit ownership to spouses only? 1. tenancy in common 2. joint tenancy 3 tenancy by the entirety 4. community property - correct answers B 3 AND 4 CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ Only spouses can hold title as tenants by the entirety and as community property. Nonspouses can hold title as joint tenants (JTWROS) or tenants in common. LO 8-8 All of the following assets would be included in a decedent's gross estate except A) life insurance proceeds from a policy on the decedent in which the decedent had assigned all incidents of ownership two years before her death. B) an irrevocable trust established by the decedent five years before his death that paid all income to him until death, then the corpus to his children. C) the proceeds from a life insurance policy on the decedent that was always owned by the decedent's spouse, with the spouse as the named beneficiary. D) a residence that was owned by the decedent and his spouse as joint tenants with right of survivorship. - correct answers C Because the decedent never owned this policy, and his estate is not the beneficiary, these proceeds are not included in the decedent's gross estate. The decedent's retained right to income causes inclusion. The decedent owned an interest in the residence at death, and therefore his interest must be included in his gross estate. If the decedent assigned incidents of ownership in this policy within three years of death, the proceeds must be included in the decedent's gross estate. LO 8-9 Gift splitting allows A) a sister and brother to contribute up to twice the maximum annual exclusion amount to an individual with no gift tax liability. B) CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ a married donor to give a gift of up to twice the maximum annual exclusion amount to his or her spouse without gift tax liability. C) a father and son to contribute up to the maximum annual exclusion amount to an individual with no gift tax liability. D) a married couple to double their allowable annual exclusions. - correct answers D Gift splitting is allowed only for married couples. It allows a non-donor spouse to become a "deemed donor" for half of the gift, and therefore permits twice the annual exclusions otherwise available for present interest gifts to third parties. Gift splitting does not apply to gifts from one spouse to the other spouse. LO 8-9 John was killed in a car accident at age 45. His wife Lottie, age 40, is the primary beneficiary of his retirement account at work and his IRA. Thanks to you, John had sufficient life insurance, so there does not seem to be any immediate need for Lottie to take withdrawals from John's retirement assets. You and Lottie discuss her options for titling her inherited retirement accounts. Which of the following would give Lottie the most flexibility for tax-efficient distributions from John's retirement assets? A) Move all of John's assets into an inherited IRA titled John Q. Jones (deceased July 4, 202X) FBO Lottie S. Jones B) Move John's money into Lottie's IRA and then use the entire account to pay off their home mortgage C) Move some of John's money into Lottie's current IRA and place the rest into an inherited IRA titled John Q. Jones (deceased July 4, 202X) FBO Lottie S. Jones D) Consolidate all of John's retiremen - correct answers C CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ is taxable if from a modified endowment contract (MEC). C) is generally exempt from income taxation. D) is typically taxable. - correct answers C The lump sum proceeds of a life insurance policy (even if a MEC) paid to a beneficiary are generally exempt from income taxation. Withdrawals and loans from a MEC may be taxable. Life insurance proceeds, however, are subject to estate taxes if the deceased owned a life insurance policy. If the deceased owner was also the insured, the death benefits are included in his estate. If the deceased owner is not also the insured, the current value of the policy is in the deceased owner's gross estate. LO 4-7 Which one of the following is not a form of an annuity? A) a deferred annuity B) a variable annuity C) a selective annuity D) a fixed annuity - correct answers C Fixed, variable, and deferred are recognized types of annuities. A selective annuity is not a type of annuity. LO 4-5 All of the following are reasons reverse mortgages may become more common in the future except CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ A) reverse mortgages are a potential tool for combating sequence of return risk. B) many older Americans have large amounts of equity in their homes but lack liquid assets capable of sustaining their lifestyle. C) reverse mortgage fees must be rolled into the loan. D) government regulatory changes in 2013 standardized Home Equity Conversion Mortgage (HECM) rules to a great extent. - correct answers C Fees may be rolled into the reverse mortgage, but that is not required. Until the late 1990s American tax law had strong incentives to purchase ever more expensive homes. This effect lingers on today. Next, people have to live somewhere. Buying a home is a forced savings plan as the mortgage is repaid