CRPC SAMPLE TESTS WITH
CORRECT SOLUTIONS
Gift splitting - ANSWER-Allows a married couple to double their allowable annual
exclusions is only allowed for married couples
Ownership limited to spouses only - ANSWER-Joint tenancy tenancy by the entirety
community property
Grantor retained interest Trust Grit - ANSWER-Grantor can receive all income earned
by the trust
Qualified terminable interest Property Trust Q-tip - ANSWER-Income of a Q-tip goes to
the grantor's spouse
Charitable lead Trust CLT - ANSWER-The income goes to charity
Power of appointment trust POA - ANSWER-Income goes to the grantor's spouse
Valuation date for gifts - ANSWER-The date on which the transfer is completed
Gross estate - ANSWER-Includes all the property that is subject to the federal estate
tax whether or not owned by the decedent and whether or not included in the the
probate or taxable estate
Taxation of reinvestment of ordinary dividends - ANSWER-Qualified dividends are
subject to the same tax rates applicable to long-term capital gains
Bargain element on exercise of an incentive stock option and AMT - ANSWER-Included
as a preference item for AMT
Private activity municipal bonds and AMT - ANSWER-Interest from private activity Muni
bonds is an AMT preference item except for bonds issued in 2009 and 2010
Home mortgage interest and AMT - ANSWER-Home mortgage interest is allowed for
regular and AMT
Adjusted gross income - ANSWER-Income remaining after subtracting the adjustments
to income
Domestic Partners transfer wealth to the other vs legal spouse - ANSWER-Governor
domestic partner cannot take a marital deduction in excess of the gift tax annual
exclusion for the transfer while a donor spouse could
,The basis for charitable contribution deduction for stock - ANSWER-Based on the
current fair market value of the stock
Taxation of substitute payments in lieu of a dividend - ANSWER-Substitute payments in
lieu of a dividend are not subject to preferential treatment and are treated as ordinary
income
How does a stock dividend affect basis - ANSWER-The basis is reduced to provide
basis for shares are received as a stock dividend
Net capital loss amount - ANSWER-$3,000 per year are deductible
Taxation of qualified dividends - ANSWER-Dividends are taxed at 15% or 20% if the
dividends fall into the 39.6% bracket
Text treatment for a shareholder participating in common stock dividend reinvestment
program - ANSWER-The shareholder is treated as if he received a cash dividend equal
to the fair market value of the shares purchased under the plan
When is earned income taxed - ANSWER-It is taxed in the year when the check was
received
Medical expenses and AMT - ANSWER-Most that are deducted are allowed for AMT
purposes 10% of AGI
If a domestic partner is appointed as conservator or Guardian - ANSWER-The individual
should make his or her desire to have the domestic partner appointed by executing
written documents approved by state law as intestacy laws typically follow the bloodline
Per year 4 retirement benefit increase over full retirement age - ANSWER-8%
Qlac - ANSWER-Suitable 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
Bucket approach to withdrawals from retirement savings - ANSWER-...
Proper written Financial goal - ANSWER-Specific in terms of gold dollar amount and
time frame
Income replacement percentages - ANSWER-Income replacement percentages vary
between low-income and high-income retirees. Income replacement ratios should not
be used as the only basis for planning. Are useful for younger clients as a guide to their
long-term planning and investing.
,Investment policy attributes - ANSWER-Long-term perspective. Realistic. Clearly
defined.
Asset allocation strategies - ANSWER-Tactical. Core satellite. Strategic
Correlation and diversification - ANSWER-The lowest correlation provides the most
diversification
Two major risks associated with Common Stocks - ANSWER-Market risk and business
risk
Two major risks associated with Bond investing - ANSWER-Interest rate risk and
purchasing power risk
Calculating yield to maturity on the calculator - ANSWER-Set the end mode
Allowable earnings limit for 2015 for no reduction in Social Security benefits - ANSWER-
$15,720 earned income
Social Security benefits available when fully insured worker begins at full retirement age
- ANSWER-At full retirement age the workers spouse will receive at least 50% of the
workers PIA. Capitulo 4 retirement age the PIAA is reduced by 25/36 of 1% for each of
the first 36 months the spouse is under full retirement age
How does tax-exempt interest affect social security taxation - ANSWER-All tax-exempt
income is included to determine a social security taxation a maximum of 85% of Social
Security benefits are subject
Features of defined benefit plans - ANSWER-Write a predetermined fix retirement
benefit for participating employees
What plan is good for a new business with fluctuating cash flow and key employees who
are older than the rank-and-file - ANSWER-An age weighted formula can be used by a
profit sharing plan
What type of qualified plan is most appropriate for motivating younger lower-paid
employees and improving company performance - ANSWER-Profit sharing plan can
reward employees for helping to increase company profits. 401K contributions might not
be affordable
Legal requirements of profit sharing plans - ANSWER-Forfeitures must be used to
reduce employer contributions or be reallocated to remaining participants. Employer
deductions for plan contributions are limited to 25% of participants total compensation.
