NASAA Series 65 — All Questions

Which company can be a qualifying portfolio company when a venture capital fund invests in it?

• a.A manufacturer whose shares trade only on a foreign exchange and which files nothing with the SEC or any foreign regulator
• b.A company that borrowed money and distributed the proceeds to the fund in exchange for the fund's investment in it, as part of the same deal
• c.A private fund that invests in early-stage companies and is not itself an investment company
• d.A privately held software firm that is not subject to Exchange Act reporting and has no listing on any organized market✓

Under Rule 203(l)-1(c)(4), a qualifying portfolio company at the time of investment is not reporting or foreign traded, does not borrow to fund a distribution to the fund as part of the deal, and is not an investment company, private fund, or commodity pool. A foreign listing counts as foreign traded even without SEC filings.17 CFR 275.203(l)-1(c)(4), (c)(5)

A U.S. adviser relies on the private fund adviser exemption. Which of these advisers can use the exemption from SEC registration?

• a.An adviser with $120 million in private funds that also advises a mutual fund registered under the 1940 Act
• b.An adviser whose only clients are private funds, with $145 million of private fund assets managed from the United States✓
• c.An adviser whose only clients are private funds, with $172 million of private fund assets managed from the United States
• d.An adviser with $90 million in private funds that also manages one separate account for an individual

Rule 203(m)-1 exempts a U.S. adviser that acts solely as adviser to qualifying private funds and manages less than $150 million of private fund assets. Advisers over the threshold, or those with any client that is not a qualifying private fund (an individual account or a registered fund), do not qualify.17 CFR 275.203(m)-1(a)

A sole proprietor adviser is the only access person at her firm. Which condition lets her skip submitting holdings reports to herself and skip pre-approving IPO purchases under Rule 204A-1?

• a.She invests only in exchange-traded funds and no individual stocks in her personal account
• b.She has fewer than five advisory clients and manages only accounts under $1 million each
• c.Her state securities regulator has reviewed her code of ethics and approved it in writing
• d.She keeps records of all the holdings and transactions that the rule would otherwise have her report✓

Rule 204A-1(d) excuses a firm with only one access person, the owner, from reporting to herself and from obtaining her own approval for IPO and limited offering investments, provided she maintains records of every holding and transaction that would otherwise be reported. Client count, product choice, and regulator approval are not part of the exception.17 CFR 275.204A-1(d)

A firm's code of ethics may relieve an access person of filing a quarterly transaction report for which of these?

• a.A purchase of a private placement interest through a broker that sends no duplicate statements
• b.A sale of a stock held in a joint account with the access person's spouse
• c.Purchases made through an automatic investment plan✓
• d.A purchase of shares in an initial public offering that the compliance officer pre-approved

Rule 204A-1(b)(3) lets the code skip transaction reports for accounts over which the person has no influence or control, for transactions under an automatic investment plan, and for reports that would only duplicate confirmations or statements the firm already holds. Pre-approved IPO purchases, trades in a jointly owned account (beneficial ownership), and private placements without duplicate statements remain reportable.17 CFR 275.204A-1(b)(3)

Which holding of an access person is a reportable security under Rule 204A-1, so that it must appear in the access person's holdings report?

• a.Shares of a closed-end fund listed on a stock exchange✓
• b.A bank certificate of deposit with a twelve-month term
• c.Shares of a money market fund held in a brokerage account
• d.A U.S. Treasury bill held directly in a TreasuryDirect account

Reportable security means a security as defined in section 202(a)(18) except direct U.S. government obligations, bankers' acceptances, bank CDs, commercial paper and high-quality short-term debt, money market fund shares, shares of open-end funds that are not reportable funds, and certain unit investment trusts. A closed-end fund share is not on the exclusion list, so it is reportable.17 CFR 275.204A-1(e)(10)

An adviser registered with the SEC adds a new disciplinary event to Item 9 of its Form ADV Part 2A brochure in the middle of the year. What does Rule 204-3 require it to do?

• a.File the amendment with the SEC and send nothing to clients unless they request the brochure from the adviser's website
• b.Deliver the update only to clients whose accounts are affected by the event, within 45 days
• c.Wait and include the update in the annual summary of material changes sent within 120 days of fiscal year end
• d.Deliver the amended brochure, or a statement of the material facts of the change, to each client promptly✓

Rule 204-3(b)(4) requires prompt delivery to each client when an amendment adds a disciplinary event, or materially revises disclosure about one, in response to Item 9 of Part 2A (or Item 3 of Part 2B). Either the amended brochure with a statement of the material facts, or just the statement, will do. The annual 120-day delivery applies to other material changes and is too late here.17 CFR 275.204-3(b)(4)

An adviser pays an unaffiliated promoter $600 over the preceding 12 months to give an endorsement in its advertisement. Which Rule 206(4)-1 requirement still applies to that endorsement?