each month. In addition, increases in home prices over time help accrue wealth. Reverse mortgages have the potential to fight sequence of return risk in several ways. First, reverse mortgage loans can pay off the original mortgage and thus eliminate the need for the original mortgage amount each month. Lowering income needs reduces the monthly need. Reducing the monthly need takes pressure off the portfolio. Also, money from a reverse mortgage is tax free (like all other loans received). Additionally, during a market downturn, monthly payments from a reverse mortgage can be substituted for portfolio withdrawals. In fact, the monthly reverse mortgage amount can be smaller than the normal withdrawal from a non-Roth retirement plan because the amount of income tax required with the retirement plan withdrawal is not needed when the monthly income is coming from a reverse mortgage. LO 4-8 All of the following are ways that a person can voluntarily transfer estate assets to another person or entity at death except A) by probate. CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ B) by will substitute. C) transfer on death (T.O.D.). D) by gift. - correct answers D Probate and will substitute are ways that a person can voluntarily transfer estate assets to another person or entity at death. Gifting is one of the two ways that a person can voluntarily transfer estate assets to another person or entity during life, not at death. Selling is the second way to transfer property while alive. T.O.D. passes the brokerage account to the named person when the owner of the account dies. P.O.D. (payable on death) transfers a bank account in the same way. LO 8-8 Which one of the following statements regarding different forms of property co-ownership is correct? A) JTWROS, TBE, and tenancy in common are all forms of co-ownership that require the consent of other co-owners before an owner can sell his or her interest in the asset. B) JTWROS, TBE, and CP are all forms of co-ownership that do not require a probate proceeding when one tenant dies. C) Payable on death (P.O.D.) and transfer on death (T.O.D.) designations are completed gifts that give the named person the right to handle the account while the original owner is alive. D) Joint tenancy with right of survivorship (JTWROS), tenancy by the entirety (TBE), and community property (CP) are all forms of co-ownership that can be used by a husband and wife. - correct answers D CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ is treated as if the money was always hers. She will face the normal RMD issues when she reaches age 72. The option to move the money under her name is always true for Marge as a surviving spouse EDB no matter when Homer passed away relative to his required beginning date (RBD). Alternatively, since Homer died prior to his RBD, Marge could title the account as an inherited IRA and postpone RMDs until Homer would have been 72. A nonspouse EDB would have to start RMDs in the year following the year of death. LO 7-4 To understand the long-term care (LTC) market, a financial planner must be familiar with the wide array of financial products designed to serve the unique needs of this market. As such, which one of the following statements is correct? A) Practically all current long-term care policies provide for all levels of care-skilled, intermediate, custodial, and/or home care-if the patient needs assistance with two of the six activities of daily living. B) Policies issued today generally require an individual to be eligible for Medicare nursing home benefits prior to receiving any insurance policy benefits. C) Because of medical screening, healthy people without a preexisting condition who want to purchase LTC now but may potentially suffer from Alzheimer's disease in the future cannot obtain a qualified LTC policy. D) Payments from a qualified LTC policy paying up to an annually adjusted per-day limit for charges from an L - correct answers D Payments from a qualified LTC policy are income tax-free up to the per-day limit for policies that pay per diem benefits. The per-day cap on tax-free LTC benefits cannot exceed $390 (for 2022). While many LTC policies cover all levels of care, many provide only for home care or exclude any care provided outside of a long-term care facility. Policies sold in states that have adopted the National Association of Insurance Commissioners' Long-Term Care Insurance Model Regulation must cover Alzheimer's. Although medical screening might prevent a person CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ with Alzheimer's disease from purchasing an LTC policy, it cannot prevent a healthy person from purchasing an LTC policy in states that have adopted the model regulation (i.e., a qualified policy). Medicare is not much help in financing long-term care; it covers relatively intense care during a brief period of convalescence that follows a covered hospital stay. LO 5-7 If an investor wants to accumulate $250,000 over the next 12 years, can invest $8,000 at the end of each year, and expects to earn an 11% compound return over the 12 years, what lump sum must she deposit today in the investment to