CRPC PRACTICE EXAM 2 WITH QUESTIONS AND ANSWERS
-A "rising equity glidepath" typically will lead to a(n) equity exposure over one's total lifetime.
A) consistent
B) increased in the early years and decreased in the later years
C) increased
D) decreased - --- D)decreased
The strategy of increasing equity exposure throughout retirement can result in less equity exposure over
one's lifetime due to the reduced exposure in the early years.
-A golden parachute - -A golden parachute is an agreement between an executive and his or her
company requiring the company to pay certain benefits in the event of a change in control of the
company.
The agreement, therefore, provides a guarantee of financial security to the executive in the event of a
takeover.
The agreement typically provides severance pay, which takes the form of cash, stock, compensation,
extra pension benefits, medical and life insurance, other fringe benefits, and various combinations of all
of these benefits.
-A nonspringing durable power of attorney
A) remains effective after the principal becomes incapacitated.
B) gives the attorney-in-fact authority only when the principal becomes incompetent.
C) remains effective after the principal's death.
D) is usually created in a person's revocable trust. - ---A
The very purpose of any durable power of attorney is to give the attorney-in-fact authority to act after
the principal becomes incapacitated. However, such authority does not survive the principal's death.
Such authority is created in an independent document, and is effective immediately in this type of
power of attorney.
-All of the following are correct statements regarding longevity annuities except:
A) owners can put no more than 25% of their retirement plan money into a longevity annuity with an
overall cap of $135,000 in 2020.
B) accumulations in these annuities are exempt from minimum distribution rules at age 72 in 2020 and
beyond.
C) payments from longevity annuities are larger than those received from a regular annuity due to the
delay in receipt of the annuity payments.
D) owners must begin receiving income by age 75. - --- D
Owners must begin receiving income from a longevity annuity by age 85. All of the other statements are
correct.
-Annette, a single taxpayer, has lived in her principal residence for 18 months, and is relocating to
another part of the country due to health reasons. She will have a gain of $400,000 on the sale.
Which one of the following is correct with respect to the sale of her home?
A) She will qualify for an exclusion of $300,000 ($400,000 gain times 18/24).
,B) She will qualify for an exclusion of $187,500 ($250,000 maximum exclusion times 18/24) on the sale
of the home.
C) She will qualify for an exclusion of $400,000, because the two-year rule is waived if the move is due to
health reasons.
D) She will qualify for no exclusion because she did not use the home as the principal residence for two
of the last five years. - ---B
The general rule is that a single person may exclude up to $250,000 in the sale of the home, provided
the home has been used as the principal residence for two of the previous five years. A partial exclusion
is available if the two-year rule is not met due to health, job, or other unforeseen circumstances. The
exclusion is the percentage of the two-year period that the principal residence test is met, times the full
exclusion amount.
-Annette, a single taxpayer, has lived in her principal residence for 18 months, and is relocating to
another part of the country due to health reasons. She will have a gain of $400,000 on the sale.
Which one of the following is correct with respect to the sale of her home?
A) She will qualify for an exclusion of $300,000 ($400,000 gain times 18/24).
B) She will qualify for an exclusion of $187,500 ($250,000 maximum exclusion times 18/24) on the sale
of the home.
C)She will qualify for an exclusion of $400,000, because the two-year rule is waived if the move is due to
health reasons.
D) She will qualify for no exclusion because she did not use the home as the principal residence for two
of the last five years. - ---B
The general rule is that a single person may exclude up to $250,000 in the sale of the home, provided
the home has been used as the principal residence for two of the previous five years. A partial exclusion
is available if the two-year rule is not met due to health, job, or other unforeseen circumstances. The
exclusion is the percentage of the two-year period that the principal residence test is met, times the full
exclusion amount.
-As a general rule, a Medigap insurance policy is designed to cover which one of the following Medicare-
approved charges that are not paid by Medicare?
A) Medicare Part D deductibles
B) deductibles or coinsurance amounts
C) Medicare Part B excess amounts
D) 100% of skilled nursing coinsurance - ---B
The costs not covered by either Part A or Part B of Medicare are referred to as Medicare gaps or
Medigaps. Medigap insurance is designed to supplement Medicare's benefits by filling in some of what
Medicare does not cover. A Medigap policy pays for Medicare-approved charges that are not paid by
Medicare because of deductibles or coinsurance amounts for which the beneficiary is responsible. The
cost and services covered by Medigap policies varies from vendor to vendor and from plan to plan.