• a.A reasonable-care check that the promoter is not an ineligible person with a disqualifying event
• b.A written agreement describing the scope of the promoter's activities and the compensation
• c.The clear and prominent disclosure that the promoter is not a client and was paid for the endorsement✓
• d.No requirement applies, because compensation of $1,000 or less exempts the arrangement entirely

Under Rule 206(4)-1(b)(4)(i), an endorsement paid no more than $1,000 (de minimis) in the preceding 12 months is excused only from the written agreement and disqualification provisions. The disclosures about the person's status, the compensation, and any material conflicts must still be made. The idea that a small payment removes all conditions is the common error.17 CFR 275.206(4)-1(b)(1), (b)(4)(i), (e)(2)

Under the SEC Marketing Rule, an adviser may not pay for an endorsement from a person who had a disqualifying event, such as a certain felony conviction, within what period before the endorsement is disseminated?

• a.Three years
• b.Five years
• c.Ten years✓
• d.Seven years

Rule 206(4)-1(e)(4) defines a disqualifying event as one that occurred within ten years prior to the person disseminating the testimonial or endorsement, and a disqualifying Commission action bars the person with no lookback limit. Advisers must not pay someone they know, or with reasonable care should know, is an ineligible person.17 CFR 275.206(4)-1(b)(3), (e)(4)

An adviser's advertisement to retail clients shows the gross performance of a separately managed account composite. What must the advertisement also include?

• a.The gross performance of the benchmark index shown for the same period and nothing else
• b.Net performance in a footnote, as long as the footnote is no smaller than the surrounding text and appears on the same page
• c.Net performance with at least equal prominence, over the same period and using the same methodology✓
• d.A statement that the SEC has reviewed the gross-to-net reconciliation for accuracy

Rule 206(4)-1(d)(1) prohibits showing gross performance unless the advertisement also gives net performance with at least equal prominence to, and in a format designed to facilitate comparison with, the gross figure, over the same period and by the same methodology. A footnote does not give equal prominence, and implying SEC review is itself prohibited by paragraph (d)(3).17 CFR 275.206(4)-1(d)(1), (d)(3)

Which statement may an adviser NOT include in an advertisement that presents performance results?

• a.Net-of-fee returns for one-, five-, and ten-year periods, each shown with equal prominence
• b.A statement that past performance does not guarantee future results
• c.A note that the composite includes only accounts managed under the same strategy
• d.A claim that the SEC has approved or reviewed the calculation or presentation of the performance✓

Rule 206(4)-1(d)(3) bars any statement, express or implied, that the calculation or presentation of performance has been approved or reviewed by the Commission. Risk disclaimers, the required one-, five-, and ten-year periods, and an accurate description of composite construction are all acceptable.17 CFR 275.206(4)-1(d)(3)

An adviser's ad highlights the return on one stock that it picked inside a client portfolio. What must the ad provide or offer to provide?

• a.The performance results of the total portfolio from which the performance was extracted, promptly✓
• b.A hypothetical return the whole portfolio would have earned if every holding had matched the stock
• c.The adviser's complete trade blotter for every account in the strategy over the past ten years
• d.A signed statement from the client confirming that the stock return is accurate

Extracted performance is the results of a subset of investments taken from a portfolio. Under Rule 206(4)-1(d)(5), such an ad is permitted only if it provides, or offers to provide promptly, the performance of the total portfolio. This guards against showing only the winners. The other items are not what the rule asks for.17 CFR 275.206(4)-1(d)(5), (e)(6)

Which action satisfies the Rule 206(4)-7 requirement to review compliance policies and procedures?

• a.Reviewing, once a year, only the adviser's trading results and fee calculations
• b.Reviewing, at least annually, both the adequacy of the policies and the effectiveness of how they are carried out✓
• c.Reviewing, at least every two years, the written policies to confirm they match the current Form ADV and the adviser's disclosure documents
• d.Reviewing the written policies once at adoption and again only after an SEC examination identifies a deficiency in the program

Rule 206(4)-7(b) requires a review no less frequently than annually of the adequacy of the policies and procedures and the effectiveness of their implementation. The adviser must also designate a chief compliance officer who is a supervised person responsible for administering the policies. A review limited to the paper or to trading results misses half the test.17 CFR 275.206(4)-7(b), (c)

An adviser's covered associate gives $300 to a candidate for state office for whom he cannot vote, and the adviser later discovers it. Under the returned-contribution exception, what must the adviser do to avoid the two-year ban?

• a.Discover the contribution within 12 months of its date and have it returned within 30 days after the discovery
• b.Fire the covered associate within 60 days and have the firm reimburse the amount to the candidate
• c.Discover the contribution within four months of its date and have it returned within 60 days after the discovery✓
• d.Report it to the SEC within 10 business days and have the candidate keep the funds in escrow

Rule 206(4)-5(b)(3) excepts a returned contribution if the adviser discovered it within four months of the contribution date, the amount did not exceed $350 (or $150 if the donor could not vote for the candidate), and it was returned within 60 calendar days of discovery. Here $300 is above the $150 de minimis limit for a donor who cannot vote for the official but within the $350 ceiling, so the exception is available if the clocks are met.17 CFR 275.206(4)-5(b)(3)

A registered adviser's privacy practices have not changed since its last notice, and it shares nonpublic personal information with nonaffiliated parties only under the Regulation S-P exceptions for processing transactions, servicing accounts, and legal compliance. What does Regulation S-P require about annual privacy notices?