meet her goal? A) $71,460 B) $13,808 C) $9,775 D) $19,521 - correct answers D The correct calculator inputs are $8,000, +/-, [PMT]; 11 [I/YR] 12 [N]; $250,000 [FV]; solve for PV = $19,521. LO 1-4 Under a special catch-up provision for unused deferrals, an eligible employee who participates in a 457 plan can make higher contributions in the last ___________ years prior to retirement. A) five CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ B) three C) four D) seven - correct answers B In a 457 plan, the final three-year catch-up provision allows additional annual deferrals equal to the regular annual deferral during the last three years prior to retirement. However, the age 50 catch-up may not be used when the final three-year catch-up is used. LO 3-8 Under IRC Section 403(b), which of the following organizations can offer a 403(b) plan? I. 501(c) tax-exempt organizations II. Public education III. Churches that use retirement income accounts IV. For-profit organizations A) I and III B) II and IV C) I, II, and III D) I, III, and IV - correct answers A CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ members first identify all their military experience and training record. Then, they identify potential civilian occupations that may correlate, along with the requirements for those occupations. After this, they identify any gaps between their background and new job requirements. The program does not specifically assist military spouses, that is accomplished through the MyStep program. LO 3-6 Richard wants to have an annual retirement income of $100,000 (payable at the beginning of each year) protected against 3% inflation. Assuming a 7% after-tax rate of return and a retirement period of 30 years, how much money (rounded) does Richard need in order to meet his goal? A) $1,822,760 B) $1,753,928 C) $1,822,043 D) $1,754,679 - correct answers C To determine how much money Richard needs, calculate the inflation-adjusted rate of return: (1.07 1.03) - 1 100 = 3.8835. Next, clear your calculator and set it to begin mode. Enter the following known values in any order: 100,000, +/-, PMT; 3.8835 I/YR; 30, N; and request the unknown PV (PVAD). This will give you the correct answers , $1,822,043 (rounded). LO 1-4 Tom has been promised a stream of $40,000 annual payments at the end of each year for 25 years. The present value of these payments discounted at a rate of 5% equals which one of the following amounts? CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ A) $610,224 B) $666,542 C) $591,946 D) $563,758 - correct answers D Tom has been promised a stream of annual payments. To determine the present value of the annual payments to Tom, clear your calculator and set it to the end mode. Next, enter the following unknown values in any order: 40,000, PMT; 5, I/YR; 25, N; and request the known present value of an annuity (PVOA). This will show the correct answers , $563,758. If you got $591,946, you did everything correctly except you were in the begin mode. LO 1-4 Nick wants to maintain the purchasing power of $75,000 (in today's dollars) in retirement. If inflation continues to average 3.5%, approximately what amount will Nick need in 20 years to equal the purchasing power of $75,000 today? (Round your answer to the nearest $5,000.) A) $150,000 B) $225,000 C) $175,000 CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ D) $100,000 - correct answers A If inflation continues at a 3.5% level, Nick will need approximately double his original $75,000 to maintain purchasing power. This can be determined in two ways. If you know the Rule of 72, and you divide 3.5 into 72, you arrive at approximately 20, which is the number of years it will take for a sum to double. With a calculator, you can solve for the future value of $75,000 over 20 years at 3.5%. Keystrokes: 20 N, 3.5 I/YR, 75,000, +/-, PV, FV = $149,234; rounded to the nearest $5,000 = $150,000 LO 1-4 Which of the following are examples of the second step of the retirement planning process? 1. prioritize goals 2. disclose compensation arrangements 3. examine a person's tax situation 4. determine important time horizons - correct answers D 1,3,4 The second step in the retirement planning process is to gather client data, including goals and expectations. The first step is to establish and define the client-counselor relationship, which includes disclosing the counselor's compensation arrangement. LO 1-2 CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ Which one of the following is a characteristic of Treasury inflation-protected securities (TIPS)? A) The increase in principal is taxable each year. B) Their returns are tied to the producer price index. C) They are sold at a discount. D) They are issued with maturities up to 40 years. - correct answers A Any annual increase in principal is subject to federal taxation (unless in a tax-deferred account). Returns are tied to the consumer price index. TIPS are sold at par value and have maturities up to 30 years. LO 2-2 Assume your client has the following portfolio: StockWeight BetaBCD 40% 1.15 EFG 25% .90 HIJ 35% 1.05 What is the overall weighted beta for this portfolio? - correct answers .4 x 1.15 = .46; .25 x .90 = .23; .35 x 1.05 = .37. Then, .46 + .23 + .37 = 1.06. CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ LO 2-3 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% decrease C) 6.5% increase D) 9.75% increase - correct answers 1.5% x -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. LO 2-3 The process of rebalancing is a key factor in A) institutional asset allocation. CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ B) strategic asset allocation. C) dynamic asset allocation. D) tactical asset allocation. - correct answers B 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. LO 2-5 Tactical asset allocation - correct answers an active approach that tries to position a portfolio into those assets, sectors, and individual securities showing the most promise for above average gains; changes are then made as the prospects for these assets, sectors and securities change; can use sector rotation, market timing, and contrarian approaches, or it can incorporate momentum investing, whereby money is moved from areas with below-average performance to areas that are performing above average What does Jensen's alpha tell you? A) the percentage of return that can be attributed to unsystematic risk B) the percentage of return that can be attributed to systematic risk C) the percentage a manager over- or underperformed based on the amount of risk taken D) the percentage by which a manager beat the market - correct answers C CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ D) The coupon rate is annualized but paid semiannually for U.S. bonds. - correct answers D The face value of the bond should be assumed to be $1,000, not $10,000. The coupon rate is stated on an annual basis but is assumed to be paid semiannually for U.S. bonds and the coupon payment is always made at the end of the period, not the beginning. All bonds, even zero coupon bonds, are compounded semiannually in the End mode. This makes all bond YTM quotes standardized for easy comparison. LO 2-8 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) $925 B) $875 C) $902 D) $1,010 - correct answers C 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: END 1,000 [FV], 25 [PMT], 5%=50/2=25 3 [I/YR], 30 [N], 15*2 CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ 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]. LO 2-8 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 was designed to provide additional funding for Medicare. B) The tax applies to those with an AGI in excess of $500,000. C) The tax is split between the employer and employee. D) The tax is 1.9%. - correct answers A 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). LO 3-1 Suzy begins her Social Security retirement benefit at full retirement age (FRA). What is the amount that she will receive? A) average indexed monthly earnings (AIME) B) primary insurance amount (PIA) C) CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ delayed retirement credit (DRC) D) currently insured amount - correct answers B 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. LO 3-2 Which of the following are factors to consider when making the decision on when to receive Social Security benefits? Earnings of dependents Income benefit provided Additional sources of income Condition of health - correct answers ALL OF THESE 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 $19,560 in 2022, the child's retirement benefit would be cut accordingly. LO 3-4 Henry, a fully insured worker for Social Security purposes, will retire next month at the age of 62. Henry is concerned that he may lose some of his Social Security benefits because of the earnings limitation test. Which of the following sources of Henry's income are counted for purposes of the earnings limitation test? CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ 4. 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. - correct answers 1 AND 3 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. The reduction is $1 of benefits for each $2 of income earned above the allowable limit for an individual who is under his or her Social Security full retirement age for the entire year and begins receiving Social Security benefits. 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.) LO 3-3 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? A) $2,880 B) $4,080 C) $1,200 D) $4,800 - correct answers B CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ 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% of $12,000 = $4,080). Mike is not a "first-time homebuyer" in this question because he is buying a vacation home. LO 7-3 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 2022? A) $0 B) $6,000 C) $12,000 D) $200 - correct answers A Lucy is an active participant because she received a profit sharing contribution. Their AGI is greater than the phaseout limit for active participants in 2022 ($109,000-$129,000). Thus, Lucy cannot make a deductible contribution. George has the full spousal deduction available, but the deductibility of the spousal IRA is also phased out because their AGI is greater than $214,000 in 2022. Lucy and George's total deduction is