Free CFP Exam Formula and Limits Sheet (2026)
Every CFP formula you need on the test, grouped by topic, rendered with full math notation. 228 formulas across 8 topics, calibrated to the 2026 syllabus. Free forever, no signup required.
All CFP Formulas
General Principles of Financial Planning
2 items
Net worth formula
Assets at fair market value; liabilities at outstanding balances.
Savings rate
Typical targets: 10–20% of gross income depending on retirement timeline.
Risk Management and Insurance Planning
2 items
Disability income needs
Other income includes Social Security disability, group LTD, spouse income. Replace 60–70% of gross income.
Homeowners coinsurance 80% rule
If insurance carried of replacement cost, losses covered in full (up to policy limit).
Investment Planning
11 items
Holding period return (HPR)
= beginning price, = ending price, = distributions/dividends received.
Sharpe ratio
Excess return per unit of total risk (). Use to rank undiversified portfolios.
Information ratio
= benchmark return, = tracking error (std dev of active returns).
Covariance and correlation
Range: .
Current yield (bond)
Simplified yield; ignores capital gain/loss at maturity.
Treynor ratio
Excess return per unit of systematic risk (). Use to rank well-diversified portfolios.
Portfolio standard deviation (2-asset)
= correlation between assets 1 and 2.
Approximate yield to maturity (YTM)
= annual coupon, = face value, = price, = years to maturity.
Beta formula
Measures sensitivity of asset return to market return.
Margin requirement and buying power
Initial margin: 50% (Reg T). Maintenance margin: typically 25–30%.
Margin call price
Price at which equity falls to maintenance margin level, triggering a margin call.
Tax Planning
7 items
SALT deduction cap (2026)
Deduction for state and local taxes capped at $40,000 ($20,000 MFS). Phases out above $500,000 MAGI (OBBBA 2025). Prior law cap was $10,000.
Tax-equivalent yield (TEY)
Compares muni bond yield to equivalent taxable yield. Higher MTR → higher TEY advantage.
Taxable income formula (individual, 2026)
2026 standard deductions: Single $16,100; MFJ $32,200; HoH $24,150.
After-tax return
Applies to fully taxable instruments. Adjusts nominal yield for investor's marginal bracket.
Effective vs. marginal tax rate
Marginal rate = rate on the last dollar of income. Effective rate is always marginal rate.
AMT calculation
2026 exemptions: Single $90,100; MFJ $140,200 (PO $500k/$1M OBBBA).
Kiddie tax threshold (2026)
Net unearned income of a child subject to kiddie tax: amount above (2× standard deduction for dependents). Taxed at parent's marginal rate.
Retirement Savings and Income Planning
11 items
Replacement ratio
Typical target: 70–80% of pre-retirement gross income.
2026 SIMPLE IRA contribution limit
Employee elective deferral: $17,000.
Catch-up age 50+: additional $4,000 (total $21,000).
Employer match: dollar-for-dollar up to 3% of compensation, or 2% non-elective.
2026 401(k)/403(b)/457 contribution limit
Elective deferral limit: $24,500.
Catch-up age 50+: additional $8,000 (total $32,500).
Catch-up age 60–63: additional $11,250 (SECURE 2.0 super-catchup; total $35,750).
Required minimum distribution (RMD)
First RMD by April 1 of year after turning 73. Subsequent RMDs by Dec 31.
Section 415 annual additions limit (2026)
Defined contribution plan annual additions limited to lesser of:
100% of participant's compensation, or $72,000.
Includes employee deferrals + employer contributions + after-tax contributions.
ADP test (401(k) nondiscrimination)
Actual Deferral Percentage test: HCE average deferral rate NHCE rate + 2%, OR 1.25 × NHCE rate (whichever is less restrictive). Applies to employee elective deferrals in a traditional 401(k).
Retirement capital needs (present value)
= discount rate, = inflation rate, = years in retirement. Use TVM: PMT, N, I, FV=0, solve PV.