• a.An annual notice is required only for clients whose accounts exceed the SEC registration threshold, and not for smaller accounts
• b.An annual notice is still required, but it may be delivered electronically without the client's consent or any prior opt-in from the client
• c.No annual notice is required, but an updated notice must be sent every three years to every client
• d.No annual notice is required, because it shares only under the listed exceptions and its disclosed practices are unchanged✓

Regulation S-P section 248.5(e) excuses the annual notice when the firm gives nonpublic personal information to nonaffiliated third parties only under the processing, servicing and other exceptions (sections 248.13, 248.14, 248.15) and has not changed the practices described in its latest notice. If either condition stops being true, the annual notice requirement returns.17 CFR 248.5(e)

Under the incident response rules added to Regulation S-P, when must a covered institution notify an individual whose sensitive customer information was, or was reasonably likely to have been, accessed or used without authorization?

• a.Within 60 days after the institution completes its forensic investigation of the incident and quantifies the losses to its customers
• b.Only after the SEC examination staff confirms in writing that the breach was material
• c.As soon as practicable, and no later than 30 days after becoming aware of the unauthorized access or use✓
• d.Within 72 hours after the institution first becomes aware of the unauthorized access or use of its customer information systems

Section 248.30(a)(4)(iii) requires notice as soon as practicable but not later than 30 days after the institution becomes aware, unless the Attorney General finds a national security or public safety risk. The 72-hour figure is not the customer deadline; it is the outer limit for a service provider to notify the institution. The clock does not wait for an investigation to finish or for the SEC to weigh in.17 CFR 248.30(a)(4)(iii)

Under Regulation S-P's safeguards rule, a covered institution's policies must be designed so that a service provider notifies the institution of a security breach involving its customer information system within what period after the provider becomes aware?

• a.As soon as possible, but no later than 72 hours✓
• b.As soon as possible, but no later than 24 hours
• c.As soon as possible, but no later than 30 calendar days
• d.As soon as possible, but no later than 10 business days

Section 248.30(a)(5) requires the institution's oversight policies to ensure that service providers notify it as soon as possible, and no later than 72 hours after becoming aware of a breach resulting in unauthorized access to a customer information system the provider maintains. The 30-day period is the separate deadline for notifying affected individuals.17 CFR 248.30(a)(5)

An adviser has been registered with the SEC and reports $95 million of assets under management on its annual update. Under Rule 203A-1, what must it do?

• a.Withdraw from the SEC and register with its state once its assets fall below $100 million for two consecutive annual filings
• b.Switch to state registration at once, because it falls in the range between $90 million and $110 million of assets under management
• c.Withdraw from the SEC and register with its state, because it is now under $100 million
• d.Nothing yet; it need not withdraw SEC registration unless its assets under management fall below $90 million✓

Rule 203A-1(a) sets a buffer: an adviser with $100 million to less than $110 million may register with the SEC, and one already registered need not withdraw unless assets drop below $90 million. A $95 million adviser can therefore remain registered with the SEC. Nothing in the rule creates a two-year test.17 CFR 275.203A-1(a)(1)

Which adviser may register with the SEC under the multi-state exemption in Rule 203A-2(d) even though its assets under management are below the usual threshold?

• a.One that has clients in at least 10 states and no clients located in its home state
• b.One that has more than 50 clients located in at least five states
• c.One that would otherwise have to register with the securities authorities of at least 15 states✓
• d.One whose state has not adopted the Uniform Securities Act and so cannot register advisers

Rule 203A-2(d) lets an adviser that is required by the laws of 15 or more states to register as an investment adviser (and would otherwise remain so required in at least 15 states) register with the SEC instead, by electing it on Schedule D of Form ADV. Ten states, a client count, or a state without adviser registration do not meet the test.17 CFR 275.203A-2(d)

A director of a public company adopts a Rule 10b5-1 trading plan on November 2, 2026. The company's Form 10-K for the fiscal year ending December 31 is filed on March 15, 2027. On what date does the cooling-off period end?

• a.December 2, 2026, which is 30 days after adoption
• b.March 2, 2027, because the cooling-off period is capped at 120 days after adoption✓
• c.March 17, 2027, which is two business days after the Form 10-K is filed
• d.January 31, 2027, which is 90 days after adoption

For a director or officer, Rule 10b5-1(c)(1)(ii)(B) sets a cooling-off period equal to the later of 90 days after adoption (January 31, 2027) or two business days after the Form 10-K or 10-Q for the quarter in which the plan was adopted (March 17, 2027), but never more than 120 days after adoption. 120 days after November 2, 2026 is March 2, 2027, so the cap controls. The 30-day period applies only to persons who are neither the issuer nor a director or officer.17 CFR 240.10b5-1(c)(1)(ii)(B)(1)

An employee who is not a director or officer of the issuer, and is not the issuer, adopts a Rule 10b5-1 plan. How long is the cooling-off period before any purchase or sale may occur under the plan?

• a.30 days after the adoption of the plan✓
• b.Two business days after the issuer's next periodic report is filed
• c.No cooling-off period applies, only a good-faith certification
• d.90 days after the adoption of the plan

Rule 10b5-1(c)(1)(ii)(B)(2) requires a person who is not the issuer and not a director or officer to wait 30 days after adoption. The longer, report-linked period (later of 90 days or two business days after results, capped at 120 days) is only for directors and officers, and the cooling-off period is required whatever certification is given.17 CFR 240.10b5-1(c)(1)(ii)(B)(2)

A shareholder who is not the issuer adopted a Rule 10b5-1 plan in March 2026 designed to sell all of a block of shares in a single transaction. She wants to adopt a second single-transaction plan in October 2026. Why might the affirmative defense be unavailable for the second plan?

