CFP® Practice Question

An employee pays premiums for an individual disability income insurance policy with after-tax dollars. The employer does not contribute to the policy.  If the employee becomes disabled and begins receiving benefits, how will the benefits be taxed?  Fully taxable as ordinary income Partially taxable based on employer contributions Tax-free Subject to capital gains tax rates…

In 2026, a married couple filing jointly has taxable income of $90,000, which includes $10,000 of long-term capital gains.  What federal tax rate applies to the $10,000 of long-term capital gains?  0% 15% 20% Ordinary income tax rates CLICK TO REVEAL ANSWER Expand A is the answer For 2026, the 0% long-term capital gains threshold…

In 2026, a client has a 529 plan for her daughter that has been open for 20 years. The beneficiary has graduated college and does not need the remaining funds. The account balance is $60,000, all attributable to contributions and earnings made more than five years ago. The client is considering rolling funds from the…

A CFP® professional is recommending a rollover from a client’s 401(k) plan into an IRA that will generate higher ongoing advisory fees. The 401(k) plan offers low-cost institutional share classes not available in the IRA. Under CFP Board’s Code of Ethics and Standards of Conduct, which of the following actions is required? Recommend the rollover…

A client retires in 2026 and takes a lump-sum distribution of employer stock from her qualified plan. The stock has a cost basis of $200,000 and a fair market value of $750,000 at distribution. If she elects Net Unrealized Appreciation (NUA) treatment, how will the $550,000 of appreciation be taxed? As ordinary income in the…

In 2026, Thomas dies with a taxable estate of $18,000,000. He made no prior taxable gifts. The Basic Exclusion Amount (BEA) in 2026 is $15,000,000 and the applicable credit amount is $5,945,800. What portion of Thomas’s estate will be subject to federal estate tax? $0 $3,000,000 $12,054,200 $18,000,000 CLICK TO REVEAL ANSWER Expand B is…

In 2026, Maria, age 63, begins receiving Social Security retirement benefits. She earns $50,000 from employment during the year. The 2026 earnings limit for individuals under full retirement age is $24,480. Approximately how much of Maria’s Social Security benefits will be withheld due to the earnings test? $0 $12,760 $12,240 $25,520 CLICK TO REVEAL ANSWER Expand…

A U.S. taxpayer earns income from both U.S. and foreign sources and pays income tax to a foreign government. Which of the following limits the amount of foreign tax credit that may be claimed? The taxpayer’s adjusted gross income The taxpayer’s marginal tax bracket The amount of U.S. tax attributable to foreign-source income The taxpayer’s…

In 2026, which of the following taxpayers may make a full Roth IRA contribution, assuming all other eligibility requirements are met? Single filer with MAGI of $270,000 Married filing jointly with MAGI of $255,000 Head of household with MAGI of $130,000 Married filing separately with MAGI of $15,000 CLICK TO REVEAL ANSWER Expand C is…

A CFP® professional is reviewing a client’s Form 1040. Which of the following best describes how taxable income is calculated? Total income reduced by tax credits Adjusted gross income reduced by deductions Gross income reduced by exclusions Total income reduced by adjustments and credits CLICK TO REVEAL ANSWER Expand B is the answer. Taxable income =…