ACP test (401(k) nondiscrimination)
Actual Contribution Percentage test: same 2-percentage-point / 1.25× rule as ADP, but applied to employer matching contributions and employee after-tax contributions. Run in parallel with ADP for plans that offer a match.
2026 IRA contribution limit
Traditional and Roth IRA: $7,500 per person.
Catch-up age 50+: additional $1,100 (total $8,600).
Contribution is phased out at higher MAGI for Roth (and for Traditional deductibility when covered by a workplace plan) — check current IRS tables for exact thresholds.
2026 SEP-IRA contribution limit
Lesser of 25% of employee's compensation or $72,000.
Employer-only contributions; uniform percentage across all eligible employees.
For self-employed, the effective rate is ~18.59% of net self-employment income (accounts for the deduction of half the SE tax and the contribution itself).
Safe harbor 401(k) exemption
A safe harbor 401(k) plan is exempt from ADP, ACP, and top-heavy testing. Requires either (a) 3% non-elective contribution for all eligible employees, or (b) matching: 100% on first 3% deferred + 50% on next 2% (QACA variants allowed). All safe-harbor contributions must be fully vested immediately.
Estate Planning
7 items
Unified credit / lifetime exemption (2026)
Lifetime estate and gift tax exemption: $15,000,000 per person (OBBBA 2025, permanent).
Spouses may port unused exemption (portability election on Form 706 within 9 months of death, extended to 5 years).
Gift tax annual exclusion (2026)
$19,000 per donee per year (indexed for inflation). Married couple gift-splitting: $38,000 per donee.
Exclusion available for present interest gifts only; future interest gifts (e.g., most trusts) do not qualify.
3-year lookback rule (IRC §2035)
Transfers within 3 yrs of death pulled into gross estate if: (a) release of retained interest (§2036–§2038), or (b) transfer of life insurance on decedent.
Other gifts NOT pulled back — only gift tax paid is added to tentative tax base.
Estate tax calculation
2026 top rate: 40%. Unified credit offsets tax on exemption amount ($15M per person, OBBBA permanent).
Life insurance in the gross estate (IRC §2042)
Life insurance proceeds are included in the decedent's gross estate if (a) payable to the estate, OR (b) the decedent held any incident of ownership (right to change beneficiary, borrow against policy, assign, surrender, etc.). Transfer of ownership more than 3 years before death removes inclusion.
Gross estate — definition and scope
Gross Estate = probate assets + non-probate assets under IRC §2033–§2044 (includes lifetime transfers with retained interests).
Taxable Estate = Gross − marital − charitable − debts − expenses.
Generation-skipping transfer tax (GSTT)
Flat tax of 40% on transfers to skip persons (2+ generations below transferor, or unrelated persons years younger).
GSTT exemption: $15,000,000 per transferor (same as estate/gift exemption, 2026).
CFP Limits and Thresholds
Professional Conduct and Regulation
16 items
The Standards impose three enforceable duties: Duty of Loyalty, Duty of Care, and Duty to Follow Client Instructions.
The three exceptions to CFP confidentiality are required by law, informed written consent, and self-defense in a legal/disciplinary proceeding.
The conflict-of-interest hierarchy is first avoid the conflict, and if not possible, disclose and manage it so advice stays independent.
A CFP professional must self-report criminal charges, civil actions, regulatory investigations, and bankruptcy filings to the CFP Board within 30 days.
Under current Procedural Rules (Article 17.7), revocation permanently bars the individual from ever obtaining CFP certification, with no reinstatement path.
FDIC insurance covers $250,000 per depositor, per institution, per ownership category, and an RIA registers with the SEC at $110 million+ AUM.
SIPC protects brokerage customers when a firm fails with missing assets up to $500,000 per customer, of which no more than $250,000 may be cash.
An investment adviser with $100 million+ AUM registers with the SEC, below that registers with the state, with a $100M-$110M buffer zone of choice.
