Free MRFC Practice Questions

Question 1

A software executive holds 55% of her investable assets in employer stock and the remainder in a technology-sector ETF containing 60 companies. Her salary and annual bonus also depend on the technology industry. She says, "The ETF gives me plenty of diversification." There are no selling restrictions. Which reallocation most directly reduces the risk that an industry downturn damages both her employment income and investment wealth?

Accepted Answer

Trim both technology holdings and reinvest across other industries and asset classes.

Answer

Swap employer stock for shares in three other technology companies.

Answer

Keep employer stock and direct future bonuses into the sector ETF to dilute company-specific exposure.

Answer

Replace the employer stock with a broader technology-sector ETF that covers more companies in the industry.

Question 2

A woman with severe cognitive impairment can still bathe, dress, eat, toilet, transfer, and manage continence without physical assistance. She wanders outside at night and leaves burners on. Three weeks ago, a licensed health-care practitioner certified that she needs substantial supervision for her safety and prescribed a care plan. Her tax-qualified long-term-care policy's elimination period is satisfied. Her family believes she cannot qualify because she has no physical limitations in activities of daily living (ADLs). How should the consultant interpret the federal chronic-illness definition?

Accepted Answer

Her certified need for supervision can satisfy the cognitive-impairment criterion independently of physical ADL limitations.

Answer

She must lose independence in two ADLs before cognitive impairment supports eligibility.

Answer

Wandering and unsafe cooking satisfy the physical criterion as two additional statutory ADLs.

Answer

Her supervision needs qualify only after Medicare has denied payment for the care prescribed by her health-care practitioner.

Question 3

For 2026, a retired, unmarried client who turns 74 that year has these December 31, 2025 balances: traditional IRA A, $510,000; traditional IRA B, $255,000; and a former employer's pretax 401(k), $255,000. He owns all three accounts; none is inherited. The applicable Uniform Lifetime Table divisor is 25.5 for each account. All prior-year RMDs were completed before 2026. He has already withdrawn $30,000 from IRA A and nothing from the other accounts. What additional distribution is needed to satisfy the remaining 2026 required minimum distribution obligations?

Accepted Answer

$10,000 from the former employer's 401(k); no additional IRA distribution is required.

Answer

$10,000 from IRA B; nothing from the 401(k).

Answer

$10,000 from any of the three retirement accounts.

Answer

None; the $30,000 withdrawal satisfies every account's requirement.

Question 4

An executor wants qualified terminable interest property (QTIP) treatment for a testamentary trust benefiting a U.S.-citizen surviving spouse. The remainder will pass to children from the decedent's first marriage, and the required tax election will be made. Which proposed clause prevents the spouse from having the qualifying income interest for life?

Accepted Answer

The independent trustee may accumulate income whenever the spouse's other resources are sufficient.

Answer

The children receive the remaining trust principal after the surviving spouse's death, without a power in the spouse to change them.

Answer

The trustee may distribute principal to the surviving spouse for health, education, maintenance, and support during the spouse's lifetime.

Answer

The surviving spouse cannot appoint any trust property to another person during life, even with the remainder beneficiaries' consent.

Question 5

Parents qualify to claim the American opportunity tax credit for their daughter's 2026 college expenses. They have identified tuition charges to use for the credit. Their daughter attends an eligible college at least half-time and also incurs unreimbursed room-and-board expenses within the school's published cost-of-attendance allowance. A 529 withdrawal and the expense payments will occur in the same tax year. Which allocation preserves both benefits without using an expense twice?

Accepted Answer

Use the identified tuition for the credit and the qualifying room-and-board expenses for the tax-free 529 withdrawal.

Answer

Use tuition for both benefits if the 529 plan pays the college directly.

Answer

Use room-and-board expenses for the credit and the identified tuition for the 529 withdrawal, because both support college attendance.

Answer

Use the identified tuition for the credit and leave the 529 untouched, because the two benefits cannot apply to one student in one year.