• a.She adopted another plan within the prior 12 months that was designed to sell all of its securities in a single transaction✓
• b.Any plan adopted within six months of an earlier plan is presumed to be adopted in bad faith
• c.A second plan is not allowed until the first plan has been fully terminated in writing and cancelled by the broker, with notice to the SEC
• d.Single-transaction plans are not eligible for the defense unless the security is registered under the Exchange Act and the seller is an affiliate

Rule 10b5-1(c)(1)(ii)(D) denies the affirmative defense to a person (other than the issuer) who had, within the prior 12-month period, adopted another plan designed to buy or sell all the securities covered in a single transaction. March to October falls within 12 months. The rule has no six-month presumption, and it does not require the earlier plan to be cancelled.17 CFR 240.10b5-1(c)(1)(ii)(D)

Under SEC Rule 35d-1, the "names rule," a fund whose name suggests a focus on a type of investment must adopt which policy?

• a.A policy to invest at least 80 percent of its assets in the investments suggested by its name✓
• b.A policy to invest at least 90 percent of its assets in the investments suggested by its name
• c.A policy to invest at least 65 percent of its assets in the investments suggested by its name
• d.A policy to invest at least 80 percent of its net income in the investments suggested by its name

Rule 35d-1(a)(2) requires a registered fund whose name suggests a particular type of investment, industry, or geographic focus to adopt a policy of investing at least 80 percent of the value of its assets in those investments. Lower and higher percentages are distractors, and the test is measured on assets, not on income.17 CFR 270.35d-1(a)(2)

A fund wants to change the 80 percent investment policy that supports its name, and that policy is not a fundamental policy. What does Rule 35d-1 require?

• a.At least 30 days' prior notice to shareholders, limited to funds with more than $100 million in assets
• b.Approval of the change by a majority of the outstanding voting shares before it takes effect
• c.At least 60 days' prior notice to shareholders of the policy change and any accompanying name change✓
• d.Prompt notice to shareholders within 10 days after the change takes effect

Under Rule 35d-1(a)(2)(ii), the 80 percent policy must be either a fundamental policy or accompanied by a commitment to give shareholders at least 60 days' prior notice of any change in the policy and any related name change. A shareholder vote is the route for changing a fundamental policy, not for this notice route, and after-the-fact notice does not satisfy the rule.17 CFR 270.35d-1(a)(2)(ii)

Under Rule 2a-7, as amended in 2023, a money market fund may not acquire any security other than a daily liquid asset if, immediately afterward, it would have less than what percentage of total assets in daily liquid assets, and what percentage in weekly liquid assets?

• a.10 percent daily and 30 percent weekly
• b.30 percent daily and 25 percent weekly
• c.25 percent daily and 50 percent weekly✓
• d.15 percent daily and 40 percent weekly

Rule 2a-7(d)(1) now requires at least 25 percent of total assets in daily liquid assets and at least 50 percent in weekly liquid assets, with the daily minimum not applying to tax-exempt funds. The 10 percent and 30 percent pair is the tempting wrong answer, since it was the minimum before the 2023 amendments raised it.17 CFR 270.2a-7(d)(1)(ii), (d)(1)(iii)

A single man earned $215,000 in each of the past two years and reasonably expects the same this year. His net worth is $600,000 excluding his home. Under Regulation D, is he an accredited investor?

• a.Yes, because his individual income exceeded $200,000 in each of the two most recent years with the same expected this year✓
• b.Yes, but only for offerings under Rule 506(c) and not for offerings under Rule 506(b), because that is where verification is required
• c.No, because he must also have net worth above $1 million, excluding his primary residence
• d.No, because the income test requires joint income with a spouse above $300,000 in each of the two most recent years and the same expected this year

Rule 501(a)(6) makes a natural person accredited with individual income above $200,000 in each of the two most recent years, or joint income with a spouse or spousal equivalent above $300,000, with a reasonable expectation of the same level this year. The income and net worth tests are alternatives, and accredited status does not depend on the offering exemption.17 CFR 230.501(a)(6)

An issuer conducts a Rule 506(b) offering with no general solicitation. It has already sold to 30 accredited investors. What is true about non-accredited purchasers?

• a.It may sell to unlimited non-accredited purchasers if each invests at least $50,000
• b.It may not sell to any non-accredited purchaser unless it uses general solicitation under Rule 506(c) instead of Rule 506(b)
• c.It may sell to up to 35 non-accredited purchasers in any 12-month period, with no sophistication requirement for any of them
• d.It may sell to no more than 35 purchasers who are not accredited in any 90-day period, and each must be sophisticated✓

Rule 506(b)(2) permits sales to no more than 35 purchasers in a 90-calendar-day period (accredited investors are not counted), and each non-accredited purchaser, alone or with a purchaser representative, must have the knowledge and experience to evaluate the investment. Rule 506(c) is the general solicitation route and allows accredited investors only.17 CFR 230.506(b)(2)(i)-(ii)

An adviser holds client mutual fund shares and wants to avoid a separate custodian for them. Under the custody rule, what may it do for open-end fund shares?

