CFP Exam Questions with 100% Correct
Answers Latest Versions 2025 Graded A+
Who regulates mutual funds? Correct Answer: SEC (Securities and Exchange Commision)
Who regulates securities brokers? Correct Answer: FINRA (Financial INdustry Regulatory
Authority)
Investment Advisers Act of 1940 Correct Answer: Legislation governing who must register with
the SEC as an investment adviser. Defines "investment advice."
Securities Act of 1933 and Securities Exchange Act of 1934 Correct Answer: 1933: Regulates
IPOs
1934: Created SEC to enforce laws, regulates secondary market, defines stock "sales"
Securities Investors Protection Act of 1970 Correct Answer: - Established the SIPC to protect
investors for losses resulting from brokerage firm failures.
- Does not protect investors from incompetence or bad investment decisions
Emergency Fund guidelines Correct Answer: 3 or 6 months' expenses
3 months if there are two sources of income (e.g. 2 wages, alimony, trust income, investment
income)
Monetary Policy Who, Why, and What (3) Correct Answer: Who: Federal Reserve Board
Why: The Fed increases liquidity to create economic growth. It reduces liquidity to prevent
inflation.
What:
1. Set the discount rate: lower rate = increased liquidity
2. Set reserve (margin) requirements: lower req. = increased liquidity
3. Open market operations: buy bonds (short term US Treasuries) = increased liquidity
Living expenses rule of thumb Correct Answer: PITI or Rent =< 28% of Gross Income
Trust Companies Correct Answer: financial institutions that specialize in managing the money
and property of others
- They act as "trustee", fiduciary, executor
- For someone incapable of doing it themselves (minors, cognitively impaired)
Fiscal Policy Who, Why, and What Correct Answer: Who: Office of Debt Management
Why: stabilize the economy
What: government spending and taxes
Federal Funds Rate (FFR) Correct Answer: The interest rate that a bank must pay on an
overnight loan from another bank. Set by auction.
,Federal Funds Correct Answer: Deposits that private banks hold on reserve at the Federal
Reserve Bank.
Pre-College Funding Years Strategies (4) Correct Answer: 1. UGMA/UTMA
2. EE Educational Bonds
3. Coverdell ESA ($2k/year per child)
4. 529 Savings/ Prepaid tuition ($15k/year per child)
During College Funding Strategies (2) Correct Answer: Pick One:
[Rich] - Parent Loan to Undergraduate Student (PLUS)
[PooriSh <$60k AGI] - Pell grants, Subsidized Stafford Student Loans, Supplemental
Educational Opportunity Grant
Pell Grant rules Correct Answer: A grant (up to $6,345) awarded based on financial need by the
U.S. federal government to help students pay for higher
education. Does not have to be repaid. Students must carry 12 credit hours and be full-time, or
grant will be prorated down.
Educational Credits (2) Correct Answer: American Opportunity Credit, Lifetime Learning
Credit
American Opportunity Tax Credit Correct Answer: Up to $2500 per year per student for tuition
expenses incurred in the first 4 years of post-secondary education.
100% of the first $2000, and 25% of the next $2000, subject to AGI phaseouts.
Expenses cannot be for room, board, or textbooks. The student must be enrolled at least half time
in a program that leads to a degree or certificate.
Lifetime Learning Credit Correct Answer: A nonrefundable credit equal to 20% of the first
$10,000 of qualified higher education tuition and fees or job training paid during the year on
behalf of the taxpayer, his spouse, or his dependents. Undergrad and grad school, can be part
time.
Educational Funding Coordination: Pick one of (4) Correct Answer: 1. American Opportunity
Credit
2. Lifetime Learning Credit
3. Coverdell withdrawal
4. Qualified 529 distribution/UTMA/UGMA
Graduate School Funding (6) Correct Answer: 1. Fulbright Scholarship
2. Graduate PLUS Loans
3. Stafford Loans
4. Lifetime Learning Credit
5. 529 withdrawal
,6. Coverdell withdrawal (<30 years old)
reverse mortgage/home-equity conversion loan Correct Answer: Allows a homeowner 62 and
older to continue living in the home and to borrow against the equity in a home that is fully paid
for and to receive the proceeds as a combination of:
- a lump sum
- monthly payments
- a line of credit
The repayment is the amount of loan or home value, whichever is lower. Once the loan is repaid,
any remaining equity is distributed back to borrower or to their estate.
