Posts by Dan Madden, CFP®
Step-Up in Basis
Susan purchased stock many years ago for $80,000. At her death in 2026, the stock is worth $250,000. Her son inherits the shares and sells them three months later for $255,000. Ignoring any transaction costs, how much taxable capital gain must the son recognize? $5,000 $80,000 $170,000 $175,000 CLICK TO REVEAL ANSWERExpandA is the answer.…
Read MoreCoinsurance and the Required Insurance Penalty
Course: Insurance PlanningLesson 10: Social Security Student Question: Hi, On this review page, the correct answer for question 2 (below) indicates that insurance will only cover 97% of replacement cost. However, it says in the chapter that as long as the property is insured for more than 80% of replacement cost, the policy will pay…
Read MoreMaximum Family Benefit
Course: Insurance PlanningLesson 10: Social Security Student Question: Hi, Does the maximum family benefit apply to a husband and wife that are both fully insured if the combined total between the two exceeds the maximum family limit? If I understand correctly, the maximum family limit only applies if there are beneficiaries within the family receiving…
Read MoreBeta
A client owns a mutual fund with a beta of 1.4. If the overall stock market increases by approximately 10%, which of the following would be the best estimate of the fund’s return based solely on its beta? 4% 10% 14% 24% CLICK TO REVEAL ANSWERExpandC is the answer. Beta measures a portfolio’s sensitivity to…
Read MoreHealth Savings Accounts (HSAs)
Which of the following statements regarding a Health Savings Account (HSA) is correct? Contributions are made with after-tax dollars, but qualified distributions are tax-free. Contributions are deductible (or excluded from income if made through payroll), earnings grow tax-deferred, and qualified distributions are tax-free. Contributions are deductible, but earnings are taxable annually. Qualified distributions are taxable…
Read MoreSocial Security Widower Benefits
Course: Insurance PlanningLesson 10: Social Security Student Question: Hi, When it comes to Social Security widower’s benefits, is the widow eligible to take his/her SS benefit early (age 62) and then switch over to the deceased spouse’s full benefit at 67? Or would the widow only be eligible for one of the two benefits? Thank…
Read MoreUmbrella Liability Insurance
A client has the following insurance coverage: Auto liability: $500,000 Homeowners liability: $500,000 Personal umbrella liability: $2,000,000 If the client is found legally liable for an automobile accident resulting in a $1,800,000 judgment, assuming no policy exclusions apply, approximately how much of the judgment would the umbrella policy cover? $500,000 $1,300,000 $1,800,000 $2,000,000 CLICK TO…
Read MoreReal Estate Income and IRA Contributions
Course: Retirement PlanningLesson 1: Using IRAs to Build and Distribute More Retirement Income Student Question: Hi, This page states that rental income is not included in the definition of earned income. If the client is a professional real estate developer whose income is derived mainly from rental income, would they be able to contribute to…
Read MoreAsset Allocation and Portfolio Development
A client owns a large position in the common stock of her employer. The stock has appreciated substantially and now represents nearly 60% of her investment portfolio. What is the CFP® professional’s BEST recommendation? Continue holding the stock because selling would trigger capital gains tax. Increase purchases of the employer’s stock because of its strong…
Read MoreAnnual Return and Compounding
Course: Fundamentals of Financial PlanningLesson 5: Using the Calculator Student Question: Hi, My question relates to being able to clearly distinguish when the CFP Board exam will require an annual, or other period for the answer. Question 5(b) asks: “What is the rate of return on Investment 2 using daily compounding?” What is the annual…
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