NASAA Series 66 — All Questions

A barbell bond strategy concentrates holdings in:

• a.Intermediate maturities clustered around a single duration target
• b.Only floating-rate notes that reset every ninety days
• c.Short-term and long-term maturities, with little in between✓
• d.A single long-term maturity chosen to maximize yield to maturity

A barbell concentrates in short and long maturities while avoiding intermediates, blending the liquidity and lower rate risk of short bonds with the higher yield of long bonds.

A bullet bond strategy involves:

• a.Spreading maturities evenly across many consecutive years so an equal portion matures every year
• b.Concentrating maturities around a single target date to fund a known future liability✓
• c.Holding only very short and very long maturities, with nothing in the intermediate range
• d.Buying bonds that can all be called on one date, so the issuer decides when the portfolio matures

A bullet strategy clusters maturities around a single target date, which suits funding a specific future obligation. Spreading maturities evenly is a ladder. Holding only the shortest and longest maturities is a barbell. Callable bonds put the redemption timing in the issuer's hands, so they do not let the investor target a liability date.

Portfolio immunization seeks to protect a bond portfolio from interest-rate risk by:

• a.Matching the portfolio's average coupon rate to the investor's required return
• b.Matching the portfolio's duration to the investor's time horizon✓
• c.Trading bonds frequently to time rate changes
• d.Holding only long-term bonds to lock in the highest yield

Immunization matches portfolio duration to the investment horizon so that price risk and reinvestment risk offset each other, locking in a target return over that horizon. Matching the coupon rate to a required return ignores duration. Frequent trading is market timing, which does not protect against rate risk. Long bonds carry the most price risk, so holding only them does the opposite.

Positive convexity in a bond is desirable because, for a large change in yields, it means:

• a.The bond's duration stays constant no matter how far rates move
• b.The issuer can call the bond at a premium whenever rates decline
• c.Prices fall more when rates rise than they gain when rates fall equally
• d.Prices rise more when rates fall than they fall when rates rise by the same amount✓

Positive convexity means the price-yield curve bends favorably: price gains from a fall in yields exceed price losses from an equal rise. It also means duration changes as yields move, so duration alone is only a linear estimate. A call feature is the source of negative convexity, and negative convexity is the reverse pattern, with larger losses than gains.

'Riding the yield curve' is a strategy in which an investor, in an upward-sloping yield-curve environment:

• a.Buys a longer bond and sells it before maturity as it 'rolls down' to a lower yield and a higher price✓
• b.Buys only the shortest-term Treasury bills and rolls them over as each one matures
• c.Holds each bond to maturity and collects the coupons, with no sale before then
• d.Sells short-term bonds and buys longer ones as the curve steepens, betting that yields keep rising

Riding the yield curve buys a longer-maturity bond and sells it later, after its remaining maturity has shortened and its yield has dropped along an upward-sloping curve, capturing the price gain. Rolling over bills never captures that roll-down. Holding to maturity earns only the coupons and the par value. Betting that yields keep rising is a rate bet that loses on price if it is right.

A bond with a 5% coupon and $1,000 par is trading at $800. Its current yield is:

• a.6.25%✓
• b.5.00%
• c.4.00%
• d.8.00%

Current yield = annual coupon / market price = $50 / $800 = 6.25%. Buying a bond below par raises its current yield above the stated coupon rate.

For a bond trading at a premium above par, the correct ordering of yields from lowest to highest is:

• a.Yield to maturity, then current yield, then nominal coupon yield, arranged from the very lowest up to the highest
• b.All three yields are exactly equal to one another whenever a bond happens to trade at any price other than par
• c.Yield to maturity, current yield, nominal (coupon) yield✓
• d.Current yield, then nominal coupon yield, then yield to maturity, arranged from the very lowest up to the highest

For a premium bond: yield to maturity is less than current yield, which is less than the nominal (coupon) yield. For a discount bond, this ordering reverses.

To fund a child's college tuition due in exactly 12 years, which bond choice best eliminates reinvestment risk?