HELOC rules Correct Answer: Home Equity Line of Credit
- deduction limited to interest on first $750k
- interest deductible for any loan used to buy, build, or improve your house
Chapter 7 Bankruptcy non-dischargeable debt (3) Correct Answer: 1. Student/gov loans
2. Child support + alimony
3. Wage withholding/ tax due
"You can't get rid of your ex or the government through bankruptcy"
Which student loan forgiveness is taxable income? Correct Answer: The income based loan
forgiveness.
Kinds of Student Loan Forgiveness (4) Correct Answer: 1. Income-based
2. PSLF - Public Service Loan Forgiveness
3. Perkins Loan
4. Teacher Loan
Income based loan forgiveness Correct Answer: Balance after 20/25 years forgiven, counted as
taxable income.
PSLF Correct Answer: Public Service Loan Forgiveness - work in public service for 10
years/120 payments
Perkins Loan forgiveness Correct Answer: Can be discharged through: Peace Corps,
Americorps, Armed Forces, Teaching, Medicine, Social Service, Law Enforcement
Teacher Loan Forgiveness Correct Answer: If you teach full-time in low-income schools, up to
$27.5k of Perkins or $17.5k of Direct/Stafford loans can be forgiven.
Student Loan Interest Deduction Correct Answer: Deduct up to $2500 of interest paid on student
loans, with AGI phaseout after $70k/$140k
Expected Family Contribution (EFC) Correct Answer: An estimate of the parents' and/or
student's ability to contribute to post-secondary expenses. In general, the lower the EFC, the
, higher the financial aid award from the college may be. 20% of child's assets and 5.64% of
parents' assets (excluding primary residence or retirement savings).
Coverdell Education Savings Account (ESA) Correct Answer: A savings account that allows
you to make an annual non-deductible contribution of up to $2,000 per year/per person to a
specially designated investment trust account. Earnings are tax free if used for qualified
educational expenses: El-Hi, college, grad, room & board, transport, extended day programs,
tutoring, any charges by the school. Use before age 30 or roll over to a family member.
Subsidized Stafford Loan Correct Answer: Need-based; interest paid by govt. until student
leaves school. Available aid calculated after EFC, Pell Grant, other aid.
Unsubsidized Stafford Loan Correct Answer: Not need-based; govt. does not pay interest for
you while in school; can be undergrad or grad, must fill out FAFSA.
529 Rules (5) Correct Answer: 1. Can change beneficiary to family of original beneficiary.
2. $15k/yr or $75k bunching
3. Rollover to same generation -> no taxable gift; Rollover to skip generation -> taxable gift
4. Treated as a parental asset
5. Can use $10k max to pay off student loans
CRAT vs CRUT Correct Answer: CRAT: Annuity trust, no additions, payment fixed (lifetime
or term certain), remainder interest to charity (must be >10%)
CRUT: Unitrust, additions allowed, payments variable (revalued annually)
CRAT and CRUT similarities Correct Answer: Both must pay out >=5% of corpus annually
Max term of 20 years allowed if it's not a lifetime trust.
Bypass Trust Correct Answer: AKA "Nonmarital" "B" "Family" trust
- Allows postmortem control over trust property
- Can give stream of income to surviving spouse AND/OR others (unlike a QTIP)
- As long as spouse is not given more than 5 by 5 or HEMS, the trust will not be included in
surviving spouse's estate
Simple Trusts vs Complex Trusts Correct Answer: -simple trusts MUST distribute all income
earned during the year received
-complex trusts may accumulate income, permitted deductions for distributions
Simple Trust Correct Answer: A separate tax entity that uses conduit principle for distributions.
Trust gets a deduction for distributions: the lower of what is actually distributed or the
Distributable Net Income
Limits the portion of distribution that is taxable to the beneficiary.
Keeps the same character (ord. income vs cap gains) as was in the trust.
