exam 2

Question 1

What should you never gift when its fair market value is less than the adjusted basis?

Answer 1

Property

Instead, sell the property to recognize a capital loss for income tax and gift the cash proceeds.

Question 2

What type of property should be gifted to the youngest donee?

Answer 2

Property with the greatest appreciation potential

Question 3

When making gifts to charities, what type of property should be gifted?

Answer 3

Appreciated property

This avoids capital gain taxes and allows for a charitable deduction.

Question 4

To whom should income-producing property be gifted?

Answer 4

Donee in the lowest marginal income tax bracket

Question 5

What is a power of transfer?

Answer 5

A power allowing the holder to direct assets to another

Question 6

What may survive the death of the grantor?

Answer 6

Power to transfer assets

Question 7

What is a Crummey provision?

Answer 7

The explicit right of a trust beneficiary to withdraw contributions for a limited period of time

Question 8

What does a Crummey provision convert?

Answer 8

A gift of future interest into a gift of present interest

Question 9

What are distributions made subject to an ascertainable standard?

Answer 9

Distributions for:
* Health
* Education
* Maintenance
* Support

Question 10

What are distributions not subject to an ascertainable standard?

Answer 10

Distributions for:
* Comfort
* Welfare
* Happiness

Question 11

What is the special annual exclusion for noncitizen spouses for 2024?

Answer 11

$185,000

Question 12

What is the annual exclusion for gifts to citizen spouses?

Answer 12

Unlimited deduction

Question 13

Where must money go if one is not a US citizen?

Answer 13

QDOT

Question 14

What are the requirements for an S Corporation?

Answer 14

Must be:
* Domestic
* Not have more than 100 shareholders
* Not owned by C corporations, partnerships, certain trusts

Question 15

What is the maximum gain single taxpayers can exclude from the sale of their principal residence?

Answer 15

$250,000

Question 16

What is the maximum gain married taxpayers filing jointly can exclude from the sale of their principal residence?

Answer 16

$500,000

Question 17

What happens in a wash sale?

Answer 17

Disallowed loss is added to the cost of new stock or security

Question 18

Who may not represent a client during an IRS audit?

Answer 18

CFP® Professional

Question 19

What type of asset is a 529 Savings plan considered for financial aid purposes?

Answer 19

Asset of the parent

Question 20

How much can an individual contribute to a 529 plan in one year without gift tax consequences?

Answer 20

$95,000,

(190000*5yrs)

Question 21

What is the contribution limit for a couple electing gift splitting to a 529 plan?

Answer 21

$190,000

Question 22

What does Section 307 of the Secure Act 2.0 allow?

Answer 22

One-time election for qualified charitable distribution to split-interest entity

Question 23

What is the indexed limit for IRA charitable distributions under Section 307?

Answer 23

$100,000

Question 25

What is a Modified Endowment Contract (MEC)?

Answer 25

A life insurance policy with too much cash that fails the 7 Pay Test.

Question 26

What penalty applies to MEC withdrawals made before age 59½?

Answer 26

10% penalty.

Question 27

What is the 7 Pay Test?

Answer 27

A test to determine if cumulative premiums exceed premiums due for a specific time period.

Question 28

How are withdrawals taxed if a contract is deemed a MEC?

Answer 28

On a LIFO (Last In, First Out) basis.

Question 29

How are withdrawals taxed if a contract is not a MEC?

Answer 29

On a FIFO (First In, First Out) basis.

Question 30

Does MEC status affect the taxation of proceeds at death?

Answer 30

No, it only affects withdrawals and loans.

Question 31

If a client does not intend to take a withdrawal or loan, what is the consequence of creating a MEC?

Answer 31

Of no consequence.

Question 32

What does a payable-on-death (POD) designation do?

Answer 32

Allows assets in an account to be passed to a named beneficiary when the account holder dies.

Question 33

What is a transfer-on-death (TOD) designation?

Answer 33

A designation that allows assets in an account to be passed to a named beneficiary upon the account holder's death.

Question 34

How do POD and TOD accounts relate to probate?

Answer 34

They bypass probate.

Question 35

What types of assets can be transferred using POD and TOD designations?

Answer 35

Money and property.

Question 36

True or False: POD and TOD accounts require probate to transfer assets.

Answer 36

False

Question 37

Fill in the blank: POD and TOD designations allow assets to be passed to a _______.

Answer 37

[named beneficiary]

Question 38

What is the primary benefit of using POD and TOD accounts?

Answer 38

They allow for the direct transfer of assets without going through probate.

Question 39

What is the catch-up contribution limit for employees aged 50 and older in 2021?

Answer 39

$6,500 ## Footnote For SIMPLE plans, the limit is $3,000.

Question 40

What does Section 109 allow for individuals aged 60, 61, 62, and 63 starting in 2025?

Answer 40

Catch-up contribution limits of the greater of $10,000 or 50 percent more than the regular catch-up amount ## Footnote These increased amounts are indexed for inflation after 2025.

Question 41

What is the catch-up contribution limit for SIMPLE plans in 2021?

Answer 41

$3,000

Question 42

At what ages does Section 109 increase the catch-up contribution limits?

Answer 42

60, 61, 62, and 63

Question 43

What is the regular catch-up contribution limit for 2021?

Answer 43

$6,500

Question 44

True or False: Under Section 109, the increased catch-up contribution limits are not indexed for inflation after 2025.

Answer 44

False

Question 45

Fill in the blank: The limit on catch-up contributions for employees aged 50 and older is _______ in 2021.

Answer 45

$6,500

Question 46

What percentage more than the regular catch-up amount does Section 109 allow for individuals aged 60-63?

Answer 46

50 percent

Question 47

What is the primary purpose of Section 109?

Answer 47

To increase catch-up contribution limits for older employees

Question 48

What is the purpose of Section 110?

Answer 48

To assist employees overwhelmed with student debt in receiving matching contributions for retirement plans ## Footnote Section 110 aims to help employees who cannot save for retirement due to student loan burdens.

Question 49

What types of retirement plans can employers make matching contributions to under Section 110?

Answer 49

* 401(k) plan * 403(b) plan * SIMPLE IRA ## Footnote Also applicable for governmental employers under section 457(b) plans.

Question 50

What is a 'qualified student loan payment' as defined in Section 110?

Answer 50

Any indebtedness incurred by the employee solely to pay qualified higher education expenses ## Footnote This definition is broad and inclusive of various educational costs.

Question 51

Can governmental employers also make matching contributions under Section 110?

Answer 51

Yes, they can make contributions in a section 457(b) plan or another plan regarding repayments ## Footnote This includes matching contributions similar to those in 401(k) plans.

Question 52

How does Section 110 affect the nondiscrimination test for elective contributions?

Answer 52

It allows a plan to test separately the employees receiving matching contributions on student loan repayments ## Footnote This provision ensures fair treatment of employees with student loans.

Question 53

Fill in the blank: Section 110 allows employees to receive matching contributions by reason of _______.

Answer 53

[repaying their student loans]