Your FREE CFP Flashcards 2026 – 250+ Cards

At ALL times when providing Financial Advice to a client. It has three parts: Duty of Loyalty, Duty of Care, and Duty to Follow Client Instructions.

Loyalty (client's interest above your own; avoid/disclose & manage conflicts), Care (prudent professional given the client's goals), and Follow Client Instructions. Mnemonic: L-C-I.

Place the client's interests above the planner's and the firm's; avoid material conflicts of interest, or fully disclose, obtain informed consent, and manage them.

Act with the care, skill, prudence, and diligence a prudent professional would exercise given the client's goals, risk tolerance, and circumstances.

Act with honesty/integrity/competence/diligence; act in the client's best interests; exercise due care; avoid/disclose/manage conflicts; maintain confidentiality/privacy; reflect positively on the profession.

A conflict a reasonable client would consider important. Disclosure ALONE is not enough — the CFP must also obtain informed consent AND manage the conflict.

The CFP and ALL related parties receive no sales-related compensation; paid solely by client fees (hourly, flat, % of AUM). Any commission or 12b-1 fee to a related party disqualifies the term.

Earns BOTH fees and commissions (sales-related compensation). Must clearly disclose both and must NOT imply 'fee-only.'

More than a de minimis benefit tied to a client buying/selling assets: commissions, trailing commissions, 12b-1 fees, markups, transaction fees, revenue sharing, referral fees.

Financial Advice = a communication reasonably viewed as a recommendation. Financial Planning = Financial Advice that INTEGRATES relevant elements of the client's circumstances (triggers the 7 Practice Standards).

1) Understand circumstances; 2) Identify & select goals; 3) Analyze current & alternatives; 4) Develop recommendations; 5) Present; 6) Implement; 7) Monitor & update.

When the CFP provides/agrees to provide Financial Planning, represents they will, the client reasonably believes so, OR the advice requires planning per the Integration Factors. (Fiduciary duty applies to ALL advice.)

Number of relevant elements affected; portion/amount of assets affected; length of time affected; effect on overall risk exposure; barriers to implementation. More elements → planning is required.

If information is insufficient, the CFP must LIMIT the scope of the engagement (with the client's agreement) or TERMINATE — never proceed by guessing.

Private censure (only non-public) → public censure / letter of admonition → suspension (up to 5 yrs) → revocation (permanent for a certificant) → temporary/permanent bar (for non-certificants).

CFP Board's peer-review body of CFP professionals and public members that adjudicates alleged violations; standard of proof = preponderance of the evidence; appeals go to the Appeals Commission.

A CFP must notify CFP Board within 30 days of a felony/relevant-misdemeanor charge/conviction, regulatory action, license suspension/revocation, certain customer complaints ($\ge$$5,000), personal bankruptcy, or a tax lien.

Federal law governing RIAs; imposes a fiduciary duty; requires registration and Form ADV disclosure. Adviser test = (A) compensation, (B) business, (C) advice about securities.

Part 1 = check-the-box business info; Part 2A = 'the brochure' (plain-English fees, conflicts, discipline); Part 2B = brochure supplement; Part 3 / Form CRS = client relationship summary.

May register with SEC at $100M AUM; MUST register at $110M; need not withdraw until below $90M. Mid-sized $25M–$100M generally register with the state.

SEC standard for broker-dealers' recommendations to retail customers — higher than suitability but NOT a full fiduciary duty. Four obligations: Disclosure, Care, Conflict of Interest, Compliance.

Fiduciary (RIA, CFP) > Reg BI (broker-dealer) > Suitability (old broker standard). A CFP is always a fiduciary as to Financial Advice, regardless of the firm's regulatory standard.

'Truth in securities' / new-issue law: governs the primary market — registration of new securities and prospectus disclosure. ('33 = issue/new issues/prospectus.)

Created the SEC; governs the secondary market — exchanges, broker-dealers, reporting (10-K/10-Q/8-K), antifraud (Rule 10b-5), insider trading. ('34 = trading/SEC.)

Regulates mutual funds and other investment companies (closed-end funds, UITs, ETFs) — organization, leverage, governance, fees, disclosure.

Chapter 7 = liquidation; a trustee sells nonexempt assets to pay creditors. Chapter 13 = wage-earner reorganization; a 3–5 year repayment plan from future income.

Recent taxes, most student loans (absent undue hardship), child/spousal support, debts from fraud/embezzlement, DUI-injury, and government fines generally survive bankruptcy.

Qualified (ERISA) retirement plans are generally FULLY protected from creditors; IRAs are protected up to an inflation-adjusted federal cap.

