Area 2: Financial Planning

A 50-year-old taxpayer converts $100,000 from a Traditional IRA to a Roth IRA in Year 1. The Traditional IRA was funded entirely with deductible contributions. The taxpayer pays the tax from a separate savings account. Five years later (Year 6), the taxpayer withdraws $120,000 (the original conversion + $20,000 growth) from the Roth IRA. The taxpayer is 55 years old. What is the tax consequence of the withdrawal?

A taxpayer holds a bond with a face value of $1,000 and a coupon rate of 5%. They purchased the bond for $1,050 (premium). They elect to amortize the bond premium. In Year 1, the amortization amount is $5. How is this reported?

Grandparent contributes $100,000 to a 529 plan for their grandchild in Year 1. The annual gift tax exclusion is $18,000. The grandparent elects to treat the contribution as being made ratably over 5 years. Grandparent dies in Year 3. What amount is included in the Grandparent's gross estate?

A taxpayer sells stock for a loss of $5,000 on December 20, Year 1. On January 10, Year 2 (21 days later), the taxpayer purchases substantially identical stock. How is the loss treated?

An individual owns a life insurance policy on their own life with a face value of $500,000. They have paid $40,000 in premiums. The cash surrender value is $60,000. They surrender the policy for cash. What is the taxable amount?

A wealthy taxpayer wants to freeze the value of their estate. They transfer $5 million of assets to a Grantor Retained Annuity Trust (GRAT) with a 2-year term. The annuity payout is set such that the present value of the annuity equals $5 million (Zeroed-out GRAT). If the assets in the trust grow at 10% annually and the Section 7520 hurdle rate is 4%, what is the gift tax consequence at inception and the estate tax consequence if they survive the term?

A taxpayer gifts a house to their child. The taxpayer's basis is $200,000. The FMV at the date of gift is $150,000. No gift tax is paid. The child sells the house later for $180,000. What is the child's recognized gain or loss?

A married couple lives in a community property state. They purchased stock for $100,000 using community funds. When the first spouse dies, the stock is worth $500,000. The surviving spouse sells the stock shortly after for $510,000. What is the surviving spouse's capital gain?

A taxpayer has a traditional 401(k) balance of $2,000,000. They turn 73 in Year 1. The Uniform Lifetime Table factor for age 73 is 26.5. What is the Required Minimum Distribution (RMD) for Year 1?

A taxpayer owns a diversified portfolio. They want to optimize 'asset location' for tax efficiency. Which asset is BEST suited for a Roth IRA?

A taxpayer contributes $50,000 to a Charitable Remainder Annuity Trust (CRAT). The trust pays the taxpayer an annuity for life, with the remainder going to charity. The present value of the remainder interest is calculated to be $4,000. Does this trust qualify as a CRAT?

A taxpayer has an Incentive Stock Option (ISO) grant. They exercise the options and hold the stock. Two years later, they sell the stock. The sale price is lower than the exercise price. What is the tax treatment?