Free NASAA Series 65 (Uniform Investment Adviser Law Examination) Client Investment Recommendations and Strategies Practice Questions
Client investment recommendations and strategies is the largest section on the NASAA Series 65 exam (NASAA). Questions cover asset allocation, modern portfolio theory, tax considerations, retirement planning, behavioral finance, and suitability standards.
Sample Questions
Question 1
Easy
All of the following accurately describe a Roth IRA EXCEPT:
Solution
D is correct. Roth IRA contributions are made with after-tax dollars and are NOT deductible, so they do not reduce the owner's taxable income in the contribution year. The trade-off is that qualified withdrawals of both contributions and earnings come out federal-income-tax-free, and the original owner faces no lifetime required minimum distributions. The statement that contributions reduce current taxable income describes a Traditional (deductible) IRA, not a Roth, making it the exception.
Question 2
Medium
Which statement about Section 529 college savings plans is correct?
Solution
B is correct. In a 529 plan, the account owner (typically a parent or grandparent) retains legal control over the account: she directs investment elections, authorizes distributions, and may change the designated beneficiary to another eligible family member at any time. The beneficiary has no right to demand withdrawals or redirect the account, which is one reason 529 assets receive favorable treatment for federal financial-aid purposes compared to assets held in the student's name.
Question 3
Hard
A 74-year-old client draws from several accounts during retirement. All of the following statements about the tax treatment of her distributions are accurate EXCEPT:
Solution
B is correct. Distributions from a traditional IRA are taxed entirely as ordinary income; the character of the income earned inside the account—qualified dividends, long-term capital gains, or interest—is lost on distribution, so none of it receives preferential capital gains rates. The statement claiming capital gains treatment on internal qualified dividends is therefore false and is the exception. The other statements are accurate: traditional IRA RMDs are ordinary income, an original owner's Roth IRA has no lifetime RMD, and a qualified charitable distribution can satisfy the RMD while being excluded from taxable income.