Financial-privacy law: institutions must give a privacy notice, explain information sharing, offer an opt-out of sharing NPI with nonaffiliated third parties, and safeguard data.

Governs credit reports and reporting agencies: consumer access, the right to dispute errors, and limits on who may pull a report.

Requires disclosure of credit terms — the APR, finance charges, total cost — and a right of rescission on certain home-equity loans.

Prohibits credit discrimination based on race, sex, age, marital status, religion, national origin, or receipt of public assistance.

National Association of Insurance Commissioners: a coordinating, standard-setting body of state regulators that writes MODEL laws. It is NOT a federal regulator — insurance is state-regulated.

Disclosure (material facts/conflicts), Care (reasonable-basis best interest), Conflict of Interest (written policies to address conflicts), Compliance (policies for overall compliance). Mnemonic: DCCC.

CFP professional (advice), RIA (Advisers Act), ERISA plan fiduciary, trustee/executor/attorney-in-fact. NOT a broker-dealer under Reg BI (best-interest, not full fiduciary).

Net-worth snapshot at a point in time: Assets (at fair market value) $-$ Liabilities (outstanding principal) $=$ Net Worth. Trap: use FMV, never basis.

Inflows $-$ outflows over a period; ends in a surplus (savings) or a deficit.

Liquid assets $\div$ monthly nondiscretionary expenses; target 3–6 months.

PITI (housing costs) $\div$ gross income $\le 28\%$. 'Roof only.'

(PITI $+$ all other recurring debt) $\div$ gross income $\le 36\%$. 'Roof + everything.'

Money available now is worth more than the same amount later because of its earning potential. The 5 keys: N, I/YR, PV, PMT, FV.

$FV = PV \times (1 + i)^n$.

$PV = \dfrac{FV}{(1 + i)^n}$.

Annuity due = payments at the BEGINNING of each period (BEGIN mode; education/retirement first withdrawal). Ordinary annuity = payments at the END (END mode). Due $=$ ordinary $\times (1+i)$.

$EAR = \left(1 + \dfrac{i}{m}\right)^m - 1$, where $m$ = compounding periods per year.

$\text{Real} = \dfrac{1 + \text{nominal}}{1 + \text{inflation}} - 1$. Use it for education/retirement funding so growth keeps pace with rising costs.

PV of inflows $-$ cost. Accept the project if $NPV \ge 0$.

The discount rate at which $NPV = 0$.

Fiscal policy = government taxing & spending (Congress/President). Monetary policy = Federal Reserve control of money supply and interest rates.

Open market operations — buying/selling Treasuries. Buying securities is expansionary (lowers rates). Other tools: discount rate, reserve requirements, interest on reserves.

Predict the economy: stock prices, building permits, new orders, money supply, the yield curve. (Coincident = GDP, payrolls; lagging = unemployment duration, CPI, prime rate.)

Normal (upward), inverted (short > long rates — often precedes recession), flat. Theories: expectations, liquidity preference, market segmentation, preferred habitat.

After-tax contributions; tax-free growth and qualified withdrawals; owner-controlled; covers tuition, fees, room & board, plus K-12 tuition up to $10,000/yr and $10,000 lifetime student-loan repayment.

Elect to treat a lump gift as 5 years of annual exclusions: $95,000 per donor ($190,000 gift-split couple) per beneficiary, gift-tax-free.

Unused 529 funds can roll to the beneficiary's Roth IRA: $35,000 lifetime cap, account open $\ge$ 15 years, subject to annual Roth contribution limits.

$2,000/yr education savings account per beneficiary; income-phased; covers K-12 and college; must be used by age 30.

Irrevocable custodial gift to a minor; subject to the kiddie tax; counts heavily against financial aid as a STUDENT asset (favor a parent-owned 529).

Up to $2,500/yr per student, first 4 years, 40% refundable; MAGI phaseout $80k–$90k single / $160k–$180k MFJ.

Up to $2,000/yr per RETURN (20% of $10,000); no year limit; nonrefundable. Can't claim AOTC and LLC for the same student in the same year.

$19,000 per donee per donor; $38,000 per donee for a gift-splitting married couple.

A direct payment of TUITION to the school or MEDICAL expenses to the provider — unlimited and gift-tax-free; does not use the $19,000 annual exclusion.

Donee takes the donor's basis for gain; for a loss, use the LOWER of donor's basis or FMV at the gift date (the double-basis rule).

Qualified residence interest on acquisition debt up to $750,000 (post-2017 loans); home-equity interest deductible only if used to buy/build/improve the home.