No double taxation of trust income.
Answers Latest Versions 2025 Graded A+
Who regulates mutual funds? Correct Answer: SEC (Securities and Exchange Commision)
Who regulates securities brokers? Correct Answer: FINRA (Financial INdustry Regulatory
Authority)
Investment Advisers Act of 1940 Correct Answer: Legislation governing who must register with
the SEC as an investment adviser. Defines "investment advice."
Securities Act of 1933 and Securities Exchange Act of 1934 Correct Answer: 1933: Regulates
IPOs
1934: Created SEC to enforce laws, regulates secondary market, defines stock "sales"
Securities Investors Protection Act of 1970 Correct Answer: - Established the SIPC to protect
investors for losses resulting from brokerage firm failures.
- Does not protect investors from incompetence or bad investment decisions
Emergency Fund guidelines Correct Answer: 3 or 6 months' expenses
3 months if there are two sources of income (e.g. 2 wages, alimony, trust income, investment
income)
Monetary Policy Who, Why, and What (3) Correct Answer: Who: Federal Reserve Board
Why: The Fed increases liquidity to create economic growth. It reduces liquidity to prevent
inflation.
What:
1. Set the discount rate: lower rate = increased liquidity
2. Set reserve (margin) requirements: lower req. = increased liquidity
3. Open market operations: buy bonds (short term US Treasuries) = increased liquidity
Living expenses rule of thumb Correct Answer: PITI or Rent =< 28% of Gross Income
Trust Companies Correct Answer: financial institutions that specialize in managing the money
and property of others
- They act as "trustee", fiduciary, executor
- For someone incapable of doing it themselves (minors, cognitively impaired)
Fiscal Policy Who, Why, and What Correct Answer: Who: Office of Debt Management
Why: stabilize the economy
What: government spending and taxes
Federal Funds Rate (FFR) Correct Answer: The interest rate that a bank must pay on an
overnight loan from another bank. Set by auction.
,Federal Funds Correct Answer: Deposits that private banks hold on reserve at the Federal
Reserve Bank.
Pre-College Funding Years Strategies (4) Correct Answer: 1. UGMA/UTMA
2. EE Educational Bonds
3. Coverdell ESA ($2k/year per child)
4. 529 Savings/ Prepaid tuition ($15k/year per child)
During College Funding Strategies (2) Correct Answer: Pick One:
[Rich] - Parent Loan to Undergraduate Student (PLUS)
[PooriSh <$60k AGI] - Pell grants, Subsidized Stafford Student Loans, Supplemental
Educational Opportunity Grant
Pell Grant rules Correct Answer: A grant (up to $6,345) awarded based on financial need by the
U.S. federal government to help students pay for higher
education. Does not have to be repaid. Students must carry 12 credit hours and be full-time, or
grant will be prorated down.
Educational Credits (2) Correct Answer: American Opportunity Credit, Lifetime Learning
Credit
American Opportunity Tax Credit Correct Answer: Up to $2500 per year per student for tuition
expenses incurred in the first 4 years of post-secondary education.
100% of the first $2000, and 25% of the next $2000, subject to AGI phaseouts.
Expenses cannot be for room, board, or textbooks. The student must be enrolled at least half time
in a program that leads to a degree or certificate.
Lifetime Learning Credit Correct Answer: A nonrefundable credit equal to 20% of the first
$10,000 of qualified higher education tuition and fees or job training paid during the year on
behalf of the taxpayer, his spouse, or his dependents. Undergrad and grad school, can be part
time.
Educational Funding Coordination: Pick one of (4) Correct Answer: 1. American Opportunity
Credit
2. Lifetime Learning Credit
3. Coverdell withdrawal
4. Qualified 529 distribution/UTMA/UGMA
Graduate School Funding (6) Correct Answer: 1. Fulbright Scholarship
2. Graduate PLUS Loans
3. Stafford Loans
4. Lifetime Learning Credit
5. 529 withdrawal
,6. Coverdell withdrawal (<30 years old)
reverse mortgage/home-equity conversion loan Correct Answer: Allows a homeowner 62 and
older to continue living in the home and to borrow against the equity in a home that is fully paid
for and to receive the proceeds as a combination of:
- a lump sum
- monthly payments
- a line of credit
The repayment is the amount of loan or home value, whichever is lower. Once the loan is repaid,
any remaining equity is distributed back to borrower or to their estate.