• a.A money market fund rolled over continuously
• b.A zero-coupon bond maturing in 12 years✓
• c.High-coupon corporate bonds
• d.A bond ladder that staggers maturities over twelve years

A zero-coupon bond pays no interim coupons, so there is nothing to reinvest, eliminating reinvestment risk and locking in a known maturity value for the target date.

During the year a client realizes $8,000 of long-term capital gains and $3,000 of long-term capital losses. The net capital gain is:

• a.$0
• b.$5,000 long-term gain✓
• c.$3,000, the maximum annual capital-loss deduction
• d.$11,000

Gains and losses of the same character net against each other: $8,000 - $3,000 = $5,000 net long-term capital gain, which is taxed at the preferential long-term rate.

A client has a net capital loss of $9,000 for the year and no capital gains. On this year's return the client may deduct against ordinary income:

• a.The full $9,000, since a net capital loss is fully deductible
• b.$3,000, carrying the remaining $6,000 forward to future years✓
• c.$4,500, one-half of the net capital loss
• d.$0, because capital losses can offset only capital gains and never ordinary income

Net capital losses offset ordinary income up to $3,000 per year, and the excess ($6,000) carries forward indefinitely to offset future gains or income.

A municipal bond yields 4% tax-free. For an investor in the 25% federal tax bracket, the taxable-equivalent yield is:

• a.3.00%
• b.5.00%
• c.5.33%✓
• d.4.25%

Taxable-equivalent yield = tax-free yield / (1 - tax rate) = 4% / (1 - 0.25) = 4% / 0.75 = 5.33%. It lets a muni be compared with taxable bonds.

A municipal bond yields 3.5% tax-free. For an investor in the 32% bracket, the taxable-equivalent yield is approximately:

• a.2.38%
• b.3.82%
• c.4.20%
• d.5.15%✓

Taxable-equivalent yield = 3.5% / (1 - 0.32) = 3.5% / 0.68 = 5.15%. A higher tax bracket raises the taxable-equivalent yield, making munis more attractive.

A corporate bond yields 6%. For an investor in the 30% bracket, the after-tax yield is:

• a.2.00%
• b.6.00%
• c.7.80%
• d.4.20%✓

After-tax yield = taxable yield x (1 - tax rate) = 6% x (1 - 0.30) = 6% x 0.70 = 4.20%. This can then be compared with a municipal bond's tax-free yield.

An investor in the 35% bracket compares a 4% municipal bond with a 6% corporate bond. Which is better after tax, and why?

• a.The corporate bond, because its stated 6% yield is higher than the muni's 4%
• b.The muni, because its taxable-equivalent yield of about 6.15% exceeds the corporate's 6%✓
• c.They are identical after tax, because both provide the same after-tax income
• d.The corporate bond is better, because municipal bond interest is fully taxable at ordinary income rates

The muni's taxable-equivalent yield = 4% / (1 - 0.35) = 6.15%, which beats the 6% corporate. Bonds must be compared on an equivalent after-tax basis.

Which action would trigger the wash-sale rule and disallow a loss?

• a.Selling a stock at a loss and buying a different company in an unrelated industry
• b.Selling a bond at a loss and buying an unrelated stock two months later
• c.Buying the same stock 20 days BEFORE selling other shares of it at a loss✓
• d.Selling a stock at a loss and waiting 45 days before repurchasing the same shares

The wash-sale rule applies to purchases of substantially identical securities within 30 days before or after the loss sale, including a purchase made before the sale.

An investor sells 100 shares at a $500 loss that is disallowed under the wash-sale rule, then holds the replacement shares bought for $4,000. The replacement shares' adjusted basis is:

• a.$3,500
• b.$4,000
• c.$500
• d.$4,500✓

A disallowed wash-sale loss is added to the replacement shares' basis: $4,000 + $500 = $4,500. This defers the loss until the replacement shares are eventually sold.