Need $=$ Cost of Attendance $-$ Student Aid Index (SAI). Parent assets assessed up to ~5.64%; student assets up to 20% — so parent-owned 529s beat UTMAs for aid.

Pure risk = chance of loss only (insurable). Speculative risk = chance of loss, no loss, OR gain (gambling, investing) — NOT insurable.

Avoid, Reduce (loss control), Retain (self-insure), Transfer (insure). High-freq/high-sev = avoid; LOW-freq/HIGH-sev = transfer/insure.

Low frequency + HIGH severity = TRANSFER (buy insurance). Frequent + trivial = retain. Frequent + catastrophic = avoid.

The larger the pool of similar exposure units, the more predictable the average loss — letting insurers price premiums accurately.

Those with a higher-than-average probability of loss seek insurance most aggressively. Insurers combat it with underwriting, waiting periods, and pricing classes.

Moral hazard = dishonesty/intent to cause a loss (arson). Morale hazard = carelessness/indifference because you're insured. 'Moral = Malicious; Morale = Meh.'

Life insurance: must exist only at policy INCEPTION. Property/casualty: must exist at the time of the LOSS.

Restore the insured to the pre-loss financial position — no profit. Property/health are indemnity contracts; LIFE insurance is a valued contract (pays a stated face).

After paying a claim, the insurer takes over the insured's right to recover from the at-fault third party. Applies to property/health — NOT life insurance.

After the policy is in force ~2 years, the insurer cannot contest it or deny a claim for misstatements (except fraud, nonpayment, and adjusted age/sex misstatement).

Pure death benefit, no cash value; level/decreasing/ART. Best for temporary, large needs (mortgage, income replacement during working years). Lowest initial premium.

Permanent; fixed/level premium for life; guaranteed cash value and guaranteed rate; participating policies pay dividends.

Flexible-premium permanent insurance with an adjustable death benefit; cash value credited at current interest with a guaranteed floor; unbundles mortality/expense/interest.

Cash value is in subaccounts; the OWNER bears market risk. These are SECURITIES — require a prospectus and FINRA registration. VUL has NO guaranteed cash-value floor.

Withdrawals from a normal (non-MEC) policy are FIFO: basis (premiums) comes out first tax-free, then gains are taxable. 'Life is Friendly First.'

An over-funded policy that fails the 7-pay test. Living distributions flip to annuity rules: LIFO (gains first, ordinary income) + 10% penalty before $59\tfrac{1}{2}$. Death benefit stays tax-free.

Life insurance death benefits are income-tax-FREE ($\S$101). But they're in the insured's ESTATE if the insured had incidents of ownership — an ILIT solves this.

Tax-free swap: Life $\to$ Life/Annuity/qualified LTC; Annuity $\to$ Annuity/qualified LTC. NEVER Annuity $\to$ Life. '1035 flows downhill.'

First $50,000 of employer-provided group term coverage is tax-free; coverage above $50,000 creates imputed income via IRS Uniform Premium Table I. The $50,000 is NOT indexed.

Own-occupation pays if you can't do YOUR occupation (broadest, costliest). Any-occupation pays only if you can't do any job you're suited for (cheapest). Specialists want own-occ.

Employer-paid premiums $\to$ TAXABLE benefits. Employee after-tax premiums $\to$ tax-FREE benefits. 'You pay (after-tax), you don't pay tax.'

Tax-qualified LTC pays when a licensed practitioner certifies inability to do 2 of 6 ADLs for $\ge$ 90 days OR severe cognitive impairment. Cognitive impairment alone qualifies.

Bathing, Continence, Dressing, Eating, Toileting, Transferring (mobility).

Continuation of group health for employers with 20+ employees; pay up to 102% of premium. 18 months (termination/reduced hours), 29 (disability), 36 (family events).

Medical insurance: 2026 standard premium $202.90/mo; deductible $283; then ~20% coinsurance. Higher-income enrollees pay IRMAA surcharges.

Original Medicare does NOT cover custodial long-term care — only short-term SKILLED care (SNF up to 100 days per benefit period). This is the bridge to LTC planning.

Contribution limit $4,400 self-only / $8,750 family; +$1,000 catch-up at 55+; requires an HDHP. Triple tax advantage: deductible in, tax-deferred growth, tax-free qualified withdrawals.

Minimum deductible $1,700 self / $3,400 family; out-of-pocket max $8,500 self / $17,000 family. Required to contribute to an HSA.

Ordinary income + 20% penalty; the 20% penalty is waived after age 65 (still taxable as income if not for medical).