zero. They do not qualify for any deduction. Additionally, their ability to make Roth IRA contributions was also phased out when their AGI went over $214,000 for 2022. If they had no other traditional IRAs, they could make nondeductible IRA contributions and then convert them to Roth IRAs. They could also skip the IRA rules altogether and invest in nonqualified fixed or variable annuities or cash value life insurance, to defer taxation on accumulations in the policies. LO 4-2 CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ When deciding how much to contribute to a Roth IRA, your clients must consider which of the following? A) their number of children B) their AGI C) their investment experience D) their status as an active participant in an employer-sponsored plan - correct answers B When deciding how much to contribute to a Roth IRA, you must consider only your AGI and earned income. Active participant status is only considered when calculating the amount of a traditional IRA contribution that is deductible. As long as an individual has earned income and their AGI is below the threshold for their marital status, they may contribute to a Roth IRA. LO 4-3 Susan, age 47, who is married and files jointly, contributes 5% of her salary to her employer's 401(k) plan. Susan and her husband have modified AGI of $117,222. If Susan makes a full $6,000 contribution to an IRA, how much of this contribution will be deductible in 2022? A) $5,500 B) $3,540 C) $0 CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ 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. LO 7-3 All of the following are correct statements regarding qualified longevity annuity contracts (QLACs) EXCEPT A) owners must begin receiving income by age 75. B) accumulations in these annuities are exempt from the initial RMD rules from age 73 to 85. C) owners can put no more than 25% of their retirement plan money into a longevity annuity with an overall cap of $145,000 in 2022. D) payments from longevity annuities are larger than those received from a regular annuity due to the delay in receipt of the annuity payments. - correct answers A Owners must begin receiving income from a longevity annuity by age 85. All of the other statements are correct. LO 4-5 Which type of life insurance below is referred to as "pure" life insurance?' CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ A) variable life B) term life C) interest-only life D) permanent life - correct answers B Term life is insurance in its purest form; it provides nothing more than a cash payment if death occurs while the policy is in force. Permanent insurance provides a cash value in addition to the basic insurance coverage and interest-only is a settlement option, not a type of insurance. LO 4-7 Reverse mortgages can be used for which one of the following purposes? A) to guarantee a return of equity to the homeowners' survivors B) to generate a monthly income guaranteed for life C) to generate a lump sum that can be used to fund long-term care D) to generate additional income that does not need to ever be repaid - correct answers C A reverse mortgage can be used to generate a lump sum that can be used to fund long-term care. Payments can continue for as long as the homeowner resides in their home-not CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ necessarily until their death. Depending on the ultimate sale price of the home and the amount of equity that has been paid out, there may not be funds remaining for the beneficiaries. Reverse mortgage balances do not need to be repaid while at least one owner lives in the home, maintains it, and pays the taxes, insurance, and any HOA dues that are payable. But, when the home is no longer the primary residence due to moving or death, the balance is payable. LO 4-8 Survivor Benefits - correct answers Texas two step 1. surviving spouse becomes the worker spouse, meaning your benefit is exactly the same as theirs. 2. is the surviving spouse at FRA? Yes - do not reduce payment; No - reduce payment! Reduction: 25/36 of 1% for the first 36 months and 5/12 of 1% for the months in excess of 36 months. redo option - correct answers If client begins taking SS and then realizes that this was not their best option, they have 12 months from the day they filed to pay back all of their SS payments and refile for increased benefits at a future date.**If they realize this after the 12 month window closes, they can only suspend benefit payments (not repay already received payments). They do earn delayed retirement credits this way. Under the Affordable Care Act, "Platinum" plans offered on the exchanges vary in 1. the services that they provide. 