Under the BSA, a Currency Transaction Report is filed for cash transactions exceeding $10,000, and deliberately depositing under that to evade it is structuring.
CFP continuing education requires 30 hours every two-year period, including 2 hours of ethics.
Under FCRA, bureaus have 30 days to investigate disputes, most negative info stays 7 years, and Chapter 7 bankruptcy remains up to 10 years.
FINRA Rule 2165 permits a temporary hold on a senior's suspicious disbursement for up to 15 business days, extendable to a total of 25 business days.
Under TILA, home equity loans and HELOCs carry a 3 business day rescission window, extended to 3 years from closing if required disclosures were missing.
ERISA was enacted in 1974 and imposes a prudent expert standard, stricter than common law's prudent person standard.
Under the CFP Board's Standards (effective October 2019), fiduciary duty applies whenever a professional provides financial advice or financial planning.
Regulation Best Interest (Reg BI) is the SEC's 2019 broker-dealer standard that sits between suitability and the CFP Board fiduciary standard in strictness.
General Principles of Financial Planning
27 items
The OBBBA auto loan interest deduction is up to $10,000/year above-the-line for new US-assembled personal vehicles, available only for tax years 2025-2028.
Mortgage interest is deductible on acquisition debt up to $750,000, while HELOC interest is deductible only if proceeds buy, build, or improve the home.
Student loan interest is deductible up to $2,500/year above-the-line, and PSLF forgives tax-free after 120 qualifying payments while IDR forgiveness is taxable.
An inverted yield curve, where short-term rates exceed long-term rates, is a leading indicator that precedes recessions by 6-18 months.
A recession is defined as two consecutive quarters of declining GDP, and the unemployment rate is a lagging indicator.
Under the Rule of 72, years to double equals 72 divided by the annual rate, so 8% doubles in about 9 years.
A perpetuity's present value is PMT / r, while a growing perpetuity's is first payment / (r - g).
An annuity-due value equals the ordinary annuity value times (1 + r), the exact factor by which a wrong calculator mode is off.
The Fisher real rate equals (1 + nominal) / (1 + inflation) - 1, so 7% nominal with 3% inflation gives 3.88%, not the 4% approximation.
Education costs inflate at 4-6% per year versus general CPI of 2-3%, and using the wrong rate understates costs by 25-35% over a 13-year horizon.
Under IRC §2503(e), tuition paid directly to an educational institution is an unlimited gift-tax exclusion, but only tuition qualifies, not room, board, or fees.
The 529-to-Roth rollover caps at $35,000 lifetime, requires the 529 be open at least 15 years, and is subject to annual Roth limits.
On FAFSA a parent-owned 529 is assessed at 5.64%, a UTMA/UGMA at 20%, and a grandparent-owned 529 at 0%.
529 superfunding lets a donor elect to spread one large contribution over 5 years of annual gift exclusions, front-loading 5x the exclusion per beneficiary ($95,000 single / $190,000 MFJ in 2026).
The AOTC maxes at $2,500 per student—100% of the first $2,000 plus 25% of the next $2,000—with 40% (up to $1,000) refundable.
Federal student loan annual limits progress $5,500/$6,500/$7,500, with aggregate caps of $31,000 (dependent) and $57,500 (independent).
PSLF forgives federal loans tax-free after 120 qualifying payments under an IDR plan while employed full-time by a qualifying public-service employer.
A Section 2503(c) trust qualifies for the annual exclusion without a Crummey notice if the beneficiary can withdraw all assets at age 21.
A Crummey notice gives beneficiaries a temporary withdrawal right of usually 30-60 days, converting a future interest into a present interest so the annual exclusion applies.
The kiddie tax applies the parent's marginal rate to a child's unearned income above $2,700 for children under 19 or full-time students under 24.
The CFP Board generally considers 80-90% the minimum acceptable Monte Carlo retirement success probability.
Required minimum distributions (RMDs), the mandatory withdrawals from traditional accounts, begin at age 73.
