AICPA Representative Tasks (verbatim). 1. Remembering & Understanding, Demonstrate an understanding of the advantages and disadvantages of different qualified retirement plans, including traditional IRAs, Roth IRAs, 401(k)s, annuities, and employer-sponsored plans. 2. Remembering & Understanding, Demonstrate an understanding of the risks associated with different investment options, including equity securities, corporate bonds and municipal bonds. 3. Remembering & Understanding, Demonstrate an understanding of planning for funding post-secondary education, including qualified tuition programs, student loans, grants and scholarships. 4.
Retirement planning centers on the tax treatment of contributions, growth, and distributions. The three tax models are: (1) pre-tax/tax-deferred (traditional), (2) after-tax/tax-free growth (Roth), and (3) nonqualified (taxable currently).
KEY: Traditional accounts favor taxpayers who expect lower marginal rates in retirement. Roth accounts favor those expecting higher rates or seeking tax diversification. When current and future rates are equal, the after-tax outcome is mathematically identical.
For taxpayers covered by an employer plan, the traditional IRA deduction phases out:
- Single: $81,000, $91,000 modified adjusted gross income (MAGI)
- MFJ (contributor covered): $129,000, $149,000
Common mistakes
- Confusing contribution limits between 401(k) and IRA. The 401(k) limit ($24,500) is separate from the IRA limit ($7,500). Taxpayers can contribute to both. Trap: "I maxed my 401(k), so I can't contribute to an IRA." Correct: the limits are independent.
- Assuming municipal bond interest is always tax-free. While federally exempt, muni interest may be subject to state tax if the bond was issued outside the taxpayer's state of residence. Trap: "muni bonds are completely tax-free." Correct: state tax treatment varies.
- Forgetting the 10% early withdrawal penalty on retirement accounts. Distributions before age 59½ generally incur a 10% penalty in addition to ordinary income tax (exceptions apply for certain hardships). Trap: "I just pay taxes on early IRA withdrawals." Correct: taxes plus 10% penalty.
Bottom line
- Traditional retirement accounts provide a current deduction with taxable withdrawals; Roth accounts offer no current deduction but tax-free qualified distributions
- 401(k) contribution limit is $24,500 for 2026 ($32,500 with catch-up for age 50+); IRA limit is $7,500 ($8,600 with catch-up), and both can be used simultaneously
- Municipal bond interest is federally tax-exempt; after-tax yield comparison divides muni yield by (1 − marginal rate)
- 529 plans grow tax-free for qualified education expenses; a $10,000 annual limit applies to K-12 tuition
Exam shortcut
"Divide muni by one-minus-rate". To find the taxable equivalent of a municipal bond, divide the muni yield by (1 − marginal rate). A 4% muni for a 32% bracket taxpayer equals 4% ÷ 0.68 = 5.88% taxable. "Beneficiary beats will". Any asset with a beneficiary designation (retirement accounts, life insurance, TOD accounts) passes directly to the named beneficiary, regardless of will provisions. Check designations after divorce or death.
The full lesson (about 5,857 words, 39 min read) adds 10 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- I.D1
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