2. how the insured and insurer share the costs of care. - correct answers C Plans in each category (i.e., Platinum, Gold, Silver, Bronze, Catastrophic) all cover the same services. It is how the insured and the insurer share the costs of care that varies. LO 5-1 A nonspringing durable power of attorney CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ A) It is a government health insurance program designed for individuals with low income and minimal assets. B) You must be retired in order to qualify for Medicaid. C) Medicaid eligibility begins at age 65. D) Medicaid covers long-term care expenses using the same eligibility requirements as Medicare - correct answers A Medicaid is a government health insurance program designed for individuals with low income and 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. LO 5-6 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 B excess amounts B) Medicare Part D deductibles C) 100% of skilled nursing coinsurance D) deductibles or coinsurance amounts - correct answers D CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ 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. LO 5-4 Which of the following are usually covered by long-term care insurance? treatment for preexisting health problems (within the first six months of the policy) 1. personal (custodial) care 2. skilled nursing home care 3. care for all mental disorders, in all situations - correct answers B 1 AND 2 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., people who already have Parkinson's disease or Alzheimer's disease) will be unable to obtain a policy. LTC policies generally will not pay benefits in the future for services related to mental or nervous disorders (option IV) other than Alzheimer's disease, alcoholism or drug addiction, war- related illnesses or injuries, or attempted suicide or intentional self-inflicted injury. LO 5-7 In order to be considered a "qualified" policy, a long-term care policy must CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ A) provide for nonforfeiture options. B) include a determination of medical necessity by a physician. C) be conditionally renewable D) include a return of premium. - correct answers A To be classified as a qualified policy, cognitive impairment must be covered, it must provide for nonforfeiture options, and it must be guaranteed renewable and conform to the National Association of Insurance Commissioners Model Act. It cannot include a determination of medical necessity by a physician nor can it include return of premium. LO 5-7 Your client, Susan, age 60, cannot afford to retire until age 62 when she becomes eligible for Social Security and company pension benefits. Susan no longer feels appreciated by her company and was recently passed over for a promotion. Her husband Brent, age 63, lost his company health care plan and dependent coverage when he retired, but Susan has been able to cover the two of them on her company's plan. If Susan takes early retirement at age 62, her company benefits plan stipulates that her health care coverage will end. Susan's health is excellent, but Brent's health is just fair. Susan should be concerned about which of the following issues regarding retirement? 1. Her wealthy sister, wants her to retire so they can have more time together. 2. Brent won't be eligible for Medicare for almost two more years. 3. Her retirement may impact her spouse and family. - correct answers B 2 AND 3 Her sister's pressure is financially meaningless. It has nothing to do with the right time to retire. The right time may be when clients feel that they are losing their ability to perform up to CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ Wally and Kim, a married couple with an average life expectancy, have a retirement budget of $6,000/month. While they are both alive their Social Security and Kim's military retirement will pay $4,500/month. Wally's IRA is sufficient to generate $1,505/month as a lifetime annuity with the features they need. What Retirement Level have they achieved? A) Level 1 B) Level 0 C) Level 3 D) Level 2 - correct answers A If Wally and Kim annuitize their entire IRA, they will have an income sufficient to meet their retirement budget. The good news is that they will have the income for the rest of their lives; however, they will have very little in reserve and inflation will be a problem, especially over time. Still, annuitizing the money protects them against running out of income. It also can help them say no to children and grandchildren asking for money they do not have. While annuitizing all their retirement assets has many downsides, at least they have achieved Level 1 retirement preparedness according to this model. LO 6-1 Which one of the following distributions from a 403(b) tax sheltered annuity would not be subject to the 10% premature withdrawal penalty? A) up to $5,000 taken a week before the birth of the worker's child B) CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ hardship withdrawal for higher education expenses C) a 46-year-old employee who separated from service and received a full distribution D) distributions paid to an alternate payee pursuant to a qualified domestic relations order - correct answers 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 $5,000 within a year after the birth or adoption of a child. In this case, the withdrawal was taken before the birth of the child. LO 7-3 Which one of the following is exempt from the 10% penalty on qualified plan distributions made before age 59½? A) a payment to prevent foreclosure on a principal residence B) substantially equal periodic payments made to a