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Practice and exam technique

Practice questions: retirement savings and income

Compiled by the Sitonce editorial team from CFP Board sources listed belowUpdated 4 min readFacts verified 1 September 2026
The short answer

Retirement is 18 per cent of the exam, the largest domain. These five cover the rule of 55, rollover mechanics, required minimum distributions, the pro rata rule and net unrealized appreciation.

Answer each before reading the explanation. Recognizing the right answer once you see it is a different skill from producing it.

Question 1

A client separates from service at 56 and needs income immediately. Her 401(k) holds USD 400,000. What should she be advised?

  1. Roll the balance to an IRA, then withdraw as needed
  2. Leave the balance in the employer plan and withdraw from it
  3. Take substantially equal periodic payments from an IRA
  4. Withdraw and accept the 10 per cent penalty
Answer: B. The rule of 55 permits penalty-free distributions from the plan of the employer she separated from, at 55 or later. Rolling to an IRA destroys the exception, because it is an employer-plan provision. Option C works and commits her until 59½ unnecessarily.
Question 2

A client requests a distribution from a former employer's 401(k) to move it to an IRA, and receives a check. How much is withheld, and what must he deposit to complete a full rollover?

  1. Nothing withheld; deposit the full amount
  2. 10 per cent withheld; deposit the amount received
  3. 20 per cent withheld; deposit the full pre-withholding amount using other funds
  4. 20 per cent withheld; deposit the amount received
Answer: C. An indirect rollover from an employer plan triggers mandatory 20 per cent withholding. To roll the full amount he must make up the withheld 20 per cent from other money and recover it as a refund. A direct trustee-to-trustee transfer avoids the problem entirely.
Question 3

A client turns 73 this year and has three traditional IRAs and two former employer 401(k) plans. Which statement is correct?

  1. The total RMD may be taken from any one of the five accounts
  2. The IRA total may be taken from any one IRA; each 401(k) requires its own distribution
  3. Each of the five requires its own distribution
  4. The 401(k) totals may be combined; the IRAs may not
Answer: B. IRA required minimum distributions are calculated per account and may be aggregated and taken from any one of them. Employer plan distributions must be taken separately from each plan. It is a clean distinction and questions use it repeatedly.
Question 4

A high-earning client wants a backdoor Roth. He holds USD 300,000 in a rollover IRA and makes a USD 7,500 non-deductible contribution. What applies on conversion?

  1. Only the non-deductible contribution is converted tax free
  2. The conversion is taxed proportionally across all traditional IRA balances
  3. The conversion is fully tax free because the contribution was non-deductible
  4. The rollover IRA is ignored because it came from an employer plan
Answer: B. The pro rata rule aggregates all traditional, SEP and SIMPLE IRAs, so almost all of the conversion is taxable. Rolling the USD 300,000 into a current employer 401(k) first, where the plan accepts it, removes it from the calculation - which is the planning answer.
Question 5

A retiring client holds USD 500,000 of her employer's stock in the 401(k), with a cost basis of USD 100,000. She has no immediate need for the funds. What deserves consideration?

  1. Rolling the entire balance to an IRA for simplicity
  2. A lump-sum distribution using net unrealized appreciation treatment
  3. Selling the stock inside the plan and rolling the cash
  4. Converting the entire balance to a Roth IRA
Answer: B. Net unrealized appreciation allows a lump-sum distribution of employer stock taxed as ordinary income on the USD 100,000 basis only, with the USD 400,000 appreciation taxed as long-term capital gain when sold. Rolling to an IRA forfeits it permanently, converting capital gain into ordinary income.

The pattern across all five

Each has an option that is administratively simpler and financially worse. Rolling everything to an IRA appears three times, and it is wrong three times for three different reasons.

That is worth internalizing. Consolidation is the default advice in the industry, and the exam is testing whether you know when it costs something.

On the trademark

CFP® is a registered mark of Certified Financial Planner Board of Standards, Inc. We are not affiliated with, or endorsed by, CFP Board.

Common questions

Why should you not roll over before using the rule of 55?

Because it is an employer-plan provision. Separating at 55 or later gives penalty-free access to that plan, and rolling to an IRA destroys the exception.

How much is withheld on an indirect rollover?

Twenty per cent from an employer plan, mandatorily. To roll the full amount you must make up the withheld portion from other funds and recover it as a refund.

Can required minimum distributions be aggregated?

IRA distributions can be calculated per account and taken from any one IRA. Employer plan distributions must be taken separately from each plan.

How does the pro rata rule affect a backdoor Roth?

It aggregates all traditional, SEP and SIMPLE IRA balances, so a large existing IRA makes most of the conversion taxable. Rolling those balances into a 401(k) first removes them.

What is net unrealized appreciation worth?

It taxes only the cost basis of employer stock as ordinary income, with the appreciation taxed as long-term capital gain on sale. Rolling to an IRA forfeits it permanently.

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