$\text{Exclusion ratio} = \dfrac{\text{investment in the contract (basis)}}{\text{expected total return}}$ — the tax-free return-of-basis portion of each annuitized payment. After basis is recovered, all is taxable.

Non-annuitized withdrawals are LIFO — earnings out first, taxed as ordinary income; 10% penalty on gains before $59\tfrac{1}{2}$. Gains are ordinary income with NO step-up at death (IRD).

Business-owned coverage on an essential employee/owner. Premiums not deductible; death benefit generally tax-free (watch $\S$101(j) notice & consent).

Cross-purchase = each owner insures the others; survivors get a basis STEP-UP. Entity redemption = the business owns one policy per owner; fewer policies, NO step-up for survivors.

Fixed = insurer bears risk. Indexed = capped/floored index-linked (not a security). Variable = annuitant bears market risk, IS a security (prospectus required).

Life only (straight life) pays the largest check but stops at death with nothing to a beneficiary. Joint & survivor pays the smallest but covers two lives.

HO-3 = most common homeowner (open perils on dwelling, named on contents). HO-4 = renters. HO-6 = condo owners. Floods and earthquakes are EXCLUDED from standard HO policies.

Carry $\ge$ 80% of replacement cost to be paid in full on a partial loss. If underinsured: payout $= \dfrac{\text{carried}}{\text{required}} \times \text{loss} - \text{deductible}$.

Adds excess liability above auto/home limits; requires minimum underlying limits first. Sizing rule: cover at least the client's net worth (plus future-income exposure).

Capital retention keeps principal intact (live off earnings) — needs MORE insurance. Capital utilization spends down both principal and earnings — needs LESS.

Debt (and final expenses), Income replacement, Mortgage payoff, Education — then subtract existing resources (current insurance, savings, SS survivor benefits).

Interest-adjusted cost-comparison methods (lower = better). The old 'traditional net cost' method ignores the time value of money — don't use it.

Non-diversifiable market risk, measured by beta: Purchasing-power, Reinvestment, Interest-rate, Market, Exchange-rate.

Diversifiable firm/industry risk (business, financial, default/credit). Largely eliminated by diversification (~15–30 securities).

A measure of total (absolute) volatility/risk — the dispersion of returns around the mean. $\sigma = \sqrt{\text{variance}}$.

A measure of systematic risk relative to the market (market $\beta = 1.0$). $\beta > 1$ = more volatile than the market; $\beta < 1$ = less.

Standardizes covariance to $-1$ to $+1$. Lower correlation improves diversification; $\rho = -1.0$ can eliminate risk; $\rho = +1.0$ gives no benefit.

$CV = \dfrac{\sigma}{\text{mean return}}$ — relative risk per unit of return. LOWER is better; used to compare assets with different return levels.

$r = R_f + \beta (R_m - R_f)$, where $(R_m - R_f)$ is the market risk premium.

$\dfrac{R_p - R_f}{\sigma}$ — uses TOTAL risk. Use for a NON-diversified (concentrated, low-$R^2$) portfolio.

$\dfrac{R_p - R_f}{\beta}$ — uses systematic (beta) risk. Use for a well-DIVERSIFIED (high-$R^2$) portfolio.

$\alpha = R_p - [R_f + \beta(R_m - R_f)]$ — actual return minus CAPM-required return; measures manager skill (positive = outperformance) for diversified portfolios.

Diversified (high $R^2$) $\to$ Treynor/Jensen (beta). Non-diversified (low $R^2$) $\to$ Sharpe (std dev). The single most-tested distinction in Domain D.

The % of a security's return explained by the benchmark. High $R^2$ $\to$ beta is reliable (use Treynor/Jensen); low $R^2$ $\to$ use Sharpe.

Geometric mean (compound return) is always $\le$ the arithmetic mean. The geometric is the TRUE compound growth rate of a portfolio.

Time-weighted removes cash-flow timing $\to$ judges the MANAGER. Dollar-weighted (IRR) includes cash flows $\to$ the INVESTOR's actual experience.

$TEY = \dfrac{\text{muni (tax-free) yield}}{1 - \text{marginal rate}}$. Compare to taxable yields — the muni wins if it beats the taxable bond.

$\text{Real} = \dfrac{1 + \text{nominal}}{1 + \text{inflation}} - 1$. Use the exact formula, not the 'nominal $-$ inflation' shortcut.

A bond's price sensitivity to interest-rate changes (in years). Longer maturity, LOWER coupon, and LOWER yield all raise duration. A zero's duration = its maturity.