Allocations to report suspense account cannot exceed the lesser of a hundred percent
of compensation or $53,000
, Do Target benefit plans offer Survivor annuity benefits to married participants -
ANSWER-Qualified Pension Plan such as Target benefit plans are required to offer
Survivor annuity benefits to married participants qualified profit sharing plans including
stock bonus plans and Aesop's generally are not subject to the Survivor annuity
requirements but more typically offer lump sum payouts
Describe an in lieu of plan - ANSWER-A pure Deferred Compensation Plan is
sometimes called in lieu of plan because the employee is receiving the employer's
promise to pay benefits in lieu of current income. death benefit plans provide no life time
benefits to the employee participant the employer helps to fund the retirement benefit
provided by a supplemental plan. some Deferred Compensation Plan provide additional
benefits such as benefits for disability
Similarity between qualified and non-qualified plans - ANSWER-They must enable the
employee to defer taxation on the plan funds until retirement
What can affect the retirement benefits in a defined contribution plan - ANSWER-The
actual investment returns. The value of the participants individual account balance at
retirement
Which allocations are permitted in a qualified profit sharing / 401K plan - ANSWER-
Investment earnings allocated in proportion to relative account balances and employer
contributions to the profit sharing plan allocated in proportion to relative compensation
Describe the limits that apply to qualified defined contribution plans - ANSWER-Annual
limit is the lesser of 100% of pay or $53,000. Employer deduction limit is 25% for profit
sharing plans, money purchase plans, Target plans, have multiple defined-contribution
plans. The annual additions limit for a participant and multiple defined-contribution plans
of the employer or related employers must also be aggregated
Defined contribution is good for - ANSWER-Companies with uncertain cash flow
Outlook, employees at young age, and retirement savings needs within contribution
limits
Target benefit plans are good for - ANSWER-It would skew contribution allocations to
older employees. Although the uncertainty of the amount of retirement benefit is a
drawback. Target benefit plans do not allow 401 k elective deferrals and employer
contributions are limited to 25 not 15% of covered payroll
Legal requirements of money purchase pension plans - ANSWER-The plan must
provide a definite and non discretionary employer contribution formula. Forfeitures can
be reallocated to the remaining participants account and a non-discriminatory Mater are
used to reduce employer contributions. A separate employer contribution account must
be maintained for each participant. It does not have to specify a specific retirement
benefit
CORRECT SOLUTIONS
Gift splitting - ANSWER-Allows a married couple to double their allowable annual
exclusions is only allowed for married couples
Ownership limited to spouses only - ANSWER-Joint tenancy tenancy by the entirety
community property
Grantor retained interest Trust Grit - ANSWER-Grantor can receive all income earned
by the trust
Qualified terminable interest Property Trust Q-tip - ANSWER-Income of a Q-tip goes to
the grantor's spouse
Charitable lead Trust CLT - ANSWER-The income goes to charity
Power of appointment trust POA - ANSWER-Income goes to the grantor's spouse
Valuation date for gifts - ANSWER-The date on which the transfer is completed
Gross estate - ANSWER-Includes all the property that is subject to the federal estate
tax whether or not owned by the decedent and whether or not included in the the
probate or taxable estate
Taxation of reinvestment of ordinary dividends - ANSWER-Qualified dividends are
subject to the same tax rates applicable to long-term capital gains
Bargain element on exercise of an incentive stock option and AMT - ANSWER-Included
as a preference item for AMT
Private activity municipal bonds and AMT - ANSWER-Interest from private activity Muni
bonds is an AMT preference item except for bonds issued in 2009 and 2010
Home mortgage interest and AMT - ANSWER-Home mortgage interest is allowed for
regular and AMT
Adjusted gross income - ANSWER-Income remaining after subtracting the adjustments
to income
Domestic Partners transfer wealth to the other vs legal spouse - ANSWER-Governor
domestic partner cannot take a marital deduction in excess of the gift tax annual
exclusion for the transfer while a donor spouse could
,The basis for charitable contribution deduction for stock - ANSWER-Based on the
current fair market value of the stock
Taxation of substitute payments in lieu of a dividend - ANSWER-Substitute payments in
lieu of a dividend are not subject to preferential treatment and are treated as ordinary
income
How does a stock dividend affect basis - ANSWER-The basis is reduced to provide
basis for shares are received as a stock dividend
Net capital loss amount - ANSWER-$3,000 per year are deductible
Taxation of qualified dividends - ANSWER-Dividends are taxed at 15% or 20% if the
dividends fall into the 39.6% bracket
Text treatment for a shareholder participating in common stock dividend reinvestment
program - ANSWER-The shareholder is treated as if he received a cash dividend equal
to the fair market value of the shares purchased under the plan
When is earned income taxed - ANSWER-It is taxed in the year when the check was
received
Medical expenses and AMT - ANSWER-Most that are deducted are allowed for AMT
purposes 10% of AGI
If a domestic partner is appointed as conservator or Guardian - ANSWER-The individual
should make his or her desire to have the domestic partner appointed by executing
written documents approved by state law as intestacy laws typically follow the bloodline
Per year 4 retirement benefit increase over full retirement age - ANSWER-8%
Qlac - ANSWER-Suitable 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
Bucket approach to withdrawals from retirement savings - ANSWER-...