A donor gifts stock (original cost $10,000) now worth $15,000. The recipient later sells it for $18,000. The recipient's cost basis for computing the gain is generally:

• a.$0 (gifts carry no basis)
• b.$10,000 (the donor's carryover basis)✓
• c.$18,000 (the recipient's sale price)
• d.$15,000 (fair market value on the date of the gift)

For gifted securities sold at a gain, the recipient generally uses the donor's carryover basis ($10,000), producing an $8,000 gain. Inherited property instead gets a stepped-up basis.

An investor inherits stock the decedent had bought for $20,000; it is worth $50,000 on the date of death. The heir's cost basis is generally:

• a.$50,000 (stepped up to date-of-death value)✓
• b.$35,000 (the average of cost and date-of-death value)
• c.$0 (inherited property has no basis)
• d.$20,000 (the decedent's original purchase price)

Inherited securities generally receive a stepped-up basis equal to fair market value at the date of death ($50,000), so the decedent's prior appreciation escapes income tax.

For a dividend to be a 'qualified dividend' taxed at long-term capital-gains rates, the investor generally must:

• a.Hold the stock for more than one year after the dividend is paid
• b.Meet a minimum holding-period requirement around the ex-dividend date✓
• c.Receive it only from a U.S. corporation, since no foreign company's dividends ever qualify
• d.Be declared by a company with 25 straight years of dividend increases

A qualified dividend must be paid by a U.S. corporation or a qualified foreign corporation and the investor must meet a holding period: more than 60 days during the 121-day period that begins 60 days before the ex-dividend date (IRS Publication 550). The one-year period applies to long-term capital gains on the sale, not to dividends. Qualified foreign corporations can pay qualified dividends. A long record of dividend increases is not a requirement.IRS Publication 550, Qualified Dividends

Which of the following is generally the MOST tax-efficient 'asset location' decision?

• a.Placing the highest-growth equities in a traditional IRA, where all of the growth is eventually taxed as ordinary income
• b.Holding tax-inefficient bonds in tax-deferred accounts and tax-efficient stocks in taxable accounts✓
• c.Keeping every asset class in taxable accounts so capital losses can be harvested against gains each year
• d.Holding tax-exempt municipal bonds in a traditional IRA, so the interest is sheltered twice from tax

Asset location puts tax-inefficient, income-generating assets such as taxable bonds in tax-deferred accounts and tax-efficient assets such as long-term stock holdings in taxable accounts. Putting the highest-growth equities in a traditional IRA converts what would be lower-taxed long-term gains into ordinary income on withdrawal. Keeping everything in taxable accounts gives up tax deferral on the bond interest. Municipal bonds in an IRA waste the exemption, because IRA withdrawals are taxed as ordinary income anyway.

A traditional 401(k) contribution made through payroll:

• a.Reduces current taxable income, with withdrawals taxed later as ordinary income✓
• b.Can be withdrawn at any age with no tax and no penalty
• c.Is never subject to required minimum distributions during the owner's lifetime
• d.Is made with after-tax dollars, so qualified withdrawals in retirement are tax-free

Traditional 401(k) contributions are pre-tax, reducing current taxable income. Withdrawals in retirement are taxed as ordinary income, and required minimum distributions eventually apply.

For earnings in a Roth IRA to be withdrawn completely tax-free, the account generally must satisfy:

• a.A one-year holding period and that the owner be at least 59.5
• b.A five-year holding period and that the owner be 59.5 (or another qualifying event)✓
• c.A five-year holding period and that the owner have reached the age at which required minimum distributions begin
• d.A five-year period that restarts with each new contribution, and that the owner be 59.5 or older

A qualified Roth IRA distribution must come after the 5-tax-year period that begins with the first tax year for which any Roth IRA contribution was made, and must be made on or after age 59.5, because of disability, to a beneficiary after death, or for a qualifying first home (up to $10,000) (IRS Publication 590-B). The holding period is five years, not one. Roth IRAs have no required minimum distributions during the owner's life. The five-year clock starts once with the first contribution and does not restart with each new contribution.IRS Publication 590-B, What Are Qualified Distributions?