$\%\,\Delta\text{price} \approx -\text{modified duration} \times \Delta\text{yield}$. Example: duration 7, rates $+1\% \to \approx -7\%$ price.

A curvature correction to duration's straight-line estimate. Duration alone understates gains when rates fall and overstates losses when rates rise.

Bond prices and interest rates move in OPPOSITE directions: rates up $\to$ prices down (and vice versa). The single most-tested bond concept.

Discount bond (price < par): Coupon < Current Yield < YTM. Premium bond (price > par): Coupon > Current Yield > YTM. Par bond: all three equal.

For a premium callable bond, the relevant 'worst-case' yield is the Yield to CALL (yield to worst), not YTM.

$V = \dfrac{D_1}{r - g}$, where $D_1 = D_0 \times (1 + g)$ and $r > g$. Always grow $D_0$ to $D_1$ first.

Weak = prices reflect past price/volume (technical analysis fails); semi-strong = all public info (fundamental fails too); strong = all info incl. insider (even insiders can't win).

Investing a fixed dollar amount on a schedule buys more shares when prices are low — lowering the average COST per share.

A loss is disallowed if you buy a substantially identical security within 30 days before OR after the sale (a 61-day window), including in your IRA. The loss is added to the replacement's basis.

Selling losers to realize losses that offset gains (and up to $3,000 of ordinary income/yr; carry forward the rest). Must respect the wash-sale rule.

Place tax-INEFFICIENT assets (taxable bonds, REITs, high-turnover funds) in tax-deferred/Roth accounts; tax-efficient assets (index ETFs, munis) in taxable accounts.

The set of portfolios offering the maximum return for a given level of risk (or minimum risk for a given return). The optimal portfolio is where an indifference curve is tangent to it.

Taxed at preferential LTCG rates (0/15/20%). Require holding the stock more than 60 days during the 121-day window around the ex-dividend date.

Net long-term gain on collectibles is taxed at a maximum 28% rate (vs the 0/15/20% on most LTCG).

CML plots return vs TOTAL risk ($\sigma$), efficient portfolios only. SML plots return vs SYSTEMATIC risk ($\beta$) and is the graph of CAPM. Plot above the SML = undervalued (buy).

Strategic = long-term target mix you rebalance to. Tactical = short-term deviations from the target to exploit perceived opportunities.

Ladder = staggered maturities (smooths reinvestment risk). Barbell = short + long, skip the middle. Bullet = maturities clustered at one target date (fund a known liability).

Match the portfolio's duration to the investment horizon so price risk and reinvestment risk offset — locking in a target return regardless of rate moves.

Mutual funds must distribute realized capital gains annually (taxable even if you didn't sell). ETFs use in-kind redemptions to purge low-basis lots — far more tax-efficient.

Treasury interest is FEDERAL-taxable but STATE/local-exempt. Municipal interest is FEDERAL-exempt (and often in-state exempt). Don't swap them.

Mostly ORDINARY income (not qualified), though a portion may qualify for the QBI deduction. A REIT must distribute $\ge$ 90% of taxable income.

Hedge funds, private equity, direct real estate, and collectibles carry the highest liquidity risk. Low correlation can improve risk-adjusted return; the illiquidity premium compensates for it.

A call = the right to BUY at the strike (bullish). A put = the right to SELL at the strike (bearish; 'portfolio insurance'). A covered call generates income but caps upside.

Single / MFS $16,100; MFJ / Surviving Spouse $32,200; Head of Household $24,150.

37% on taxable income over $640,600 (single) / $768,700 (MFJ). The 2017 TCJA rates were made permanent by OBBB.

0% rate up to $49,450 (single) / $98,900 (MFJ). 20% rate above $545,500 single / $613,700 MFJ.

3.8% on the lesser of net investment income or MAGI over $200,000 single / $250,000 MFJ. These thresholds are NOT inflation-indexed.

$90,100 single (phaseout begins $500,000) / $140,200 MFJ (phaseout begins $1,000,000). AMT rates 26%/28%.

20% pass-through deduction; 2026 threshold $201,750 single / $403,500 MFJ. OBBB added a minimum $400 QBI deduction (indexed).

Gross income minus above-the-line adjustments (educator expenses, HSA, deductible IRA, $\tfrac{1}{2}$ SE tax, SE health insurance, student-loan interest).

A credit reduces tax dollar-for-dollar. A deduction reduces taxable income (worth deduction $\times$ marginal rate). Refundable credits can produce a refund beyond tax owed.

Avoid the underpayment penalty by paying the lesser of 90% of current-year tax or 100% of prior-year (110% if prior-year AGI > $150,000).