The emergency fund ratio targets 3-6 months of essential expenses for stable dual-income households and 6-12 months for single-income, self-employed, or variable-income households.
The savings ratio benchmark is annual savings divided by gross income at about 15%, while the debt-to-asset ratio signals concern above 50%.
Under the 28/36 rule, front-end DTI should be at or below 28% and back-end DTI at or below 36%, both using gross income.
The 50/30/20 framework allocates after-tax income 50% to needs, 30% to wants, and 20% to financial goals (savings plus extra debt repayment).
The cash-flow prioritization hierarchy is employer match first, emergency fund second, and high-interest debt third.
Risk Management and Insurance Planning
21 items
An insurer can void a policy for material misrepresentation only within the contestability period, typically two years.
Insurable interest must exist for property/casualty at the time of loss but for life insurance only at inception (policy issuance).
A standard homeowners policy covers only about $2,500 of home-business equipment under its sublimit and excludes business liability entirely.
A buy-sell agreement funded by life insurance needs n x (n-1) policies under a cross-purchase but only n policies under an entity-purchase.
COBRA lasts 18 months after job loss and 36 months after divorce, death, or dependent loss, costing up to 102% of the full premium.
A COLA rider increases benefits during a claim at typically 3% compound annually, while a split definition switches from own-occ to any-occ after 2-5 years.
SSDI uses the strictest standard, inability to engage in any substantial gainful activity, with a five-month waiting period and a condition expected to last 12+ months or result in death.
Medicare covers only up to 100 days of skilled nursing after a qualifying 3-day hospital stay, with copays after day 20, and never custodial care.
A tax-qualified LTCI policy pays when the insured cannot perform 2 of 6 ADLs for at least 90 days, OR has severe cognitive impairment, an independent trigger.
The annuity early-withdrawal penalty before age 59½ is 10% on the taxable portion, under IRC 72(q) for non-qualified and 72(t) for qualified contracts.
Under IRC 1035, annuity-to-annuity and life-to-annuity exchanges are permitted but annuity-to-life is prohibited, with partial 1035s requiring a ~180-day wait before withdrawals.
A policy becomes a MEC by failing the 7-pay test, flipping withdrawals and loans to LIFO with gain taxed as ordinary income plus a 10% penalty before age 59½.
Under IRC Section 79, the first $50,000 of employer-paid group term is tax-free; excess imputed income = excess ÷ $1,000 × Table I rate × 12.
A 1035 exchange permits life-to-life and life-to-annuity transfers tax-free, but annuity-to-life is prohibited.
Key person death benefits are income-tax-free only if Section 101(j) notice and written consent are obtained before the policy is issued.
BOE insurance is symmetric the opposite way from key person: BOE premiums are deductible and benefits taxable, while key person premiums are not deductible and the benefit is tax-free.
Individual disability policies typically replace 60-70% of pre-disability gross income, which approximates 100% of after-tax pay because the benefits are tax-free.
The Social Security survivor blackout period runs from when the youngest child turns 16 until the surviving spouse reaches age 60 (or 50 if disabled).
Replacing a policy restarts a new 2-year contestability period and resets the 2-year suicide exclusion, and a 1035 exchange does NOT eliminate either.
A group life conversion privilege lets you convert to individual coverage within 30 days of leaving, with no evidence of insurability, typically as whole life at attained-age rates.
AM Best's top rating is A++ (Superior), the minimum recommended threshold is A- (Excellent), and B+ actually means "Good" in their scale.
Investment Planning
32 items
REIT ordinary dividends are eligible for the 20% Section 199A deduction, giving a maximum effective rate of 29.6% (37% x 80%).
The wash sale window is 61 days (30 before + the sale date + 30 after) and applies across all accounts including IRAs and spousal accounts.
Capital losses offset same-character gains first, then cross over, then up to $3,000/year ($1,500 MFS) against ordinary income, with the excess carried forward indefinitely.
OID is accrued annually as ordinary income using the constant yield method, creating phantom income, and each accrual increases the bondholder's adjusted basis.
