Free ARA-RETIREMENT Practice Questions

Question 1

Denise leaves her employer in June 2026 at age 57. Her pretax 401(k) permits partial distributions after separation. She needs flexible withdrawals for living expenses before age 59 1/2 and is considering an IRA rollover. No other early-distribution exception applies. Which recommendation preserves access to the money without the 10% additional tax?

Accepted Answer

Preserve enough of the former employer's 401(k) for flexible withdrawals that qualify for the separation-from-service exception.

Answer

Roll the entire balance to a traditional IRA and apply the separation-from-service exception to withdrawals from that IRA.

Answer

Convert the needed funds to a Roth IRA and immediately withdraw the newly converted principal without the 10% additional tax.

Answer

Leave the funds invested until age 59 1/2, because the separation exception does not cover withdrawals for ordinary living expenses.

Question 2

'My COBRA coverage lasts 18 months, so Medicare Part B can wait,' says Ellen, 66, in August 2026. Her employment and qualifying active-employment group health coverage both ended April 30, 2026. She had that coverage continuously from age 65 and has Medicare Part A only. What should her advisor explain about enrolling in Part B?

Accepted Answer

Her eight-month employment-based special enrollment period is still open; COBRA coverage does not restart or extend that enrollment clock.

Answer

She should enroll during October 15 through December 7, because that annual enrollment period replaces her employment-based enrollment opportunity.

Answer

She may wait until COBRA ends and then use the eight-month special enrollment period that follows loss of continuation coverage.

Answer

She must wait for the next January-through-March general enrollment period because her initial enrollment period ended after age 65.

Question 3

Leon, 64, has received Social Security retirement benefits since 2024. In 2026, he earns $36,480 in wages and takes an $18,000 traditional IRA distribution. His scheduled Social Security benefits total $26,400 before any earnings-test reduction. The 2026 earnings limit for someone below full retirement age all year is $24,480. For the annual retirement earnings test, what benefit reduction results?

Accepted Answer

$6,000

Answer

$4,000

Answer

$12,000

Answer

$15,000

Question 4

Ruth, an unmarried U.S. citizen, pays $28,000 of her granddaughter's tuition directly to the qualifying university in 2026. She also gives her granddaughter $17,000 in cash, available for immediate use. Ruth makes no other gifts that year. How should these transfers be treated for federal gift-tax reporting?

Accepted Answer

No Form 709 is required: direct tuition is separately excluded, and the $17,000 cash gift is below the annual exclusion.

Answer

The tuition payment must be combined with the cash gift before applying the annual exclusion for this granddaughter.

Answer

Both transfers require Form 709, although Ruth's lifetime exclusion may eliminate any gift tax currently payable.

Answer

Neither transfer requires Form 709, but the tuition payment reduces Ruth's remaining lifetime gift-and-estate exclusion.

Question 5

A long-term-care assessment documents substantial assistance with bathing, dressing, and transferring. The client independently eats, toilets, and manages continence, although her daughter prepares meals. Her physician certifies that these limitations, which began two weeks ago, are expected to last five months. She has no severe cognitive impairment. Which interpretation matches the federal functional criteria for being chronically ill?

Accepted Answer

Three qualifying activities of daily living are impaired, and the certified expected duration satisfies the 90-day requirement.

Answer

Four qualifying activities of daily living are impaired, because preparing meals is part of the eating activity.

Answer

Three qualifying activities of daily living are impaired, but certification must wait until 90 days of impairment have actually elapsed.

Answer

Three qualifying activities of daily living are impaired, but a separate finding of severe cognitive impairment is also required.

Question 6

An 84-year-old client requests a same-day $90,000 transfer to an unfamiliar recipient but cannot explain its purpose. A new caregiver answers questions for him and prevents a private conversation. Applicable law and firm procedures authorize a temporary hold on this transfer while suspected exploitation is reviewed. The compliance officer is available immediately. What is the advisor's best immediate response?

