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A client turns 73 in 2026 and must take her first required minimum distribution (RMD). Her traditional IRA balance on December 31, 2025 was $500,000. Using an IRS Uniform Lifetime Table divisor of 26.5 for age 73, what is her RMD for 2026, rounded to the nearest dollar?
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Q1. A client turns 73 in 2026 and must take her first required minimum distribution (RMD). Her traditional IRA balance on December 31, 2025 was $500,000. Using an IRS Uniform Lifetime Table divisor of 26.5 for age 73, what is her RMD for 2026, rounded to the nearest dollar?
Correct answer: A. $18,868
RMD = account balance / life expectancy divisor = $500,000 / 26.5 = $18,868.
Q2. A 55-year-old client contributes $8,000 to her traditional IRA for 2026 (the $7,000 base limit plus a $1,000 catch-up contribution). Because her income exceeds the deductibility phase-out range as an active workplace-plan participant, none of the contribution is deductible. The $8,000 grows to $8,800 before she converts the entire balance to a Roth IRA later that year. Ignoring any other IRA assets, how much of the conversion is taxable?
Correct answer: B. $800
Only the growth above her $8,000 nondeductible basis is taxable: $8,800 - $8,000 = $800.
Q3. A worker's Full Retirement Age (FRA) is 67, and her Primary Insurance Amount (PIA) is $2,400 per month. If she files for Social Security benefits at age 62 (60 months early), her benefit is reduced by 5/9 of 1% for each of the first 36 months early and 5/12 of 1% for each additional month beyond 36. What is her approximate monthly benefit at age 62?
Correct answer: C. $1,680
Reduction = (36 x 5/9%) + (24 x 5/12%) = 20% + 10% = 30%. Benefit = $2,400 x 0.70 = $1,680.
Q4. A 45-year-old client wants to take penalty-free withdrawals from her traditional IRA before age 59 1/2, for purposes other than education or a first home. Which strategy allows her to avoid the 10% early withdrawal penalty?
Correct answer: D. Establishing a series of substantially equal periodic payments under IRC Section 72(t)
IRC Section 72(t) permits penalty-free early withdrawals if the taxpayer takes substantially equal periodic payments for at least 5 years or until age 59 1/2, whichever is longer.
Q5. A client age 74 owns two traditional IRAs (balances of $300,000 and $200,000 on December 31 of the prior year) and a 403(b) account ($150,000) with a former employer, plus a 401(k) ($100,000) with her current employer, where she still works full-time and is not a 5%-or-greater owner. Using a life expectancy divisor of 25.5 for age 74, which statement about her 2026 required minimum distributions (RMDs) is correct?
Correct answer: A. Her IRA RMD of approximately $19,608 may be withdrawn from either IRA in any combination, her 403(b) RMD of approximately $5,882 must come from a 403(b) account, and her current-employer 401(k) RMD is not required this year under the still-working exception.
IRAs may be aggregated with other IRAs and 403(b)s aggregated with other 403(b)s, but not across account types; the still-working exception can defer the current employer's plan RMD for a non-5%-owner.
Q6. Which measure of investment risk reflects the volatility of a portfolio's own returns around its average, regardless of how the broader market moves?
Correct answer: B. Standard deviation
Standard deviation measures total volatility (risk) of an investment's own returns; beta measures risk relative to the market.
Q7. A portfolio consists of $60,000 invested in a fund with a beta of 1.20 and $40,000 invested in a fund with a beta of 0.70. What is the weighted-average beta of the portfolio?
Correct answer: C. 1.00
(0.6 x 1.20) + (0.4 x 0.70) = 0.72 + 0.28 = 1.00.
Q8. Combining two assets with a correlation coefficient of -1.0 in a portfolio will:
Correct answer: D. Potentially eliminate portfolio risk entirely, depending on the weighting of each asset
Perfectly negatively correlated assets (-1.0) can theoretically be combined in weights that eliminate portfolio variance.
Q9. A bond has a modified duration of 7.5. If market interest rates rise by 0.50%, what is the approximate percentage change in the bond's price?
Correct answer: A. -3.75%
Approximate price change = -duration x change in yield = -7.5 x 0.50% = -3.75%.
Q10. The risk-free rate is 4.0%, the expected return on the market is 10.0%, and a stock has a beta of 1.4. Using the Capital Asset Pricing Model (CAPM), what is the stock's required rate of return?
Correct answer: B. 12.4%
CAPM = Rf + beta x (Rm - Rf) = 4% + 1.4 x (10% - 4%) = 4% + 8.4% = 12.4%.
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