Some, but not all, Medigap policies cover such items as Part D deductibles, skilled nursing coinsurance
amounts, and Medicare Part B excess amounts.
-Assume that a worker's Social Security full retirement age is 66. What percentage of the worker's full
retirement age benefits will be paid to her at age 62? - --- 75%
A worker can begin receiving Social Security retirement benefits at age 62, but at a 25% reduction from
the full amount that would be received at full retirement age 66. The percentage of this worker's full
, retirement age benefits that will be paid to her at age 62 is 75% [(5/9 of 1% per month for each of the
first 36 months prior to full retirement age = 20%) + (5/12 of 1% 12 months = 5%); 20% + 5% = 25%].
-Assume your client has a 5% bond, par value of $1,000, and 15 years to maturity. Comparable bonds
are yielding 6%. What is the value of this bond? - -A) $1,010
B) $902
C) $925
D) $875
--B
If the calculator is set for 1 P/YR, then all factors, other than FV, need to be adjusted for semiannual
payments. The keystrokes would be: 1,000 [FV], 25 [PMT], 3 [I/YR], 30 [N], then solve for [PV] = -902. If
the calculator is set at 2 P/YR, then [I/YR] is 6 and [N] is entered as 15 [SHIFT] [N].
-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 of earnings up to $10,000 made for a first-time home purchase
B) a distribution made to an individual on or after age 59½
C) a distribution made to an individual who retires on or after age 55
D) a distribution made to an IRA owner who is disabled - --- C
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.
-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 will pay neither taxes nor 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 must pay taxes and a penalty on the full distribution.
D) He only pays ordinary taxes because Roth IRA distributions are not subject to a penalty. - ---A
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 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.
-Frank is age 54 and married. He and his wife, Helen, have a daughter named Meredith attending
college. Frank has been making salary reduction contributions to his employer-sponsored 401(k) plan for
the past four years, and is considered a highly compensated employee. The current balance of his 401(k)
account (nonforfeitable accrued benefit) is $21,500, which includes $3,500 of account earnings. 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 "rising equity glidepath" typically will lead to a(n) equity exposure over one's total lifetime.
A) consistent
B) increased in the early years and decreased in the later years
C) increased
D) decreased - --- D)decreased
The strategy of increasing equity exposure throughout retirement can result in less equity exposure over
one's lifetime due to the reduced exposure in the early years.
-A golden parachute - -A golden parachute is an agreement between an executive and his or her
company requiring the company to pay certain benefits in the event of a change in control of the
company.
The agreement, therefore, provides a guarantee of financial security to the executive in the event of a
takeover.
The agreement typically provides severance pay, which takes the form of cash, stock, compensation,
extra pension benefits, medical and life insurance, other fringe benefits, and various combinations of all
of these benefits.
-A nonspringing durable power of attorney
A) remains effective after the principal becomes incapacitated.
B) gives the attorney-in-fact authority only when the principal becomes incompetent.
C) remains effective after the principal's death.
D) is usually created in a person's revocable trust. - ---A
The very purpose of any durable power of attorney is to give the attorney-in-fact authority to act after
the principal becomes incapacitated. However, such authority does not survive the principal's death.
Such authority is created in an independent document, and is effective immediately in this type of
power of attorney.
-All of the following are correct statements regarding longevity annuities except:
A) owners can put no more than 25% of their retirement plan money into a longevity annuity with an
overall cap of $135,000 in 2020.
B) accumulations in these annuities are exempt from minimum distribution rules at age 72 in 2020 and
beyond.
C) payments from longevity annuities are larger than those received from a regular annuity due to the
delay in receipt of the annuity payments.
D) owners must begin receiving income by age 75. - --- D
Owners must begin receiving income from a longevity annuity by age 85. All of the other statements are
correct.
-Annette, a single taxpayer, has lived in her principal residence for 18 months, and is relocating to
another part of the country due to health reasons. She will have a gain of $400,000 on the sale.
Which one of the following is correct with respect to the sale of her home?
A) She will qualify for an exclusion of $300,000 ($400,000 gain times 18/24).
,B) She will qualify for an exclusion of $187,500 ($250,000 maximum exclusion times 18/24) on the sale
of the home.