Proper written Financial goal - ANSWER-Specific in terms of gold dollar amount and
time frame
Income replacement percentages - ANSWER-Income replacement percentages vary
between low-income and high-income retirees. Income replacement ratios should not
be used as the only basis for planning. Are useful for younger clients as a guide to their
long-term planning and investing.
,Investment policy attributes - ANSWER-Long-term perspective. Realistic. Clearly
defined.
Asset allocation strategies - ANSWER-Tactical. Core satellite. Strategic
Correlation and diversification - ANSWER-The lowest correlation provides the most
diversification
Two major risks associated with Common Stocks - ANSWER-Market risk and business
risk
Two major risks associated with Bond investing - ANSWER-Interest rate risk and
purchasing power risk
Calculating yield to maturity on the calculator - ANSWER-Set the end mode
Allowable earnings limit for 2015 for no reduction in Social Security benefits - ANSWER-
$15,720 earned income
Social Security benefits available when fully insured worker begins at full retirement age
- ANSWER-At full retirement age the workers spouse will receive at least 50% of the
workers PIA. Capitulo 4 retirement age the PIAA is reduced by 25/36 of 1% for each of
the first 36 months the spouse is under full retirement age
How does tax-exempt interest affect social security taxation - ANSWER-All tax-exempt
income is included to determine a social security taxation a maximum of 85% of Social
Security benefits are subject
Features of defined benefit plans - ANSWER-Write a predetermined fix retirement
benefit for participating employees
What plan is good for a new business with fluctuating cash flow and key employees who
are older than the rank-and-file - ANSWER-An age weighted formula can be used by a
profit sharing plan
What type of qualified plan is most appropriate for motivating younger lower-paid
employees and improving company performance - ANSWER-Profit sharing plan can
reward employees for helping to increase company profits. 401K contributions might not
be affordable
Legal requirements of profit sharing plans - ANSWER-Forfeitures must be used to
reduce employer contributions or be reallocated to remaining participants. Employer
deductions for plan contributions are limited to 25% of participants total compensation.
Allocations to report suspense account cannot exceed the lesser of a hundred percent
of compensation or $53,000
, Do Target benefit plans offer Survivor annuity benefits to married participants -
ANSWER-Qualified Pension Plan such as Target benefit plans are required to offer
Survivor annuity benefits to married participants qualified profit sharing plans including
stock bonus plans and Aesop's generally are not subject to the Survivor annuity
requirements but more typically offer lump sum payouts
Describe an in lieu of plan - ANSWER-A pure Deferred Compensation Plan is
sometimes called in lieu of plan because the employee is receiving the employer's
promise to pay benefits in lieu of current income. death benefit plans provide no life time
benefits to the employee participant the employer helps to fund the retirement benefit
provided by a supplemental plan. some Deferred Compensation Plan provide additional
benefits such as benefits for disability
Similarity between qualified and non-qualified plans - ANSWER-They must enable the
employee to defer taxation on the plan funds until retirement
What can affect the retirement benefits in a defined contribution plan - ANSWER-The
actual investment returns. The value of the participants individual account balance at
retirement
Which allocations are permitted in a qualified profit sharing / 401K plan - ANSWER-
Investment earnings allocated in proportion to relative account balances and employer
contributions to the profit sharing plan allocated in proportion to relative compensation
Describe the limits that apply to qualified defined contribution plans - ANSWER-Annual
limit is the lesser of 100% of pay or $53,000. Employer deduction limit is 25% for profit
sharing plans, money purchase plans, Target plans, have multiple defined-contribution
plans. The annual additions limit for a participant and multiple defined-contribution plans
of the employer or related employers must also be aggregated
Defined contribution is good for - ANSWER-Companies with uncertain cash flow
Outlook, employees at young age, and retirement savings needs within contribution
limits
Target benefit plans are good for - ANSWER-It would skew contribution allocations to
older employees. Although the uncertainty of the amount of retirement benefit is a
drawback. Target benefit plans do not allow 401 k elective deferrals and employer
contributions are limited to 25 not 15% of covered payroll
Legal requirements of money purchase pension plans - ANSWER-The plan must
provide a definite and non discretionary employer contribution formula. Forfeitures can
be reallocated to the remaining participants account and a non-discriminatory Mater are
used to reduce employer contributions. A separate employer contribution account must
be maintained for each participant. It does not have to specify a specific retirement
benefit