Accepted Answer

Use the authorized temporary hold, document the warning signs, and obtain prompt compliance review while seeking safe, private confirmation with the client.

Answer

Accept the caregiver's confirmation of the payment's purpose because the caregiver is familiar with the client's daily needs.

Answer

Obtain the client's signature confirming the request, then release the funds without further review of his understanding.

Answer

Restrict every account indefinitely and require appointment of a guardian before permitting the client to make any further withdrawal.

Question 7

For 2026, a domestic nongrantor complex trust has $12,000 of taxable interest, $4,000 of tax-exempt interest, and $18,000 of capital gain. The capital gain is properly allocated to principal and excluded from distributable net income. The trustee makes an $8,000 discretionary cash distribution to the sole beneficiary and records it against principal. There are no expenses, other distributions, or special income-allocation rules. What income does this distribution carry to the beneficiary?

Accepted Answer

$6,000 in taxable interest, plus $2,000 retaining its tax-exempt interest character.

Answer

$8,000 of taxable interest; all tax-exempt interest remains with the trust.

Answer

$8,000 of capital gain; the payment was charged to trust principal.

Answer

No taxable or tax-exempt income; the payment was recorded as a principal distribution.

Question 8

The sole shareholder-employee of an S corporation receives $80,000 of eligible W-2 compensation and $120,000 of properly classified shareholder distributions in 2026. Her salary is reasonable for her services. The company's qualified retirement plan permits an employer contribution of 25% of eligible compensation; no other contribution limit reduces the amount. What is the maximum employer contribution supported by these payments?

Accepted Answer

$20,000, because the contribution base is her $80,000 of eligible W-2 compensation.

Answer

$50,000, because salary and shareholder distributions both support employer retirement contributions.

Answer

$16,000, because the 20% rate used for a sole proprietor's adjusted earnings applies to her salary.

Answer

$30,000, because the employer contribution is based on her $120,000 shareholder distribution.

Question 9

Morgan has owned and occupied a home since 2015. Morgan's spouse, Sam, has lived there continuously since 2022 but was added to the deed only in 2025. They plan to sell in 2026 and file jointly. Neither has excluded gain from another home sale in the preceding two years, and the property has no business or rental use. How do the ownership and use requirements apply?

Accepted Answer

The $500,000 joint exclusion can apply because one spouse meets ownership and both spouses meet the use requirement.

Answer

Adding Sam to the deed restarted the ownership period for the entire property, so neither spouse currently meets that requirement.

Answer

The couple must postpone the sale until Sam has held title for two years to qualify for the joint exclusion.

Answer

Their maximum joint exclusion must be prorated according to the shorter period during which both spouses held title.

Question 10

A cash-basis taxpayer dies on May 20, 2026. A $24,000 bonus for services performed before death was neither paid nor available to him before he died. His calendar-year estate receives the bonus in July and retains it, making no beneficiary distributions in 2026. Where must the bonus be reported for federal income-tax purposes?

Accepted Answer

On the estate's Form 1041 as income in respect of a decedent.

Answer

On his final Form 1040, because the services were performed before his death.

Answer

Nowhere as income, because the right to receive the bonus receives a basis adjustment at death.

Answer

On the beneficiaries' returns only when the estate eventually distributes the bonus proceeds to them.

Free ARA-RETIREMENT Practice Questions

Domain 1: Social Security

Question 1

Domain 2: Medicare

Question 2

Domain 5: Long Term care

Question 3

Domain 7: Business Entities

Question 4

Domain 8: Retirement Plans

Question 5

Domain 9: Preserve Residence

Question 6

Domain 10: Decedent’s Final Tax Return

Question 7

Domain 12: Income Taxation of Estates and Trusts

Question 8

Domain 13: Federal Gift Tax

Question 9

Domain 15: Ethics & Professional in Serving Aging Clients

Question 10

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