'Catch-up' contributions to IRAs and 401(k) plans are additional amounts allowed for individuals who are:

• a.Earning below an IRS income threshold
• b.Age 50 or older✓
• c.Self-employed
• d.First-time retirement savers

Catch-up contributions let individuals age 50 and older contribute above the standard annual limit to IRAs and 401(k) plans, helping accelerate late-career retirement saving.

Required minimum distributions from a traditional IRA generally must begin:

• a.At age 73 under current law✓
• b.Immediately upon retirement, regardless of age
• c.At age 65
• d.At age 59.5, when the 10% early-withdrawal penalty ends

Under SECURE 2.0, required minimum distributions from a traditional IRA begin at age 73. A Roth IRA has no RMDs during the original owner's lifetime.

Converting pre-tax traditional IRA assets to a Roth IRA:

• a.Is always completely tax-free, because both accounts are individual retirement arrangements under the federal tax code
• b.Is strictly prohibited for anyone whose income happens to exceed the annual limit for direct Roth IRA contributions
• c.Triggers an automatic 10% early-withdrawal penalty on the entire converted amount regardless of the owner's age
• d.Is a taxable event, adding the converted amount to ordinary income in the year of the conversion✓

A Roth conversion is taxable: pre-tax amounts converted are added to ordinary income for that year. Future qualified Roth withdrawals are then tax-free, and no income limit applies to conversions.

A key advantage of a 529 college-savings plan over a Coverdell ESA is that the 529 plan generally:

• a.Requires no beneficiary to be named
• b.Guarantees a fixed minimum return backed by the U.S. government
• c.Allows tax-free withdrawal for any purpose, including living expenses
• d.Permits much higher total contributions✓

A 529 plan allows substantially higher total contributions than a Coverdell ESA, which has a low annual cap. Both offer tax-free growth for qualified education expenses.

Assets held in an UGMA/UTMA custodial account:

• a.Are completely exempt from all taxation because they are held in the name of a minor child
• b.Belong irrevocably to the minor and pass to their control at the age of majority✓
• c.Can be reclaimed by the donor at any time for the donor's own expenses
• d.Remain the permanent legal property of the custodian and never transfer to the minor

UGMA/UTMA gifts are irrevocable; the minor legally owns the assets, which pass to the minor's control at the age of majority. Earnings may be subject to the 'kiddie tax.'

An investor takes an indirect (60-day) rollover distribution from a 401(k). A key pitfall is that:

• a.The plan must withhold 20% for taxes, which the investor must replace to roll over the full amount✓
• b.The rollover must be completed within just 24 hours of receiving the check, or else the entire distribution immediately becomes taxable ordinary income
• c.The investor may complete an unlimited number of such indirect rollovers within any single rolling twelve-month period
• d.Indirect rollovers are completely prohibited, and the only method ever permitted is a direct trustee-to-trustee transfer

Employer plans must withhold 20% on an indirect rollover. To roll over the full balance within 60 days, the investor has to make up the withheld amount from other funds; a direct rollover avoids this.

Under a commonly cited '4% rule,' a retiree with a $1,000,000 portfolio could plan to withdraw an initial annual amount of about:

• a.$100,000
• b.$4,000
• c.$400,000
• d.$40,000✓

The 4% guideline suggests an initial withdrawal of 4% of the portfolio: 4% x $1,000,000 = $40,000, adjusted for inflation thereafter, aiming to sustain income over a long retirement.

A qualified retirement plan under ERISA is characterized by:

• a.Pre-tax contributions and tax-deferred growth, subject to nondiscrimination rules✓
• b.No limit on annual contributions and no required distributions at any age
• c.Benefits that may be limited to selected executives, with no coverage or nondiscrimination testing
• d.After-tax contributions producing fully taxable distributions of principal and earnings

Qualified (ERISA) plans offer pre-tax contributions and tax-deferred growth in exchange for meeting nondiscrimination and coverage rules; contributions or benefits may not favor highly compensated employees (IRC 401(a)(4)). They are subject to annual contribution limits and required minimum distributions, so unlimited contributions with no required distributions describes neither. Benefits limited to selected executives without testing is a non-qualified arrangement, and after-tax contributions with fully taxable distributions of principal do not describe a qualified plan.26 U.S.C. 401(a)(4)

An investor buys a stock at $50, receives $2 in dividends, and sells it at $54. The total return is:

• a.12%✓
• b.4%
• c.20%
• d.8%

Total return = (price change + income) / cost = ($4 + $2) / $50 = $6 / $50 = 12%. It captures both price appreciation and income.