C) She will qualify for an exclusion of $400,000, because the two-year rule is waived if the move is due to
health reasons.
D) She will qualify for no exclusion because she did not use the home as the principal residence for two
of the last five years. - ---B
The general rule is that a single person may exclude up to $250,000 in the sale of the home, provided
the home has been used as the principal residence for two of the previous five years. A partial exclusion
is available if the two-year rule is not met due to health, job, or other unforeseen circumstances. The
exclusion is the percentage of the two-year period that the principal residence test is met, times the full
exclusion amount.
-Annette, a single taxpayer, has lived in her principal residence for 18 months, and is relocating to
another part of the country due to health reasons. She will have a gain of $400,000 on the sale.
Which one of the following is correct with respect to the sale of her home?
A) She will qualify for an exclusion of $300,000 ($400,000 gain times 18/24).
B) She will qualify for an exclusion of $187,500 ($250,000 maximum exclusion times 18/24) on the sale
of the home.
C)She will qualify for an exclusion of $400,000, because the two-year rule is waived if the move is due to
health reasons.
D) She will qualify for no exclusion because she did not use the home as the principal residence for two
of the last five years. - ---B
The general rule is that a single person may exclude up to $250,000 in the sale of the home, provided
the home has been used as the principal residence for two of the previous five years. A partial exclusion
is available if the two-year rule is not met due to health, job, or other unforeseen circumstances. The
exclusion is the percentage of the two-year period that the principal residence test is met, times the full
exclusion amount.
-As a general rule, a Medigap insurance policy is designed to cover which one of the following Medicare-
approved charges that are not paid by Medicare?
A) Medicare Part D deductibles
B) deductibles or coinsurance amounts
C) Medicare Part B excess amounts
D) 100% of skilled nursing coinsurance - ---B
The costs not covered by either Part A or Part B of Medicare are referred to as Medicare gaps or
Medigaps. Medigap insurance is designed to supplement Medicare's benefits by filling in some of what
Medicare does not cover. A Medigap policy pays for Medicare-approved charges that are not paid by
Medicare because of deductibles or coinsurance amounts for which the beneficiary is responsible. The
cost and services covered by Medigap policies varies from vendor to vendor and from plan to plan.
Some, but not all, Medigap policies cover such items as Part D deductibles, skilled nursing coinsurance
amounts, and Medicare Part B excess amounts.
-Assume that a worker's Social Security full retirement age is 66. What percentage of the worker's full
retirement age benefits will be paid to her at age 62? - --- 75%
A worker can begin receiving Social Security retirement benefits at age 62, but at a 25% reduction from
the full amount that would be received at full retirement age 66. The percentage of this worker's full
, retirement age benefits that will be paid to her at age 62 is 75% [(5/9 of 1% per month for each of the
first 36 months prior to full retirement age = 20%) + (5/12 of 1% 12 months = 5%); 20% + 5% = 25%].
-Assume your client has a 5% bond, par value of $1,000, and 15 years to maturity. Comparable bonds
are yielding 6%. What is the value of this bond? - -A) $1,010
B) $902
C) $925
D) $875
--B
If the calculator is set for 1 P/YR, then all factors, other than FV, need to be adjusted for semiannual
payments. The keystrokes would be: 1,000 [FV], 25 [PMT], 3 [I/YR], 30 [N], then solve for [PV] = -902. If
the calculator is set at 2 P/YR, then [I/YR] is 6 and [N] is entered as 15 [SHIFT] [N].
-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 of earnings up to $10,000 made for a first-time home purchase
B) a distribution made to an individual on or after age 59½
C) a distribution made to an individual who retires on or after age 55
D) a distribution made to an IRA owner who is disabled - --- C
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.
-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 will pay neither taxes nor 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 must pay taxes and a penalty on the full distribution.
D) He only pays ordinary taxes because Roth IRA distributions are not subject to a penalty. - ---A
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 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.
-Frank is age 54 and married. He and his wife, Helen, have a daughter named Meredith attending
college. Frank has been making salary reduction contributions to his employer-sponsored 401(k) plan for
the past four years, and is considered a highly compensated employee. The current balance of his 401(k)
account (nonforfeitable accrued benefit) is $21,500, which includes $3,500 of account earnings. 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?