• a.Rely on the fund's independent public accountant to maintain the shareholder records as custodian
• b.Use the fund's transfer agent in place of a qualified custodian to hold the shares✓
• c.Hold the shares at an unaffiliated investment adviser registered with the SEC that agrees to act as custodian
• d.Hold the shares in the adviser's own name without any custodian, as long as it discloses it on Form ADV

Rule 206(4)-2(b)(1) allows an adviser to use the mutual fund's transfer agent instead of a qualified custodian for shares of an open-end company. Otherwise, client funds and securities over which the adviser has custody must be kept with a qualified custodian: a bank, registered broker-dealer, futures commission merchant (in limited cases), or foreign financial institution.17 CFR 275.206(4)-2(b)(1)

An adviser has custody of client accounts only because its advisory agreements let it withdraw its fee directly from those accounts, which are held at an unrelated qualified custodian. What is the consequence under the custody rule?

• a.It is not required to obtain the independent verification (the surprise examination) for those accounts✓
• b.It is deemed not to have custody and so is exempt from the qualified custodian requirement
• c.It must still undergo a surprise examination by an independent public accountant every year, as every other adviser with custody must
• d.It must hold the accounts through a related person acting as qualified custodian instead of undergoing the surprise examination

Rule 206(4)-2(b)(3) excuses an adviser from the independent verification of client funds and securities if it has custody solely because it can withdraw its advisory fee, and the custodian is not a related person (or the related-person conditions are met). The adviser still has custody for other purposes, such as using a qualified custodian and giving account notices and statements, so it is not exempt altogether.17 CFR 275.206(4)-2(b)(3)

Which of these can serve as a qualified custodian for client assets under the Advisers Act custody rule?

• a.A certified public accounting firm that performs the annual surprise examination
• b.A broker-dealer registered under the Exchange Act that holds the client assets in customer accounts✓
• c.An unaffiliated registered investment adviser that agrees in writing to hold the securities for the client in a segregated account
• d.A state-chartered credit union whose deposits are insured by the NCUA but not by the FDIC or any other federal insurer

Rule 206(4)-2(d)(6) lists a bank or savings association with FDIC-insured deposits, a registered broker-dealer holding assets in customer accounts, a futures commission merchant (for limited assets), and a foreign financial institution that segregates customer assets. A credit union, another adviser, or an accounting firm is not on the list.17 CFR 275.206(4)-2(d)(6)

An independent public accountant completes a surprise examination of an adviser's client assets and finds a material discrepancy. What does the custody rule require the accountant to do?

• a.Notify the SEC within one business day of the finding✓
• b.Include it in the Form ADV-E certificate and make no other notice to the SEC
• c.Notify the SEC within 30 calendar days after the adviser's fiscal year ends
• d.Report the discrepancy to the adviser's clients and wait for the SEC to respond

Under Rule 206(4)-2(a)(4), the written agreement must require the accountant to file Form ADV-E within 120 days of the examination date it chose, and to notify the SEC within one business day of finding any material discrepancy, by fax or email followed by a notice. The immediate notice is separate from the certificate.17 CFR 275.206(4)-2(a)(4)(ii)

For 2026, a single filer has $44,000 of taxable income from wages before counting an $8,000 long-term capital gain. The 0% rate on long-term gains applies to taxable income up to $49,450 for a single filer. What is the federal tax on the gain?

• a.$382.50, because $5,450 of the gain fits under the 0% ceiling and $2,550 is taxed at 15%✓
• b.$510.00, because the $2,550 that exceeds the 0% ceiling is taxed at 20%
• c.$0, because her total taxable income is below the 15% bracket's lower limit of $49,450 before the gain
• d.$1,200, because the entire gain is taxed at 15% once she has any other taxable income

Long-term gains sit on top of ordinary taxable income. Her $44,000 leaves $5,450 of room below $49,450, so that part of the gain is taxed at 0%. The remaining $2,550 is taxed at 15%, giving $382.50. Ignoring the stacking would give a wrong answer in either direction. The 20% rate begins far higher than this.IRC 1(h); Rev. Proc. 2025-32 sec. 4.03 (2026 thresholds)

A single client under age 50 has modified AGI of $160,500 in 2026, inside the $153,000 to $168,000 Roth IRA phase-out range. His earned income is more than enough. What is the most he may contribute to a Roth IRA for 2026?

• a.$0, because income above $153,000 bars any Roth contribution
• b.$3,750, because he is halfway through the phase-out range✓
• c.$1,875, because the reduction is figured over a $10,000 range
• d.$7,500, because the phase-out affects only converted amounts

The limit falls in a straight line across the range. His income is $7,500 into a $15,000 range, so half of the $7,500 limit is lost and $3,750 remains. A $10,000 range is the traditional-IRA deduction width used for single filers in earlier years and does not apply here. Contributions are barred completely only at $168,000, and the phase-out applies to direct contributions, which is what this client is making.IRC 408A(c)(3); IRS Notice 2025-67 (2026 limits)

At year-end, a client's traditional IRAs total $200,000, of which $40,000 is after-tax (nondeductible) basis. She converts $50,000 to a Roth IRA during the year and has no other IRAs. How much of the conversion is taxable?