An investment gains 21% in total over a 3-year holding period. Its approximate annualized (compound) return is:

• a.63%
• b.About 7%✓
• c.About 21%
• d.About 10.5%

Annualized return = (1.21)^(1/3) - 1, which is about 6.6%, roughly 7%. The compound annual figure is less than the simple total divided by the number of years.

A fund reports a 9% nominal return in a year when inflation was 4%. Its real return is closest to:

• a.36%
• b.About 2.25%
• c.About 5%✓
• d.About 13%

Real return is approximately nominal return minus inflation = 9% - 4% = 5%. It reflects the gain in purchasing power after accounting for inflation.

To evaluate a portfolio MANAGER's skill independent of the timing of client cash flows, the preferred measure is:

• a.The nominal coupon yield of the bonds held
• b.The time-weighted return✓
• c.The simple average of beginning and ending account values
• d.The dollar-weighted IRR

Time-weighted return removes the effect of client cash-flow timing, isolating the manager's performance. Dollar-weighted return (an IRR) instead reflects the investor's own timing decisions.

A large-cap U.S. equity fund returned 15% while its benchmark, the S&P 500, returned 18%. The most accurate assessment is that the fund:

• a.Beat its benchmark by 3 points of return
• b.Matched its benchmark, since both returns are in the double digits
• c.Outperformed its benchmark, since 15% is above the long-run average stock return
• d.Underperformed its benchmark by 3 percentage points✓

Performance is judged relative to an appropriate benchmark: 15% versus 18% is 3 percentage points of underperformance. Calling it a 3-point win reverses the sign of the gap. Both returns being in double digits does not make them equal. A return above the long-run average stock return says nothing about how the fund did against the market in the same period.

Two index funds track the same benchmark; Fund A charges 0.05% and Fund B charges 0.75%. Over time, Fund A will most likely:

• a.Perform identically, since expenses do not affect net return
• b.Outperform Fund B by roughly the difference in fees✓
• c.Outperform Fund B by exactly 0.75%
• d.Underperform Fund B, because higher expenses signal superior active management

For funds tracking the same index, net return differs mainly by cost. Lower expenses (0.05% versus 0.75%) give roughly a 0.70-percentage-point annual edge that compounds over time.

The Treynor ratio measures a portfolio's excess return per unit of:

• a.Systematic risk, as measured by beta✓
• b.Total risk, as measured by standard deviation
• c.Unsystematic, company-specific risk
• d.Liquidity risk, reflecting how quickly holdings can be sold at a fair price

The Treynor ratio divides excess return (over the risk-free rate) by beta, measuring reward per unit of systematic risk. The Sharpe ratio instead uses total risk (standard deviation).

Fund X returned 14% with a standard deviation of 20%; Fund Y returned 10% with a standard deviation of 8%. The risk-free rate is 2%. Which statement is best supported?

• a.Fund X is superior, because a higher raw return always indicates better performance
• b.Fund Y has the higher Sharpe ratio (1.0 vs 0.6), indicating better risk-adjusted performance✓
• c.The two funds are identical on a risk-adjusted basis, because higher returns always compensate for higher risk
• d.Fund Y is inferior, because its 10% return is lower than Fund X's 14%

Sharpe X = (14 - 2) / 20 = 0.6; Sharpe Y = (10 - 2) / 8 = 1.0. Fund Y earns more return per unit of total risk despite its lower raw return.