Inherited property gets a FMV basis at the date of death and is automatically LONG-TERM. Contrast with gifted property (carryover basis).

Tax-deferred swap of REAL property held for business/investment only (no personal-use, no securities post-TCJA). Boot received is taxable.

Exclude $250,000 single / $500,000 MFJ of gain on a principal residence; must own and use it as a principal residence 2 of the last 5 years.

Pass-through (Form 1120-S, K-1). A reasonable salary is subject to payroll tax, but distributions are NOT subject to self-employment tax. $\le$ 100 shareholders, one class of stock.

21% flat corporate tax with double taxation on dividends. Fringe benefits are deductible.

15.3% $=$ 12.4% Social Security up to the $184,500 wage base $+$ 2.9% Medicare (no cap; $+0.9\%$ over $200k/$250k). One-half is deductible above the line.

Highly compressed — reach the 37% bracket at only ~$15,650 of retained taxable income. Distributions push income to lower-bracket beneficiaries.

Limits and characterizes a trust/estate's deduction for distributions; income carries its character to the beneficiary.

Cash to a public charity: 60% of AGI. Appreciated LTCG property at FMV: 30% of AGI (or basis at 50%). 5-year carryforward. '60 cash, 30 stock.'

Deduct the FMV (30% AGI limit) and AVOID capital gains tax — a top exam strategy versus selling and donating cash.

Age $70\tfrac{1}{2}$+, up to $111,000 (2026) directly from an IRA to charity; counts toward the RMD and is excluded from income.

A child's unearned income over $2,700 is taxed at the parent's (or trust) marginal rate; the first $1,350 is sheltered by the dependent's standard deduction.

Donee takes the donor's basis for GAIN; for a LOSS, use the lower of donor's basis or FMV at the gift date.

Gross income $-$ adjustments $=$ AGI $-$ (greater of standard/itemized) $-$ QBI $=$ taxable income $\times$ rates $-$ credits $=$ total tax.

Not deductible by the payer and not taxable to the recipient. Property transfers incident to divorce are nontaxable (carryover basis).

Held more than 1 year = long-term (preferential rates). Inherited property is automatically long-term regardless of how long it's held.

$24,500; +$8,000 catch-up at 50; +$11,250 'super' catch-up at ages 60–63 (SECURE 2.0).

$7,500; +$1,100 catch-up at age 50. Requires earned income.

$72,000 total annual additions to a defined-contribution plan (employee + employer + forfeitures).

$290,000 maximum annual benefit from a defined-benefit plan. Don't swap it with the $72,000 DC limit.

$360,000 — the maximum compensation that can be counted for qualified-plan contributions.

$160,000 of compensation (HCE). Key employee/officer $235,000.

MAGI phaseout: single $153,000–$168,000; MFJ $242,000–$252,000; MFS $0–$10,000.

Active participant: single $81,000–$91,000; MFJ $129,000–$149,000; spouse-only-active MFJ $242,000–$252,000.

DB: employer bears investment risk, promises a benefit, favors older owners. DC: benefit = the account balance; risk is on the participant.

3-year cliff OR 2-to-6-year graded. Employee deferrals are ALWAYS 100% vested immediately.

A mandatory employer match or nonelective contribution that lets the plan avoid ADP/ACP nondiscrimination testing.

Employer-funded; contribute up to 25% of compensation, capped at $72,000 (2026). Simple to administer; immediate vesting.

For $\le$ 100 employees; $17,000 deferral (2026); mandatory 3% match or 2% nonelective contribution.

A nondeductible traditional-IRA contribution then converted to Roth. The pro-rata rule taxes the conversion proportionally across ALL pre-tax IRA balances.

Applies to distributions before age $59\tfrac{1}{2}$ (many exceptions: death, disability, $\S$72(t), first home $10k IRA, birth/adoption $5k, age-55 separation from an employer plan).

Substantially Equal Periodic Payments — a series of withdrawals that avoids the 10% early penalty before $59\tfrac{1}{2}$.

73 (SECURE 2.0); rising to 75 starting 2033. First RMD by April 1 of the year after the RMD age. Missed-RMD penalty 25% (10% if corrected timely).

NONE during the owner's lifetime. (Roth 401(k) lifetime RMDs were also eliminated starting 2024.)

On employer stock from a qualified plan: the BASIS is taxed as ordinary income at distribution; the appreciation is taxed as LTCG when sold. Powerful for highly appreciated company stock.

