Free IFSE Institute LLQP Practice Exam with Questions & Answers | Set: 10

According to the LLQP Segregated Funds and Annuities and Group Savings curriculum, the defining feature in Germaine’s requirement is the ability for employees to withdraw funds at any time without triggering income tax or penalties. Among the available group savings plans, only a group Tax-Free Savings Account (TFSA) meets this condition.

A group TFSA operates under the same tax rules as an individual TFSA. Contributions are made with after-tax dollars, meaning they are not deductible. However, the LLQP study materials emphasize that the major advantage of a TFSA is that investment growth and withdrawals are completely tax-free, regardless of timing or purpose. Employees can withdraw funds at any time, for any reason, without paying income tax or facing penalties, making this plan extremely flexible.

This feature aligns perfectly with Germaine’s objective. Since she already has a group RRSP in place to support long-term retirement savings, adding a group TFSA provides employees with a complementary savings vehicle for short- and medium-term goals, emergency savings, or discretionary spending—without tax consequences upon withdrawal.

The other options do not meet Germaine’s stated requirement. A Defined Benefit Pension Plan (DBPP) is highly restrictive, locked-in, and designed strictly for retirement income, with withdrawals taxed and generally unavailable before retirement. A Pooled Registered Pension Plan (PRPP) also involves locked-in funds and taxable withdrawals, making it unsuitable. A Deferred Profit Sharing Plan (DPSP) allows employer contributions and tax-deferred growth, but withdrawals are fully taxable as income when taken, which directly contradicts Germaine’s objective.

The LLQP curriculum highlights that group TFSAs are increasingly used by employers as a flexible and attractive benefit, particularly for higher-income employees or those who value liquidity and tax-free access to funds.

Therefore, based on LLQP-approved group savings plan characteristics, the plan that best fits Germaine’s requirements is Option B: A group TFSA.

The LLQP Segregated Funds and Annuities curriculum explains that an investor profile is shaped not only by financial assets and goals, but also by personal factors that can materially affect an individual’s ability to tolerate and manage investment risk. Among these factors, personal risks often have the most immediate and significant impact because they directly threaten income stability, cash flow, and financial security.

In Gertrude’s situation, several elements clearly fall under the category of personal risks as defined in the LLQP study materials. First, her employer’s announcement of possible layoffs introduces a risk of job loss, which is explicitly identified in the LLQP curriculum as a major personal risk. Employment uncertainty reduces an investor’s capacity to withstand market volatility, as a loss of income may force liquidation of investments at an inopportune time.

Second, Gertrude borrowed $50,000 to invest in an international stock portfolio. The LLQP materials identify leveraging (borrowing to invest) as a significant personal risk factor. Leveraging increases both potential gains and losses, magnifying downside risk. If markets decline or Gertrude’s employment situation worsens, she may still be required to service the debt regardless of investment performance. This substantially increases her financial vulnerability and lowers her true risk tolerance.

While Gertrude’s expectation of longevity relates to health and longevity considerations, it does not introduce immediate financial instability. In fact, longevity often supports a longer investment horizon, which can allow for greater exposure to growth assets, provided other risks are controlled. Personal values are not clearly indicated, and legal considerations such as wills or marital property are not central to this scenario.

According to the LLQP framework, when multiple personal factors are present, those that threaten income continuity and debt obligations take precedence in shaping the investor’s risk profile. Therefore, Gertrude’s employment uncertainty and leveraged investing position make personal risks the dominant factor influencing her risk profile, making Option D the correct answer.

According to the LLQP Segregated Funds and Annuities and Investment & Savings curriculum, when planning for the long-term financial security of a person with a severe disability, the most appropriate and specialized vehicle is the Registered Disability Savings Plan (RDSP). Julie’s situation aligns precisely with the objectives and eligibility criteria of this plan.

An RDSP is specifically designed to help parents and caregivers save for the long-term financial well-being of a person eligible for the Disability Tax Credit (DTC). Justin’s severe intellectual disabilities strongly indicate DTC eligibility, which is a prerequisite for opening an RDSP. The LLQP study guide emphasizes that RDSPs are unique because they allow for government support through grants and bonds, making them particularly effective for families with limited financial resources.