A bond fund advertises a '6% distribution yield,' but its share price fell during the year. An investor should understand that:

• a.A distribution yield and a total return are the same measure
• b.The 6% distribution yield guarantees a 6% total return regardless of the share price
• c.A decline in the fund's share price has no bearing on the investor's total return for the year
• d.Total return also reflects price changes, so it can be lower than the distribution yield✓

Total return equals income (the yield) plus price change. A high distribution yield can be offset by price declines, so total return may end up well below the stated yield.

A client needs their portfolio to at least preserve purchasing power. If inflation is 3%, the MINIMUM nominal return required just to break even in real terms is:

• a.About 3%✓
• b.About 1.5%
• c.About 6%
• d.0%

To merely preserve purchasing power, the nominal return must at least equal inflation (about 3%), leaving a real return near zero. Beating inflation requires earning more than that.

A married couple wants to pass assets to heirs while minimizing estate tax. An appropriate estate-planning tool to discuss is:

• a.An irrevocable trust that removes assets from the taxable estate✓
• b.A revocable living trust that the grantor can amend, because funding it moves the assets outside the taxable estate
• c.A will leaving the assets to the heirs, since property that passes by will is not counted in the gross estate
• d.A transfer-on-death registration on the account, because it passes outside probate and escapes estate tax

Assets placed in a properly structured irrevocable trust are no longer owned or controlled by the grantor, so they generally fall outside the taxable estate while still passing to the heirs the grantor names. A revocable trust leaves the grantor with the power to alter or revoke it, so its assets stay in the gross estate. A will and a transfer-on-death registration decide who receives the assets, but they do not take the assets out of the taxable estate.IRC Sec. 2038 (revocable transfers)

A client feels the pain of a loss far more than the pleasure of an equal gain and sells during every market decline. This behavioral tendency is best described as:

• a.Loss aversion driving poorly timed selling✓
• b.Overconfidence driving excessive and frequent trading
• c.Anchoring on the original purchase price of each holding
• d.Herding into whatever has recently performed best

Loss aversion is the tendency to feel a loss more sharply than an equal gain, which leads investors to sell in panic during declines and lock in losses. Overconfidence leads to too much trading, not to selling in fear. Anchoring ties a judgment to a reference price, and herding follows the crowd into what has recently done well. Naming the bias lets the adviser coach the client and build a plan the client can stick with.

An adviser wants to measure how closely a fund's returns follow its benchmark index. Which pair of measures best captures that?

• a.Sharpe ratio and standard deviation over the same period
• b.Beta and the expense ratio relative to the peer group average
• c.Portfolio turnover and the sales load charged on each purchase
• d.R-squared and tracking error relative to the benchmark✓

R-squared shows how much of a fund's movement is explained by its benchmark, and tracking error measures how far its returns deviate from that benchmark. Together they show how closely the fund follows the index. Sharpe ratio and standard deviation describe risk-adjusted return and volatility, beta measures sensitivity to market moves, and turnover, expense ratio and load describe trading activity and cost.

A client holds stock held for more than one year that has appreciated, and wishes to donate it to charity in a tax-efficient way. Donating the appreciated shares directly, rather than selling first, generally allows the client to:

• a.Avoid capital gains tax on the appreciation and potentially deduct the fair market value✓
• b.Deduct only the original cost basis, however much the shares are worth now
• c.Owe the same capital gains tax as on a sale, because a gift of stock counts as a sale
• d.Deduct the full value with no limit, since charitable gifts are exempt from AGI limits

Giving long-term appreciated shares directly to a qualified charity generally lets the donor avoid capital gains tax on the appreciation and deduct the fair market value, subject to adjusted gross income limits. Selling first would trigger the capital gains tax. The deduction is not limited to cost basis, a charitable gift of stock is not treated as a sale by the donor, and the AGI limits on charitable deductions still apply.IRS Publication 526, Charitable Contributions

An investor contributes $5,000 at the end of each year for 30 years. Assuming a positive annual return, compared with contributing the same total ($150,000) all at once at the end of year 30, the annual-contribution plan will:

• a.Accumulate more, because earlier contributions compound for longer✓
• b.Accumulate the same amount, since the total dollars contributed are identical
• c.Accumulate less, because spreading contributions out reduces total interest
• d.Accumulate more only if the return exceeds the rate of inflation

With any positive return, earlier contributions compound for longer, so a stream of annual contributions accumulates more than the same total deposited as a lump sum at the end of the period, which earns nothing in that time. The totals contributed are identical but the interest earned is not, spreading contributions out adds interest rather than reducing it, and the advantage does not depend on beating inflation.