• a.$0, because a conversion is a rollover and rollovers are never taxed
• b.$40,000, because 20% of every distribution from the combined IRAs is treated as nontaxable basis✓
• c.$50,000, because every converted dollar is taxable in the year of conversion
• d.$10,000, because she can withdraw all of her basis first and only the remainder is taxable

Nondeductible basis is recovered pro rata across all traditional, SEP and SIMPLE IRAs, not first-in. Basis is $40,000 of $200,000, or 20%, so 20% of the $50,000 converted ($10,000) is tax free and $40,000 is taxable. Treating the basis as coming out first would give $10,000 taxable, which is the common mistake. A conversion is a taxable event for the pre-tax portion.IRC 408(d)(2); IRS Pub. 590-A; Form 8606

A client was born in 1953, owns only a traditional IRA, and is retired. By what date must she take her first required minimum distribution?

• a.April 1, 2027, the April 1 following the year she reaches age 73✓
• b.April 1, 2026, the April 1 following the year she reaches age 72
• c.April 15, 2027, the tax filing deadline for the year she reaches age 73
• d.December 31, 2026, the end of the year she reaches age 73

She turns 73 in 2026. Distributions must begin by April 1 of the year after she reaches 73, which is April 1, 2027. The first RMD may be delayed to that date, but doing so means two distributions fall in 2027. December 31 applies to RMDs for later years, not the first one. April 15 is a filing date and has no role in RMD timing.IRC 401(a)(9)(C); IRS Pub. 590-B

A 71-year-old client is not yet subject to required minimum distributions. She wants to give $20,000 to her church this year from her traditional IRA. Which statement about a qualified charitable distribution (QCD) is correct?

• a.She is eligible, but the $20,000 must be reported as income and then claimed as a charitable itemized deduction on Schedule A if she itemizes
• b.She is eligible, but the transfer may be made to a donor-advised fund to qualify
• c.She is not eligible, because QCDs are available only once RMDs have begun at age 73, which the SECURE 2.0 Act set as the starting age
• d.She is eligible, because QCDs are available from age 70½, and a direct transfer to the church is excluded from her gross income✓

A QCD may be made once the owner reaches 70½, which is earlier than the RMD age. The money must go directly from the IRA trustee to an eligible charity, and the amount is excluded from gross income instead of being included and then deducted. Distributions to donor-advised funds do not qualify. A QCD can also satisfy an RMD when one applies, but the age rule does not depend on RMDs.IRC 408(d)(8); IRS Pub. 590-B

A client's father died in 2025 and left him, an adult nondisabled son, his traditional IRA. The son is not an eligible designated beneficiary. By what date must the inherited IRA be fully distributed under the 10-year rule?

• a.December 31, 2026, the end of the year after the year of death
• b.December 31, 2035, the end of the tenth year following the year of death✓
• c.December 31, 2030, the end of the fifth year following the year of death
• d.December 31 of the year he reaches age 73, as if he were the original owner

A designated beneficiary who is not a spouse, minor child, disabled or chronically ill person, or someone not more than 10 years younger than the owner must empty the account by December 31 of the tenth year after the owner's death. For a 2025 death that date is December 31, 2035. The five-year rule applies only when there is no designated beneficiary and the owner died before the required beginning date. A non-spouse beneficiary cannot treat the account as his own.IRC 401(a)(9)(H); IRS Pub. 590-B

A 57-year-old client has family coverage under an HDHP for all of 2026 and is not enrolled in Medicare. What is the most she may contribute to her HSA for 2026?

• a.$9,850, because the IRA catch-up amount of $1,100 applies to HSAs as well
• b.$8,750, because the catch-up amount is available only to self-only coverage
• c.$9,750, the family limit of $8,750 plus a $1,000 catch-up✓
• d.$5,400, because the catch-up is added to the self-only limit once she is over 55

The 2026 family HDHP limit is $8,750. An eligible individual aged 55 or older by year-end adds a $1,000 catch-up, which is a fixed statutory amount that is not indexed and is separate from the $1,100 IRA catch-up. The total is $9,750. Both types of coverage allow the catch-up. Using the self-only limit would understate her family limit.IRC 223(b); Rev. Proc. 2025-19; IRS Pub. 969

A grandmother wants to fund a 529 plan for a grandchild in 2026 with the largest lump sum that can be treated as using only annual gift-tax exclusions. The annual exclusion is $19,000, she makes no other gifts to the grandchild, and she is not splitting gifts. What is the maximum?

• a.$95,000, by electing to spread the gift over five years✓
• b.$114,000, because the election covers the year of the gift plus five more years
• c.$76,000, because the election covers the year of the gift plus three more years
• d.$19,000, because only one year's exclusion is ever available for a single gift

Section 529 allows a contribution to be treated as made ratably over five years at the donor's election, so up to five times the annual exclusion ($95,000) can be given at once without using lifetime exemption. The election is made on a gift tax return. The period is five calendar years in total, counting the year of the gift, so four or six multiples are wrong.IRC 529(c)(2)(B); Rev. Proc. 2025-32 sec. 4.42

A married client makes a $30,000 cash gift to his daughter in 2026 from his own account. His wife consents to treat half the gift as hers, and the annual exclusion is $19,000 per donee. What is the result?