Beta measures systematic risk only, standard deviation measures total risk, and R-squared equals the correlation coefficient squared.
Holding 20 to 30 uncorrelated positions across sectors eliminates virtually all unsystematic risk but cannot reduce systematic risk.
Modified duration of 6.0 means a portfolio loses about 6% if rates rise by 100 basis points.
Momentum strategies exploit trend persistence over an intermediate horizon of 3-12 months, while contrarian strategies rely on mean reversion over several years.
The Fed's dual mandate is maximum employment and stable prices, targeting roughly 2% inflation, tightening in expansion and easing in contraction.
Dollar-cost averaging produces a lower average cost per share than the simple average price but underperforms lump-sum investing about two-thirds of the time.
An inverted yield curve has preceded every U.S. recession since the 1960s, typically by 12-18 months, making it a probability signal not a precise timer.
Under the normal distribution about 68% of returns fall within one standard deviation of the mean, 95% within two, and 99.7% within three.
A portfolio that gains +25% then loses -20% has an arithmetic mean of 2.5% but a geometric mean of 0%, since geometric is always ≤ arithmetic.
Correlation ranges from -1 (perfect opposition, maximum diversification) to +1 (perfect tandem, no diversification benefit).
R-squared above 0.70 means use Treynor (beta captures risk) while below it means use Sharpe (total risk via standard deviation).
The CML plots risk as standard deviation and applies to efficient portfolios only, while the SML plots risk as beta and applies to all assets.
Asset location places bonds/REITs in a traditional IRA, aggressive growth in a Roth, and low-turnover index funds in a taxable account.
In core-satellite, the core holds 60-80% of assets in low-cost index funds and satellites hold 20-40% in active or alternative strategies.
The convexity adjustment equals 0.5 x convexity x (yield change squared) and is always positive for standard non-callable bonds, benefiting the holder in both directions.
The Gordon Growth Model values a stock as D1 / (r - g), where D1 (next dividend) equals D0 x (1 + g), never D0 itself.
Modified duration equals Macaulay duration / (1 + YTM), and for a zero-coupon bond Macaulay duration equals maturity.
Per Brinson, Hood, and Beebower, asset allocation explains over 90% of portfolio return variation, and a manager's track record should span a full market cycle of 7-10 years.
Nominal return = (1 + real) x (1 + inflation) - 1, so 7% real with 2.5% inflation = 9.675%, not the additive 9.5% trap.
In a core-satellite structure the passive index core holds 70-80% while active satellites target 20-30% of the portfolio.
Owning stock at $80 and writing a $90 call for a $3 premium gives a max profit of $13/share and a breakeven of $77.
Buy-and-hold's tax deferral adds roughly 50-100 bps of effective annual return over a 30-year horizon versus frequent realization.
Municipal bonds belong in taxable accounts only, because placing munis in an IRA converts tax-free income into ordinary taxable income on distribution.
Covered call max profit equals (strike − cost) + premium and breakeven equals cost − premium, so omitting the premium understates the gain.
Under Section 1031 you must identify the replacement property within 45 days and close within 180 days, both running from the sale date.
The hedge fund 2-and-20 structure charges a 2% management fee every year plus a 20% performance fee only on profits above the high-water mark.
Collectibles are taxed at a maximum LTCG rate of 28%, which is 8 points above the standard 20% long-term rate.
A REIT must distribute 90%+ of taxable income as dividends, which are ordinary income but qualify for the Section 199A 20% deduction.
Tax Planning
25 items
Under OBBBA the SALT cap is $40,000, phasing down to a $10,000 floor for MAGI above $500,000.
The estimated-tax safe harbor avoids penalty by paying the lesser of 90% of current-year tax or 100% of prior-year tax, rising to 110% if prior AGI exceeded $150,000.
OBBBA's above-the-line non-itemizer cash charitable deduction is capped at $1,000 single / $2,000 MFJ and is unavailable for donor-advised-fund gifts.
