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Retirement & Investment Planning Flashcards

6 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 6 Retirement & Investment Planning flashcards as text

  1. A client is considering a Traditional IRA to Roth IRA conversion. What is the primary tax consequence?

    Answer: The converted amount is added to taxable income in the year of conversion

    The converted amount is treated as ordinary income in the year of conversion since money moves from tax-deferred to tax-free status.

  2. What is sequence of returns risk and why is it dangerous for retirees?

    Answer: Risk that poor returns early in retirement permanently deplete a portfolio when combined with withdrawals

    Poor returns early in retirement, when the portfolio is largest and withdrawals compound losses, can permanently deplete savings.

  3. A married couple is deciding when to claim Social Security. The higher earner's FRA benefit is $2,800/month. What strategy maximizes lifetime benefits?

    Answer: Higher earner delays to 70 while lower earner claims earlier for household income

    Delaying the higher earner's benefit to 70 maximizes both their retirement benefit and the survivor benefit.

  4. What is the purpose of Required Minimum Distributions from Traditional retirement accounts?

    Answer: To collect income taxes on previously tax-deferred contributions and earnings

    RMDs ensure taxes are eventually collected on tax-deferred retirement savings.

  5. A 45-year-old client wants to withdraw $20,000 from their Roth IRA. They have $15,000 in contributions and $5,000 in earnings. How much is tax and penalty-free?

    Answer: $15,000 (contributions only)

    Roth IRA contributions can always be withdrawn tax and penalty-free since they were made with after-tax dollars.

  6. What is the primary difference between a defined benefit plan and a defined contribution plan?

    Answer: Defined benefit plans guarantee specific retirement income; defined contribution plans specify contributions with no guaranteed outcome

    A defined benefit plan promises specific retirement income based on salary and service, while a defined contribution plan specifies contributions with the outcome depending on investment performance.