For a bond trading at a premium above par, the correct ordering of its three yields from lowest to highest is:

• a.Current yield, yield to maturity, nominal (coupon) yield
• b.All three yields are equal to one another, whatever price the bond trades at
• c.Yield to maturity, current yield, nominal (coupon) yield✓
• d.Nominal (coupon) yield, current yield, yield to maturity

For a bond bought at a premium, the coupon is paid on par but the investor pays more than par, so current yield (annual interest divided by price) falls below the coupon rate. Yield to maturity falls lower still because the premium is lost gradually as the bond is pulled back to par at maturity. The order from lowest to highest is yield to maturity, current yield, then coupon rate. The reverse order applies to a discount bond, and the three yields equal each other only when the bond trades at par.

A traditional IRA owner was born in 1955. Under SECURE 2.0, required minimum distributions from the IRA generally must begin:

• a.At age 73, the SECURE 2.0 age for owners born in 1951-1959✓
• b.At age 75, the SECURE 2.0 age for owners born in 1960 or later
• c.At age 72, the age set by the original SECURE Act of 2019
• d.At age 59½, when the 10% early-withdrawal penalty ends

Under SECURE 2.0 the required minimum distribution age is 73 for owners who reach age 72 after 2022 and age 73 before 2033, which covers those born from 1951 through 1959. An owner born in 1960 or later waits until 75, and age 72 was the age under the original SECURE Act before it was raised. Age 59½ is when the 10% early-withdrawal penalty stops applying, which has no connection to required distributions. A Roth IRA has no required distributions during the original owner's lifetime.IRC Sec. 401(a)(9)(C)(v) (SECURE 2.0 Act Sec. 107)

A single filer has modified adjusted gross income of $260,000, including $40,000 of net investment income. Under the net investment income tax rules, how is the 3.8% tax computed?

• a.On the whole $260,000, because income exceeds the $200,000 threshold
• b.On $40,000, the lesser of net investment income and the $60,000 excess✓
• c.On none of it, because the tax applies only to married couples filing jointly
• d.On the $60,000 excess over $200,000, which exceeds the net investment income

The 3.8% NIIT applies to the lesser of net investment income or the excess of MAGI over the threshold ($200,000 for single filers, $250,000 for joint filers). Here the excess is $60,000 and the net investment income is $40,000, so tax applies to $40,000. Taxing the whole income or the full excess misreads 'lesser of', and single filers are covered.

An investor sells a stock at a loss and buys the same stock back 15 days later. What happens to the loss for federal income tax purposes?

• a.It is disallowed permanently, and the basis of the new shares is unaffected
• b.It is allowed, but only as a deduction against ordinary income
• c.It is disallowed currently and added to the cost basis of the new shares✓
• d.It is allowed in full, because the repurchase occurred after the sale

The wash sale rule disallows a loss if the investor buys substantially identical securities within 30 days before or after the sale; the disallowed loss increases the basis of the replacement shares, so it is deferred. Full deduction ignores the 30-day window. A deduction against ordinary income is not a wash sale outcome either. Permanent loss of the deduction ignores the basis increase in the new shares.

An investor places $500 into a mutual fund on the first day of each month for a year, regardless of price. This approach is known as dollar cost averaging. What is a typical effect of this strategy?

• a.It guarantees a profit if the market ends the year higher
• b.More shares are bought when the price is low and fewer when it is high✓
• c.It buys the same number of shares each month regardless of price
• d.It guarantees that the investor will not lose money in a falling market

Fixed-dollar purchases buy more shares at low prices and fewer at high prices, which lowers the average cost per share relative to the average price. It does not guarantee profits or protect against loss in a falling market, and the share count changes with the price.