OBBBA's overtime-premium exclusion is up to $12,500 single / $25,000 MFJ, phasing out above $150,000 single / $300,000 MFJ MAGI.
For 37%-bracket filers, OBBBA caps the itemized charitable deduction's value at 35 cents per dollar, so a $10,000 gift saves $3,500, not $3,700.
Under OBBBA, up to $25,000 of qualified tip income is excluded from federal income tax but the wages remain subject to FICA.
Kiddie tax layers a child's unearned income: the first $1,350 is tax-free, the next $1,350 at the child's rate, and amounts above $2,700 at the parents' marginal rate.
Under OBBBA, itemized charitable contributions below 0.5% of AGI produce no deduction, and this floor applies to both cash and noncash gifts.
Under OBBBA the child tax credit is $2,200 per qualifying child under 17, refundable up to $1,700.
Self-employment tax equals net SE income times 92.35% times 15.3%, plus 2.9% Medicare above the Social Security wage base, with half deductible above-the-line.
QSBS under Section 1202 allows up to 100% gain exclusion on original-issue C-corp stock held 5+ years in a company with $50M or less in gross assets.
A simple trust gets a $300 personal exemption, a complex trust $100, and the Form 1041 estate filing threshold is $600 gross income.
Under the SECURE Act most non-spouse beneficiaries must empty an inherited IRA within 10 years of death, and IRD assets receive no stepped-up basis.
A Qualified Opportunity Zone investment must be made within 180 days of the gain, deferring it until December 31, 2026, with all appreciation permanently excluded if held 10+ years.
Donated cash is deductible up to 60% of AGI while long-term appreciated securities donated at FMV are capped at 30% of AGI with a 5-year carryforward.
A qualified charitable distribution lets IRA owners age 70½+ transfer up to $111,000/year directly to charity, excluded from gross income and satisfying the RMD.
Section 1033 defers gain if you reinvest involuntary-conversion proceeds in similar-or-related-use property within 2 years, or 3 years for condemned real property.
Under Section 453 installment sales, depreciation recapture must be recognized in full in the year of sale, with only gain above recapture eligible for installment treatment.
Section 1245 recaptures depreciation on personal property as ordinary income, while Section 1250 caps real-property straight-line recapture at 25%.
A Section 83(b) election on restricted stock must be filed within 30 days of grant and is not available for RSUs.
For divorce agreements executed after December 31, 2018, alimony is neither deductible by the payor nor includable by the recipient.
ISO shares get full LTCG treatment only if held at least 2 years from the grant date and 1 year from the exercise date, else a disqualifying disposition.
A CRAT or CRUT must pay out between 5% and 50% of value annually and pass a 10% minimum charitable remainder test.
Cash to a private foundation is deductible up to 30% of AGI while LTCG property is limited to 20% of AGI and generally deducted at cost basis.
A qualified conservation easement is limited to 50% of AGI (100% for qualified farmers) with a 15-year carryforward.
Retirement Savings and Income Planning
33 items
Capital preservation keeps principal intact for heirs, while capital liquidation spends it down to roughly zero and requires about 30% less starting capital.
Under the 4% rule you withdraw 4% of the initial balance then adjust that dollar amount for inflation, so required capital equals the annual gap divided by 0.04 (every $1 of need needs $25).
Delayed retirement credits add 8% of PIA for each year Social Security is deferred past FRA up to age 70, a permanent 24% increase over three years.
Spousal Social Security benefits max at 50% of the higher earner's PIA, survivor benefits equal 100% of the deceased's benefit, and divorced-spouse benefits need a 10-year marriage.
Social Security early claiming cuts benefits by 5/9 of 1% per month for the first 36 months and 5/12 of 1% per month beyond, a permanent 30% reduction at age 62.
For MFJ, Social Security is up to 85% taxable once provisional income exceeds $44,000, with the 50%-taxable tier starting at $32,000.
The Medicaid lookback reviews transfers within 60 months, and the penalty period starts at the eligibility date, not the gift date.