participant following separation from service, based upon the participant's remaining life expectancy C) distributions made to an employee because of "immediate and heavy" financial need D) in-service distributions made to an employee age 55 or older - correct answers B CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ The 10% premature distribution penalty does not apply to substantially equal periodic payments made after separation from service. The law does not recognize immediate and heavy financial needs as an exception to the penalty. The age 55 exception does not apply to in- service distributions; i.e., the employee must have separated from the service of the employer. LO 7-3 Frank is 54. His daughter Meredith is attending college. Frank has been making salary reduction contributions to his 401(k) for the past four years, and is considered a highly compensated employee. His account is worth $25,000. His contributions and the earnings on his contributions total $19,000. His employer has contributed $5,000 and these contributions have earned $1,000. His vested balance is $21,500. The plan provides for both hardship withdrawals and plan loans, and loans are available to all plan participants on an equal basis. Frank needs to use some of his plan assets to pay college tuition. Which of the following is a correct statement about how Frank could meet Meredith's college expenses? A) Frank is not allowed to take a loan from the plan because he is a highly compensated employee. B) Frank can withdraw the full vested balance of $21,500 from his 401(k) account under the hardship provisions. C) The - correct answers C Frank can borrow up to 50% of his vested balance. Half of $21,500 is $10,750. As long as loans are available to all plan participants on an equal basis, highly compensated employees may take loans. A hardship distribution from a 401(k) plan for education expenses would be subject to the 10% premature distribution penalty. In this case, hardship withdrawals can only be taken on his contributions and the earnings on his contributions. If there would have been any QMAC (qualified matching contributions) or QNEC (qualified non-elective contributions), then he could take a hardship withdrawal on them as well. LO 7-1 CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ 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. LO 7-2 Which one of the following statements regarding IRA distributions is correct? A) Withdrawals from an IRA to pay for qualified education expenses are exempt from the 10% early withdrawal penalty. B) Withdrawals from an IRA to pay for qualified education expenses are exempt from the 10% early withdrawal penalty and taxation. C) Distributions under a QDRO are exempt from the 10% early withdrawal penalty. D) Distributions from an IRA following separation from service after age 54 are exempt from the 10% early withdrawal penalty. - correct answers A 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 due to marital separation in accordance with a court order are subject to the 10% early withdrawal penalty for IRAs. QDROs are not used to divide IRA assets; they are only applied to qualified plans. LO 7-3 CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ 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) Roll over all of the distribution he receives, within 60 days of receipt, into 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) Elect payment in the form of a direct rollover to an IRA. D) Transfer his SEP account, net of the mandatory 20% withholding, directly to an IRA. - correct answers A 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. LO 7-2 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? 1. At age 59½, she can stop taking substantially equal periodic payments until age 72, if she wishes. 2. Use of the fixed annuitization method or the required distribution method will maximize the amount of substantially equal periodic payments she receives. - correct answers NEITHER 1 OR 2 CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ 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 73 (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. LO 7-3 Jane has contributed $1,000 each year to a Roth IRA, beginning with an initial payment of $1,000 on December 31, 2017. She wants to know when she can begin making qualified distributions. Which one of the following statements would represent what you, as her financial adviser, would tell her? A) She would only be able to take $10,000 out of her Roth IRA to pay for the purchase of a first- time home without paying the 10% early withdrawal penalty prior to age 59½. B) After December 31, 2022, the five years will have elapsed, but the earliest she could ever begin making qualified distributions would be after she attains 59½. C) Any distribution she takes after January 1, 2022, will meet the five-year holding period requirement. D) Any distributions for medical expenses in excess of 7.5% of AGI would qualify as a tax-free distribution after satisfying the five-year holding period even if she has not attained age 59½. - correct answers C The clock started on January 1, 2017, so five years