• a.$30,000 is a taxable gift, because gifts above $19,000 lose the exclusion entirely
• b.No gift tax and no use of lifetime exemption, and no return is needed because the gift is under $38,000 with both spouses' exclusions combined
• c.No gift tax and no use of lifetime exemption, but a gift tax return must be filed to elect gift splitting✓
• d.$11,000 is a taxable gift, because only his own $19,000 exclusion may be applied to the $30,000 gift without his spouse's consent

With the spouse's consent, each spouse is treated as giving $15,000, and both are under the $19,000 exclusion. The election to split gifts requires Form 709 even though no tax results, so the answer that claims no return is needed is wrong. Without splitting, $11,000 would be a taxable gift reducing his lifetime exemption, but the election removes that outcome. The exclusion applies per gift, so the excess is the only part ever taxable.IRC 2513, 2503(b)

A husband dies in 2026 leaving a $3 million estate entirely to his wife. His executor wants the wife to be able to use his unused estate-tax exclusion later. What must be done?

• a.The executor must timely file an estate tax return electing portability, even though no estate tax is owed✓
• b.The wife must claim the unused exclusion on her own income tax return when she files
• c.The executor must place the unused exclusion in a trust within nine months
• d.Nothing; the unused exclusion passes to the wife automatically at death

The deceased spousal unused exclusion (DSUE) is available to the survivor only if the executor makes the portability election on a timely filed estate tax return, which is required even for an estate below the filing threshold. It is not automatic. The election is not made on an income tax return, and a trust is not required for it.IRC 2010(c)(5)(A); IRS Pub. 559

A client sells 100 shares of a stock for a $4,000 loss. Twenty days later she buys 100 shares of the same stock for $6,000. What is her basis in the new shares?

• a.$6,000, because the new purchase is a separate transaction with its own cost
• b.$2,000, because the loss is subtracted from the cost of the new shares
• c.$10,000, because the disallowed $4,000 loss is added to the $6,000 cost✓
• d.$4,000, because the basis of the old shares carries over unchanged

A repurchase within 30 days before or after a loss sale is a wash sale. The $4,000 loss is not deductible now; it is added to the basis of the replacement shares, so the new basis is $10,000, and the holding period of the old shares is added too. The loss is deferred, not lost. Subtracting it would reverse the adjustment.IRC 1091; IRS Pub. 550

A retired client, age 62 at the annuity starting date in 2022, receives $1,850 a month from a qualified plan pension. His after-tax contributions in the plan total $46,800. Using the Simplified Method, what part of each payment is taxable until his cost is recovered?

• a.$1,670, because $180 of each payment is a return of cost ($46,800 divided by 260)✓
• b.$1,655, because the exclusion is figured with the divisor used for annuities that began before November 19, 1996
• c.$1,850, because pension payments are fully taxable until age 65
• d.$180, because only the recovered cost is taxed

At a starting age of 61 to 65, the Simplified Method divisor for a single life annuity beginning after November 18, 1996 is 260. The monthly exclusion is $46,800 ÷ 260 = $180, leaving $1,670 taxable. The $1,655 figure comes from the older table. The $180 is the excluded part, not the taxable part. Payments from a plan with a cost basis are not fully taxable.IRC 72(d); IRS Pub. 575

A single retiree receives $24,000 in Social Security benefits. Her other income, including tax-exempt interest, is $22,000. How much of her benefits is taxable?

• a.$20,400, because 85% of benefits are taxable once combined income exceeds $25,000
• b.$12,000, because half of the benefits are taxable once combined income exceeds $25,000
• c.$0, because tax-exempt interest is not counted in the formula
• d.$4,500, because her combined income of $34,000 is not above the $34,000 level for the 85% tier✓

Combined income is other income plus half of benefits: $22,000 + $12,000 = $34,000. For a single filer the 50% tier covers combined income from $25,000 to $34,000, so the taxable amount is the lesser of half of the benefits ($12,000) or half of the excess over $25,000 ($4,500). The 85% tier starts only above $34,000. Tax-exempt interest is included in combined income.IRC 86; IRS Pub. 915

For 2026, a 10-year-old dependent has $4,000 of interest and dividend income and no other income. Of the $4,000, how much is taxed at the parents' rate under the kiddie tax rules, given the $1,350 amounts?

• a.$0, because a dependent child pays tax only at the child's own rate
• b.$1,300, the amount above $2,700 (twice the $1,350 amount)✓
• c.$4,000, because all unearned income of a young child is taxed at the parents' rate
• d.$2,650, the amount above the first $1,350

The first $1,350 of unearned income is offset by the dependent's standard deduction, and the next $1,350 is taxed at the child's rate. Unearned income above $2,700 is taxed at the parents' rate: $4,000 − $2,700 = $1,300. Treating only the first $1,350 as sheltered ignores the child-rate layer. Taxing the whole amount at the parents' rate overstates the rule.IRC 1(g); Rev. Proc. 2025-32 sec. 4.02

A 52-year-old participant earned $180,000 of Social Security (FICA) wages from her employer in 2025. Her plan allows catch-up contributions and has a Roth feature. How must her 2026 catch-up contributions be made?