Question 6

In a two-person financial-planning practice, the bookkeeper can create vendors, release payments, and reconcile the operating bank account. The owner cannot add staff, but can take over one part of the control process. Which change most directly reduces the opportunity for a fictitious-vendor payment to go undetected?

Accepted Answer

Have the owner independently review bank activity against approved invoices and verify new vendors.

Answer

Require the bookkeeper to certify that every payment has supporting documentation.

Answer

Have the tax preparer compare annual expense totals with the prior year.

Answer

Use bookkeeping software to block duplicate invoice numbers before the bookkeeper approves a vendor's payment.

Question 7

A performance report compares two portfolios over the same period using the same risk-free return and market benchmark. Both earned positive excess returns. Portfolio Alder has a Sharpe ratio of 0.55 and beta of 0.60; Portfolio Birch has a Sharpe ratio of 0.80 and beta of 1.10. A client concludes that Alder must be superior on every risk-adjusted measure because its beta is lower. Which reading of the report is supported?

Accepted Answer

Birch delivered more excess return per unit of total volatility, despite greater sensitivity to the market benchmark.

Answer

Alder's lower beta proves that its total return volatility was lower.

Answer

Birch's higher Sharpe ratio establishes that it earned a higher unadjusted return.

Answer

Alder's beta below one shows that it eliminated more company-specific risk.

Question 8

"We need help choosing between the pension's single-life and joint-survivor options, but we do not want ongoing investment management." Both spouses participate in the consultation and supply the information needed for a competent comparison. The consultant offers pension-election analysis as a stand-alone service. What engagement arrangement fits this request?

Accepted Answer

Use a written, one-time agreement defining the analysis, fee, responsibilities, and when the engagement ends.

Answer

Treat the comparison as education because no investment assets will be managed.

Answer

Decline the assignment unless the couple accepts comprehensive planning and continuing oversight of their other financial decisions.

Answer

Deliver the pension recommendation at the first meeting and use the subsequent invoice to establish the scope of the completed work.

Question 9

A higher-earning spouse is considering delaying Social Security retirement benefits beyond full retirement age to age 70. The couple can meet living expenses during the delay without jeopardizing other goals. The lower-earning spouse asks whether the delay changes benefits available on the higher earner's record while both are alive and after the higher earner dies. Ignore cost-of-living adjustments and early-claiming reductions. Which distinction should the consultant explain?

Accepted Answer

The spousal maximum remains based on the primary insurance amount; the potential survivor benefit reflects the delayed credits.

Answer

Both benefit ceilings increase to reflect the higher earner's delayed retirement credits.

Answer

Delayed credits raise the spousal maximum, but the survivor benefit remains based on the worker's unadjusted primary insurance amount.

Answer

Neither the spousal ceiling nor the survivor benefit includes the worker's delayed credits.

Question 10

A mother plans to leave assets for her adult son, who receives Supplemental Security Income and Medicaid. Her attorney proposes an irrevocable, discretionary third-party special-needs trust that the son cannot revoke or compel to distribute. A relative suggests leaving the inheritance to the son first and having him transfer it to the same trust afterward, arguing that the mother remains the original source of the money. What is the material problem with that suggestion?

Accepted Answer

Once inherited outright, the assets belong to the son; funding a trust with them invokes beneficiary-funded trust rules.

Answer

The trust changes classification only if the son personally signs its trust agreement.

Answer

The inheritance remains third-party property if the son transfers it to the trust before personally spending any of the inherited funds.

Answer

The trust would retain third-party status if an independent trustee controlled investments and distributions and the son could not direct either.

Free MRFC Practice Questions

Domain 1: Client Engagement Process 4% of exam

Question 1

Domain 2: Retirement Planning 15% of exam

Question 2

Question 3

Domain 3: Insurance Planning 14% of exam

Question 4

Domain 4: Education Planning 3% of exam

Question 5

Domain 5: Estate Planning 16% of exam

Question 6

Question 7

Domain 11: Investment Planning 17% of exam

Question 8

Question 9

Domain 13: Practice Management 3% of exam

Question 10

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