Most non-spouse beneficiaries must empty an inherited IRA within 10 years. Eligible Designated Beneficiaries (spouse, minor child of owner, disabled/chronically ill, <10 yrs younger) may stretch.

60-day deadline to redeposit; 20% mandatory withholding from employer plans (you must replace it from other funds to roll the full amount). IRA-to-IRA: one per 12 months.

Full Retirement Age is 67 for those born 1960 or later. Earliest claim at 62 (reduced ~25–30%); delayed retirement credits +8%/yr to age 70.

$1 withheld for every $2 earned over $24,480 (all year under FRA). In the FRA year: $1 per $3 over $65,160. No limit at/after FRA.

Wage base $184,500; COLA 2.8%. Medicare's 2.9% portion is uncapped (+0.9% additional Medicare over $200k/$250k).

Determines the taxation of Social Security benefits — up to 50% taxable above $25k single/$32k MFJ, up to 85% above $34k/$44k. Thresholds are NOT indexed.

SECURE 2.0: catch-up contributions must be ROTH (after-tax) for employees earning over ~$145,000 (indexed).

Preservation keeps the corpus intact (live on earnings) — needs more capital. Depletion/utilization spends down to zero at life expectancy — needs less.

A retirement-needs rule of thumb: target replacing ~70–80% of pre-retirement income.

Runs thousands of randomized return paths to estimate the PROBABILITY a plan succeeds — capturing sequence-of-returns risk better than a single straight-line assumption.

Generally taxable accounts $\to$ tax-deferred $\to$ Roth (preserve tax-free growth last), coordinated with brackets, Roth conversions in low-income years, and QCDs.

Cross-purchase (owners insure each other), entity/stock redemption (the business insures each owner), and wait-and-see (decide at the triggering event). Funded with life/disability insurance.

Spouse, minor child OF the owner, disabled or chronically ill person, or someone less than 10 years younger — may still stretch distributions over life expectancy.

$15,000,000 per decedent (estate and gift unified; OBBB made the higher exclusion permanent and indexed).

$19,000 per donee per donor; $38,000 per donee for a gift-splitting married couple. Gift to a non-citizen spouse: $194,000 annual.

$15,000,000 exemption; flat 40% on generation-skipping transfers (direct skips, taxable terminations, taxable distributions).

40%.

A surviving spouse can use the deceased spouse's unused exclusion by filing Form 706 timely. Portability does NOT apply to the GST exemption.

Tax-free transfers to a U.S.-citizen spouse. A non-citizen spouse requires a QDOT (qualified domestic trust) to defer estate tax.

Qualified Domestic Trust — needed to obtain the marital deduction for transfers to a NON-citizen spouse.

JTWROS steps up only the DECEDENT's half. Community property gets a FULL step-up on BOTH halves at the first spouse's death — a major exam point.

Spouses only; right of survivorship plus creditor protection in many states.

No survivorship — each owner's share passes through their own estate; shares can be unequal.

Avoids probate, but gives NO estate-tax savings and NO creditor protection; the assets are included in the grantor's estate.

Removes assets from the estate (if no retained powers) and provides creditor protection.

Owns life insurance so the proceeds are EXCLUDED from the gross estate. The 3-year rule ($\S$2035) pulls back a policy transferred within 3 years of death.

Uses the first spouse's exclusion at the first death so that appreciation escapes the SECOND spouse's estate.

Qualifies for the marital deduction while letting the FIRST spouse control who ultimately receives the remainder; the QTIP is included in the surviving spouse's estate.

A beneficiary's temporary right of withdrawal that converts an ILIT gift into a PRESENT interest — making it eligible for the annual gift exclusion.

Life insurance transferred within 3 years of death is pulled back into the gross estate.

A written refusal of an inheritance within 9 months, with no acceptance of benefits, that redirects the property to the contingent beneficiary (e.g., a bypass trust).

6 months after death — usable only if it LOWERS both the gross estate AND the estate tax.

$\S$6166 = installment payment of estate tax on a closely-held business. $\S$303 = a stock redemption to pay death taxes without dividend treatment.

An estate-FREEZE technique: the grantor retains an annuity and transfers future appreciation out of the estate at a reduced gift value.

JTWROS interests, life insurance with incidents of ownership ($\S$2042), retained life estates ($\S$2036), revocable transfers ($\S$2038), general powers of appointment ($\S$2041), $\S$2035 3-year transfers.

Due 9 months after death (a 6-month filing extension is available). Disclaimers are also 9 months; alternate valuation is 6 months.

A financial POA that SURVIVES the principal's incapacity ('springing' = effective only upon incapacity vs. immediate).