• a.As Roth contributions, because her prior-year FICA wages exceeded the $150,000 threshold✓
• b.As Roth contributions, but only on the amount of her wages above $150,000
• c.As Roth contributions only if her 2026 adjusted gross income exceeds $150,000
• d.As pre-tax contributions only, because Roth treatment is optional for catch-up contributions at any pay level

Beginning in 2026, an employee whose FICA wages from the employer in the prior year exceeded the indexed threshold ($150,000 for the 2025 wage test) must make catch-up contributions as Roth contributions. The test uses prior-year wages from that employer, not current-year AGI, and it applies to all of the catch-up amount rather than a slice of it. A plan with no Roth feature cannot let such an employee make catch-ups at all.IRC 414(v)(7); IRS Notice 2025-67

A 45-year-old begins participating in her employer's SIMPLE IRA on March 1, 2025. In February 2027, before she has been in the plan for two years, she withdraws $10,000 and does not roll it over. Apart from regular income tax, what additional tax applies?

• a.A 6% excise tax, which applies to all excess contributions to a SIMPLE IRA
• b.No additional tax, because a SIMPLE IRA is an employer plan with a hardship exception for any amount
• c.A 25% additional tax, because the withdrawal came within two years of her first participation✓
• d.A 10% additional tax, the same early-withdrawal rate as for any IRA owner under age 59½

A SIMPLE IRA distribution before age 59½ is subject to the 10% additional tax, but the rate rises to 25% if it is taken within two years of the date the individual first participated in the plan. She started in March 2025 and withdrew in February 2027, which is inside the window. The 6% tax is for excess contributions, not distributions.IRC 72(t)(6); IRS Pub. 590-B

A 62-year-old opened her first Roth IRA with a contribution for 2023. She has contributed $20,000 in total, and the account is now worth $26,000. In 2026 she withdraws $23,000. How is the withdrawal taxed?

• a.$3,000 is taxable and subject to the 10% additional tax, because the distribution is not qualified
• b.Nothing is taxable, because she is over 59½ and all withdrawals are then tax free
• c.The whole $23,000 is taxable, because withdrawals before the fifth year are fully taxable
• d.$3,000 is taxable earnings and the 10% additional tax does not apply, because she is over 59½✓

Roth withdrawals come out as contributions first, and contributions are always tax free and penalty free. The five-tax-year period began on January 1, 2023, so it runs through 2027 and her 2026 withdrawal is not qualified. The $3,000 of earnings is taxable. The 10% additional tax does not apply because she is past 59½. Age alone does not make a distribution qualified; the five-year requirement must also be met.IRC 408A(d); IRS Pub. 590-B

A 40-year-old uses $10,000 from his traditional IRA toward buying his first home. He has never owned a home and meets the other requirements. What is the tax result?

• a.The $10,000 is included in income and the 10% additional tax applies, as for any pre-59½ distribution
• b.The $10,000 is included in income, but the 10% additional tax does not apply, subject to a $10,000 lifetime limit✓
• c.The $10,000 is excluded from income and the 10% additional tax does not apply
• d.The $10,000 is included in income and a 25% additional tax applies, because he is buying a home

Up to $10,000 over a lifetime from an IRA for qualified first-time homebuyer costs avoids the 10% additional tax on early distributions, but only that tax is waived. The money from a traditional IRA is still ordinary income. No 25% tax applies, because that rate is for SIMPLE IRAs in the first two years.IRC 72(t)(2)(F); IRS Pub. 590-B

A 50-year-old client receives a $50,000 eligible rollover distribution paid to her from a 401(k) plan, and the plan withholds $10,000 for federal tax. She deposits only the $40,000 she received into an IRA within 60 days. What is the result?

• a.$10,000 is a taxable distribution, unless she also deposits $10,000 of her own money within 60 days✓
• b.$50,000 is taxable, because a partial rollover cancels the whole rollover
• c.The full $50,000 is a tax-free rollover, because the withheld tax is treated as deposited
• d.$10,000 is taxable, and the plan must refund the withholding so it can be deposited

When an eligible rollover distribution is paid to the participant, 20% must be withheld. To roll over the entire $50,000 she must deposit $50,000, replacing the $10,000 from other funds. If she rolls over only $40,000, the missing $10,000 is a taxable distribution, plus a 10% additional tax if she is under 59½ and no exception applies. A direct rollover avoids the withholding.IRC 3405(c), 402(c); IRS Pub. 590-A

A married couple filing jointly has a $14,000 net capital loss for the year and no capital gains in other years to offset it. How much can they deduct against ordinary income this year, and what happens to the rest?

• a.$3,000 now, and the other $11,000 is lost
• b.$3,000 now, and the other $11,000 carries forward to later years✓
• c.$14,000 now, because capital losses are fully deductible against wages
• d.$7,000 now and $7,000 next year, because the deduction is split evenly over two years

Net capital losses offset capital gains without limit, and any remaining net loss reduces ordinary income by up to $3,000 a year ($1,500 for married filing separately). The unused part carries forward indefinitely, keeping its character. Here that is $3,000 now and $11,000 carried over.IRC 1211(b), 1212(b); IRS Pub. 550