will have elapsed on January 1, 2022. The five years are 2017, 2018, 2019, 2020, and 2021. Thus, January 1, 2022, would be more than five Roth years later. A Roth IRA owner is required to hold the account for a minimum of five years to qualify for tax-free distributions. In addition, the owner must be at least age 59½, disabled, or making a first-time home purchase. Also, a qualified distribution can be made to a beneficiary after the owner has passed away. The five-year Roth clock for all of these CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ Assuming the five-year holding period has been satisfied, which one of the following is not a qualified distribution from a Roth IRA? A) a distribution made to an individual on or after age 59½ B) a distribution made to an individual who retires on or after age 55 C) a distribution of earnings up to $10,000 made for a first-time home purchase D) a distribution made to an IRA owner who is disabled - correct answers B Distributions from a Roth IRA will be either qualified or not qualified. A distribution is qualified if the five-year holding period has been met and the distribution is made after the attainment of age 59½, death, or disability, or if it is made to a first-time homebuyer for the purchase of a home (limited to a maximum distribution of $10,000). A distribution made to an individual who retires on or after age 55 is not a qualified distribution. LO 7-3 Jan has been employed by Bryce Corporation for 40 years and is a 4% owner of the company. She received $60,000 in compensation during the preceding year and is a participant in the corporation's profit sharing plan. She will celebrate her 72nd birthday on July 3rd of this year and plans to retire in four more years. Which one of the following correctly describes the date by which Jan must start taking distributions from her profit sharing account? A) the date she attains age 72 B) December 31 of this year CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ C) April 1 of this year D) April 1 of the year following the year she retires - correct answers D Distributions from qualified plans, IRAs, SEPs, SIMPLE IRAs, TSAs, and other retirement accounts must begin by a certain date. This rule does not apply to Roth IRAs. For IRAs, SEPs, SIMPLE IRAs, and 5% owners of a business with a qualified plan, that date is April 1 of the year following the year in which the participant attains age 72. Distributions from qualified plans, 403(b) plans, and 457 plans to individuals who are not 5% owners (such as Jan) must begin by April 1 of the year following the later of the year the participant attains age 72, or the year in which the participant retires. LO 7-3 Charlie contributed $2,000 to Roth IRA 1 last year, when he was age 24, and $2,000 to Roth IRA 2 this year. Two years from now, Roth IRA 1 will have a balance of $2,650, and Roth IRA 2 will have a balance of $2,590, and Charlie will close Roth IRA 1, receiving the balance of $2,650. Which one of the following statements best describes his tax and penalty status for that year? A) He only pays ordinary taxes because Roth IRA distributions are not subject to a penalty. B) He must pay taxes and a penalty on the full distribution. C) He cannot make any withdrawals because the money has not been in the Roth IRA for five years or longer. D) He will pay neither taxes nor a penalty. - correct answers D The distribution is not qualified because Charlie is under age 59½ and he is withdrawing the money before the waiting period of five tax years. None of the withdrawal, however, is CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED A+ included in Charlie's taxable income because the $2,650 sum is less than the aggregate total of his contributions ($4,000). No penalty applies since the withdrawal is not taxable. LO 7-3 Sequence of return risk is thought to have the most potential impact on an individual who has A) 10-15 years until retirement. B) been retired for 10-15 years. C) just retired and begun distributions from his or her account. D) just retired but has not yet begun distributions from his or her account. - correct answers C If portfolio withdrawals occur during a time when investments are producing a negative return, the total value of the overall portfolio will be reduced at a faster rate than it would if returns were more favorable. Essentially, a bear market or period of market losses can significantly deplete the income-generating potential of a portfolio. This scenario is particularly detrimental to a person who is transitioning into retirement, because the ability of the portfolio to "catch up" during subsequent years is greatly diminished and the person's longevity risk will increase significantly. In other words, the shares redeemed to provide income will not exist in the future. Therefore, those shares cannot participate in any recovery and the newly retired person has a bigger chance of running out of money before passing away. This risk is not as destructive before retirement and if distributions are not being made. LO 2-4 Monte Carlo analysis is based upon a given set of assumptions regarding rates of return and A) betas.