For Medicaid the single applicant countable asset limit is ~$2,000 while the community spouse resource allowance (CSRA) is ~$154,140 in 2026.
A first-party d(4)(A) SNT requires the beneficiary be under 65 at funding and carries Medicaid payback at death, while a third-party SNT has no payback.
A SEP contribution is capped at 25% of compensation, or 20% of net self-employment income for a sole proprietor.
A 403(b) participant with 15+ years of service can add a $3,000 catch-up (lifetime max $15,000) stacked on top of the age-50 catch-up.
A SIMPLE IRA distribution within the first 2 years of participation triggers a 25% early-withdrawal penalty instead of the standard 10%.
Qualified plan loans cap at the lesser of $50,000 or 50% of the vested balance, repaid over 5 years, with a $10,000 minimum if the vested balance is under $20,000.
Employer matching vests under cliff in 3 years or graded reaching 100% by year 6, while employee deferrals are always 100% immediately vested.
A plan is top-heavy when over 60% of assets belong to key employees, triggering a 3% minimum contribution for all non-key participants.
The ADP test caps the HCE average deferral at NHCE × 1.25 or NHCE + 2 percentage points, the latter capped at 2× the NHCE average.
Section 409A limits non-qualified plan distributions to six permitted events, and any violation triggers a 20% penalty plus interest on the entire deferred amount.
For key employees (top 50 officers) of public companies, Section 409A requires post-separation distributions be delayed six months.
Under Section 280G, golden-parachute penalties apply when total payments reach 3x the base amount, with a 20% excise tax on the excess over 1x base.
A SEP must cover any employee who is age 21, worked for the employer 3 of the last 5 years, and earned at least $750.
Distributions from an employer plan after separation from service at age 55+ are penalty-free, but this exception is lost once the funds are rolled to an IRA.
The safe harbor 401(k) basic match is 100% on the first 3% of pay plus 50% on the next 2% of deferrals.
The penalty for missing an RMD is 25% of the shortfall, reduced to 10% if corrected within the SECURE 2.0 correction window.
SEPP payments under §72(t) must continue for the longer of 5 years or until age 59½, and modifying them early triggers the 10% penalty retroactively on all prior distributions.
The age-55 separation-from-service penalty exception applies to employer plans only and dies upon rollover to an IRA, while qualified public-safety employees qualify at age 50.
The first-time homebuyer penalty exception is capped at $10,000 (IRAs only) and the birth/adoption exception is capped at $5,000.
Roth-converted amounts withdrawn within five years face the 10% penalty (no additional income tax) for those under age 59½.
Each year of delaying Social Security from FRA to age 70 adds 8%, while a pure spousal benefit caps at 50% of the higher earner's PIA at FRA and gains nothing from delay.
Provisional income equals AGI plus tax-exempt interest plus 50% of Social Security benefits, and for MFJ benefits become taxable above $32,000 and up to 85% taxable above $44,000.
A QLAC can delay payments to as late as age 85 and is excluded from IRA RMD calculations up to $200,000.
Section 1042 ESOP gain deferral requires C corporation stock, the ESOP to own at least 30% after the sale, and reinvestment in qualified replacement property within 12 months.
A Section 303 stock redemption gets capital gains (not dividend) treatment only if the decedent's stock exceeds 35% of the adjusted gross estate.
An installment sale to an IDGT prices the note at the applicable federal rate (AFR) and seeds the trust with roughly 10% of the purchase price for economic substance.
Estate Planning
21 items
For spousal JTWROS, IRC Section 2040(b) includes exactly 50% in the first decedent's estate regardless of contribution, while non-spousal JTWROS uses the consideration-furnished test defaulting to 100%.
Community property gets a double step-up on both halves at the first death under IRC Section 1014(b)(6), recognized in nine states.
IRC Section 2035(a)'s three-year lookback pulls back into the estate only life insurance transfers and gift taxes paid within 3 years of death, not completed gifts of stock or cash.