Inherited property = FMV step-up at death (automatically long-term). Gifted property = carryover basis (donor's basis), with the double-basis rule for losses.

Gross estate $-$ deductions (debts, expenses, marital, charitable) $=$ taxable estate $+$ adjusted taxable gifts $=$ tax base; tentative tax $-$ unified credit $=$ tax due.

Beneficiary designations, POD/TOD, and joint titling OVERRIDE the will. Retirement accounts and life insurance pass by beneficiary designation, not the will.

Leaving everything to a spouse via the unlimited marital deduction WASTES the first decedent's exclusion — mitigated by portability or a bypass trust.

Unconscious, trans-generational money beliefs from childhood: Money Avoidance, Money Worship, Money Status, Money Vigilance.

The only generally POSITIVE script (savers, watchful) — but in excess causes anxiety and an inability to enjoy money. Don't mark it as the 'problem' script.

Money Avoidance, Money Worship, and Money Status correlate with lower net worth, revolving credit, and financial dependence.

A painful or dramatic early-life money event so emotionally significant it shapes a person's money scripts and behaviors — the 'origin story' of a money script.

Cognitive errors (faulty reasoning) can be CORRECTED with education/data/reframing. Emotional biases (feelings) are MANAGED/accommodated — the plan adapts to them.

People value gains/losses relative to a reference point, not total wealth, and are loss-averse — a loss feels ~2x as painful as an equal gain. Risk-averse in gains, risk-seeking in losses.

A cognitive bias of over-relying on the first piece of information (e.g., a stock's old high) when estimating value.

Seeking and favoring information that confirms existing beliefs while ignoring contradicting data.

Overweighting the most recent events/returns and extrapolating them into the future.

Estimating probability by how easily vivid or recent examples come to mind, not by actual base rates.

Judging probability by resemblance to a stereotype (e.g., assuming a good company is automatically a good stock), ignoring base rates.

An emotional bias: the pain of a loss is felt ~2x the pleasure of an equal gain (prospect theory). Leads to holding losers and excess cash.

Treating money differently by arbitrary category or source (splurging 'found money' like a bonus while carrying credit-card debt).

An emotional bias: overestimating one's knowledge or forecasting precision; leads to excessive trading and under-diversification.

Following the crowd's investment behavior rather than independent analysis (buying bubbles, panic-selling crashes).

Selling winners too early and holding losers too long — loss aversion in action; the opposite of 'cut your losses, let winners run.'

Overvaluing something simply because you own it (won't sell inherited stock at a fair price).

An emotional preference for keeping things as they are; the default is to do nothing (never updating a stale allocation).

Decisions change based on how options are worded, not their substance ('90% chance of gain' vs the identical '10% chance of loss').

Transference = the CLIENT projects feelings (about a parent/authority) onto the planner. Countertransference = the PLANNER projects feelings onto the client.

Precontemplation $\to$ Contemplation $\to$ Preparation $\to$ Action $\to$ Maintenance. Match the client's stage; don't push action on someone not ready.

Build awareness and rapport — do NOT prescribe an action plan. Prescribing action to a precontemplator backfires.

A collaborative, client-centered style that elicits the client's OWN motivation to change by resolving ambivalence. Avoid the 'righting reflex' (lecturing).

A visual family-tree map of money messages, behaviors, and patterns across generations — used to uncover the origins of money scripts.

Fully concentrating and reflecting back the client's content AND feeling to confirm understanding — the highest-value communication skill.

Open-ended questions invite reflection and uncover values ('What does retirement look like to you?'). Closed questions confirm facts (yes/no); overusing them shuts down disclosure.

Empathy = understanding feelings from the CLIENT's frame of reference (builds trust). Sympathy = feeling sorry FOR them (can feel condescending).

Secretive financial behavior that violates a partner's expectations (hidden accounts, undisclosed debt). Linked to the money-status script; a serious source of money conflict.

Differing money scripts/values between partners, unequal incomes, control of decisions, intergenerational inheritance disputes, business-partner disagreements, and divorce.

Job loss, death, disability, divorce, market crashes, natural disasters — and counterintuitively SUDDEN WEALTH (identity shock, guilt, paralysis).

A CFP is not a therapist. When issues exceed financial counseling (clinical depression, trauma, suicidal ideation), the best response is to REFER to a qualified mental-health professional.

Facilitating helps the client reach their OWN informed decision (better commitment/follow-through). Giving advice/telling directs the client what to do.

Denial, Anger, Bargaining, Depression, Acceptance — but grief is non-linear. Don't rush a grieving client into major irreversible financial decisions.