Certified Trust and Fiduciary Advisor (CTFA) Practice Exam

Constructive receipt is a tax concept that refers to the situation where an individual or entity has access to funds or property but has not physically received it yet. It essentially means that income is considered received and taxable, even if it hasn’t been cashed or withdrawn.

The correct answer relates closely to non-qualified deferred compensation plans, which can often involve situations where income may be deferred for tax purposes. Under constructive receipt, if an employee has a right to a payment and it is made available to them, even if they choose not to take it, they are often taxed on it. This principle aptly applies to deferred compensation plans where the employee might not receive the funds immediately but has control over when they can receive it, thus triggering the tax liability at the time of availability.

The other choices, while pertaining to various aspects of tax treatment, do not directly capture the essence of constructive receipt in the same way. Qualified retirement contributions, for instance, refer to pre-tax contributions that allow for tax-deferred growth, but do not involve the concept of being able to access or have control over a payment in a manner that constitutes constructive receipt. Tax-deferred accounts also deal with deferring tax liabilities but are distinct from how income can be considered constructively received.