One of Julie’s key requirements is that the plan be eligible for government grants. RDSPs qualify for both the Canada Disability Savings Grant (CDSG) and the Canada Disability Savings Bond (CDSB). These incentives can significantly increase the value of contributions over time, even when the plan beneficiary or family has little or no income. Neither a GRRSP nor an RESP provides access to disability-specific government grants of this nature.

Additionally, Julie wants the funds to eventually provide Justin with an annual income, administered by her. RDSPs are designed to convert accumulated savings into disability assistance payments later in life, ensuring a structured income stream while allowing a parent or legal representative to manage the plan on behalf of the beneficiary.

A Group RRSP (GRRSP) is an employer-sponsored retirement savings vehicle and is completely inappropriate in this context. An RESP is intended for post-secondary education and does not meet Julie’s objective of lifetime income support for a disabled child.

The LLQP curriculum highlights RDSPs as a cornerstone planning tool for families supporting dependants with disabilities. Therefore, the correct and fully verified answer is Option C: An RDSP.

As with most Deferred Profit Sharing Plan (DPSP) funds, Sebastian’s accumulated balance is generally locked-in, which means it cannot be withdrawn in cash while still under the plan. Instead, he may transfer it to a Locked-In Retirement Account (LIRA) upon leaving his employment or retiring, ensuring the funds remain tax-deferred. LLQP guidelines state that DPSP funds are generally subject to locking-in provisions, which restrict withdrawals and are specifically aimed at providing retirement income​​.

Thus, contrary to options A and B, Sebastian cannot withdraw the DPSP funds for discretionary purposes, such as funding his sabbatical, because of these restrictions. Option C is incorrect, as transferring to a Life Income Fund (LIF) would only be appropriate once the funds are in a LIRA, typically when Sebastian is closer to retirement age and ready to begin income withdrawals.

The key feature of a defined contribution (DC) pension plan is the focus on contributions and investment performance, rather than a guaranteed retirement benefit. Contribution amounts and investment options are fundamental characteristics of DC plans.

Exact Extract:

"In a Defined Contribution Pension Plan (DCPP), members’ benefits depend on the contributions made and the investment returns earned."

(Reference: Segfunds-E313-2020-12-7ED, Chapter 1.3.11 Group Plans​)

Beneficiary changes in insurance contracts generally become effective once the insurer receives and processes the signed change form. This is supported by LLQP material, which specifies that changes to beneficiary designations must be documented and received by the insurer for the new designation to take effect. Since Linda is a revocable beneficiary, Luisa can make this change without requiring Linda's consent​​.

Option B is incorrect as revocable beneficiaries do not require consent for changes. Option C is too general, and D is incorrect because a formal written change form is typically required.

Both GICs and bonds are subject to inflation risk, meaning that if inflation rises faster than the returns generated by these fixed-income investments, the real value (purchasing power) of the investments decreases over time.

Exact Extract:

"Inflation risk refers to the possibility that the return on an investment will not keep up with the rate of inflation, eroding the real value of investment returns. Fixed-income investments like GICs and bonds are particularly susceptible to this risk."

(Reference: Segfunds-E313-2020-12-7ED, Chapter 1.4.3 Inflation Risk​)

Upon retirement, funds from a Deferred Profit Sharing Plan (DPSP) can be transferred on a tax-deferred basis to certain registered accounts, such as a Locked-In Retirement Account (LIRA). This option allows Aadi to defer taxes while preserving the funds for future retirement income. LLQP guidelines indicate that DPSP funds can be transferred to a LIRA or similar locked-in accounts under the tax-deferred status until they are eventually converted into income-paying vehicles, like a Life Income Fund (LIF) or a Registered Retirement Income Fund (RRIF)​​.

Options such as a TFSA or group RRIF are incorrect in this context because TFSAs do not permit direct DPSP transfers and RRIFs are typically used as income-producing accounts rather than transfer vehicles. A LIRA is specifically designed to hold locked-in funds from employer pension plans, allowing Aadi to keep the funds tax-sheltered until he needs to draw income from them during retirement.