A qualified disclaimer under IRC Section 2518 must be in writing, made within 9 months, with no prior acceptance of benefits and no direction from the disclaimant.
Most states require a valid will to be in writing, signed by the testator, and witnessed by at least two disinterested parties.
Revocable living trust assets are included in the grantor's gross estate under Section 2038 because the grantor retained the power to revoke.
A GST skip person is someone two or more generations below the transferor, or for unrelated individuals someone more than 37.5 years younger.
Form 706 (estate tax) is due 9 months after death, while Form 709 (gift tax) is due April 15.
Both Section 303 stock redemption and Section 6166 installment payments require the closely held business exceed 35% of the adjusted gross estate.
Section 6166 defers estate tax over 14 years: 4 years interest-only then 10 years of principal and interest, with a 2% first-tier rate.
QTIP assets are included in the surviving spouse's gross estate under Section 2044, while ILIT death benefits are excluded under Section 2042.
ILIT Crummey withdrawal windows typically last 30-60 days, and the five-and-five lapse limitation covers the greater of $5,000 or 5% of trust corpus.
A non-citizen surviving spouse cannot take the marital deduction directly and requires a QDOT under Section 2056A, since only citizenship—not residency or green-card status—qualifies.
A QTIP trust under Section 2056(b)(7) gives the surviving spouse all income annually but is pulled back into that spouse's estate at death under Section 2044.
An IDGT must be seeded with a gift of roughly 10% of the sale price, and the installment note must charge at least the AFR to avoid being a disguised gift.
A Section 1042 ESOP rollover requires C corporation stock held at least 3 years, reinvested in qualified replacement property within 12 months.
Section 6166 requires a closely held business exceed 35% of the adjusted gross estate and allows up to 5 years interest-only plus 10 annual installments (14 years total).
QDRO distributions taken directly from a qualified plan escape the 10% early-withdrawal penalty even before age 59½, but IRAs are divided instead under Section 408(d)(6).
A transfer is incident to divorce under Section 1041 if it occurs within one year of the marriage ending or is related to the cessation within six years.
A first-party d4A SNT requires the disabled beneficiary be under age 65 at establishment and contain a Medicaid payback provision.
ABLE accounts require disability onset before age 26, and balances up to $100,000 are disregarded for SSI, above which SSI is suspended (not terminated).
Psychology of Financial Planning
13 items
Of the four money scripts—avoidance, worship, status, and vigilance—only vigilance consistently correlates with positive financial outcomes.
Under prospect theory, losing a dollar hurts roughly twice (2x) as much as gaining a dollar feels good, producing the disposition effect.
Automatic 401(k) enrollment with an opt-out default produces 90%+ participation versus only 50-60% under an opt-in default.
Under Prospect Theory, losses feel about twice (2x) as painful as equivalent gains feel pleasurable, which produces the disposition effect.
The PIPES framework for money conflict sources stands for Power dynamics, Infidelity, Patterns (intergenerational), Enabling, and Spending vs. saving.
Financial infidelity requires deliberate concealment, so if nothing is hidden it is only a disagreement, and enabling vs. support is judged by the bridge-to-independence vs. house-of-dependence test.
The motivational interviewing OARS framework consists of open-ended questions, affirmations, reflective listening, and summaries.
The five Transtheoretical Stages of Change are precontemplation, contemplation, preparation, action, and maintenance.
Active listening's five components are attending, paraphrasing, reflecting feelings, summarizing, and clarifying, with reflecting feelings the most advanced and most tested.
The DEQS bad-news framework requires delivery that is direct and early, empathetic, quantified, and solution-oriented, never by email.
In a market crash the planner recommends a 48-72 hour cooling-off period and, if the client still insists, moves 10-15% to cash.
After a spouse's death the planner defers all irreversible decisions for at least six months while ensuring liquidity for 30-60 days of expenses.
After sudden wealth the planner parks funds in a safe liquid vehicle for 60-90 days before deploying capital under a comprehensive plan.