Retirement and Estate Planning Flashcards
7 cards from real AFC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Retirement and Estate Planning flashcards as text
A client age 73 fails to take their Required Minimum Distribution (RMD) for the year. What is the penalty for the missed RMD under current law (post-SECURE 2.0)?
Answer: 25% of the amount not withdrawn, reducible to 10% if corrected timely
SECURE 2.0 reduced the RMD failure penalty from 50% to 25%, further reducible to 10% if the error is corrected within the correction window.
Which type of trust is specifically designed to provide income to a surviving spouse and ultimately pass assets to children from a prior marriage?
Answer: QTIP trust
A Qualified Terminable Interest Property (QTIP) trust provides income to a surviving spouse while preserving principal to pass to designated remainder beneficiaries such as children from a prior marriage.
What is the primary purpose of a 'stretch IRA' strategy for non-spouse beneficiaries under the SECURE Act?
Answer: It is no longer available; non-spouse beneficiaries must deplete inherited IRAs within 10 years
The SECURE Act (2019) eliminated the stretch IRA for most non-spouse beneficiaries, requiring them to deplete inherited IRAs within 10 years of the account owner's death.
A client wants to transfer wealth to grandchildren while minimizing transfer taxes. Which tax is specifically designed to prevent skipping a generation of estate taxation?
Answer: Generation-Skipping Transfer (GST) tax
The Generation-Skipping Transfer (GST) tax is imposed on transfers to 'skip persons' (typically grandchildren) to prevent avoiding estate tax for a generation.
Which Social Security claiming strategy involves one spouse claiming spousal benefits while the other delays to earn delayed retirement credits?
Answer: Restricted application for spousal benefits
The restricted application strategy (still available for those born before January 2, 1954) allows a spouse at full retirement age to claim only spousal benefits while their own benefit continues to grow.
What is a 'step-up in basis' and how does it benefit heirs receiving inherited assets?
Answer: It increases the cost basis of inherited assets to fair market value at the decedent's death, reducing capital gains taxes
A step-up in basis resets the cost basis of inherited assets to their fair market value at the date of the decedent's death, minimizing capital gains tax when heirs sell.
Which retirement income strategy involves purchasing an annuity to cover essential expenses, ensuring guaranteed income for life?
Answer: Floor-and-upside approach
The floor-and-upside approach uses guaranteed income sources (like annuities or Social Security) to cover essential expenses, with remaining assets invested for growth.