HELOC rules Correct Answer: Home Equity Line of Credit
- deduction limited to interest on first $750k
- interest deductible for any loan used to buy, build, or improve your house
Chapter 7 Bankruptcy non-dischargeable debt (3) Correct Answer: 1. Student/gov loans
2. Child support + alimony
3. Wage withholding/ tax due
"You can't get rid of your ex or the government through bankruptcy"
Which student loan forgiveness is taxable income? Correct Answer: The income based loan
forgiveness.
Kinds of Student Loan Forgiveness (4) Correct Answer: 1. Income-based
2. PSLF - Public Service Loan Forgiveness
3. Perkins Loan
4. Teacher Loan
Income based loan forgiveness Correct Answer: Balance after 20/25 years forgiven, counted as
taxable income.
PSLF Correct Answer: Public Service Loan Forgiveness - work in public service for 10
years/120 payments
Perkins Loan forgiveness Correct Answer: Can be discharged through: Peace Corps,
Americorps, Armed Forces, Teaching, Medicine, Social Service, Law Enforcement
Teacher Loan Forgiveness Correct Answer: If you teach full-time in low-income schools, up to
$27.5k of Perkins or $17.5k of Direct/Stafford loans can be forgiven.
Student Loan Interest Deduction Correct Answer: Deduct up to $2500 of interest paid on student
loans, with AGI phaseout after $70k/$140k
Expected Family Contribution (EFC) Correct Answer: An estimate of the parents' and/or
student's ability to contribute to post-secondary expenses. In general, the lower the EFC, the
, higher the financial aid award from the college may be. 20% of child's assets and 5.64% of
parents' assets (excluding primary residence or retirement savings).
Coverdell Education Savings Account (ESA) Correct Answer: A savings account that allows
you to make an annual non-deductible contribution of up to $2,000 per year/per person to a
specially designated investment trust account. Earnings are tax free if used for qualified
educational expenses: El-Hi, college, grad, room & board, transport, extended day programs,
tutoring, any charges by the school. Use before age 30 or roll over to a family member.
Subsidized Stafford Loan Correct Answer: Need-based; interest paid by govt. until student
leaves school. Available aid calculated after EFC, Pell Grant, other aid.
Unsubsidized Stafford Loan Correct Answer: Not need-based; govt. does not pay interest for
you while in school; can be undergrad or grad, must fill out FAFSA.
529 Rules (5) Correct Answer: 1. Can change beneficiary to family of original beneficiary.
2. $15k/yr or $75k bunching
3. Rollover to same generation -> no taxable gift; Rollover to skip generation -> taxable gift
4. Treated as a parental asset
5. Can use $10k max to pay off student loans
CRAT vs CRUT Correct Answer: CRAT: Annuity trust, no additions, payment fixed (lifetime
or term certain), remainder interest to charity (must be >10%)
CRUT: Unitrust, additions allowed, payments variable (revalued annually)
CRAT and CRUT similarities Correct Answer: Both must pay out >=5% of corpus annually
Max term of 20 years allowed if it's not a lifetime trust.
Bypass Trust Correct Answer: AKA "Nonmarital" "B" "Family" trust
- Allows postmortem control over trust property
- Can give stream of income to surviving spouse AND/OR others (unlike a QTIP)
- As long as spouse is not given more than 5 by 5 or HEMS, the trust will not be included in
surviving spouse's estate
Simple Trusts vs Complex Trusts Correct Answer: -simple trusts MUST distribute all income
earned during the year received
-complex trusts may accumulate income, permitted deductions for distributions
Simple Trust Correct Answer: A separate tax entity that uses conduit principle for distributions.
Trust gets a deduction for distributions: the lower of what is actually distributed or the
Distributable Net Income
Limits the portion of distribution that is taxable to the beneficiary.
Keeps the same character (ord. income vs cap gains) as was in the trust.
No double taxation of trust income.
