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Retirement & Investment 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 & Investment Planning flashcards as text

  1. A client aged 73 fails to take the required minimum distribution (RMD) from her traditional IRA for the year. What is the excise tax penalty on the amount not withdrawn?

    Answer: 25%

    Under SECURE 2.0 Act (2023), the penalty for missing an RMD was reduced from 50% to 25%, and may be further reduced to 10% if corrected promptly.

  2. Which of the following best describes sequence-of-returns risk in retirement planning?

    Answer: The risk that poor returns early in retirement deplete a portfolio before recovery

    Sequence-of-returns risk occurs when negative returns happen early in the distribution phase, causing withdrawals to lock in losses and permanently reduce the portfolio.

  3. A married client wants to maximize surviving spouse income from Social Security. Which strategy is generally most beneficial if both spouses have worked?

    Answer: The higher earner delays claiming until age 70

    Delaying the higher earner's benefit to age 70 maximizes the survivor benefit, since the surviving spouse inherits the larger of the two benefits.

  4. What distinguishes a SIMPLE IRA from a SEP IRA for a self-employed client?

    Answer: SIMPLE IRAs require employee elective deferrals and employer matching, while SEP IRAs are employer-only contributions

    SIMPLE IRAs involve salary deferrals plus mandatory employer matching or non-elective contributions, while SEP IRAs are funded solely by the employer.

  5. A client near retirement is concerned about interest rate risk. Which bond investment would be MOST sensitive to interest rate changes?

    Answer: A 30-year corporate bond

    Longer-duration bonds have greater price sensitivity to interest rate changes; a 30-year bond will experience the largest price decline when rates rise.

  6. A client wants to leave retirement assets to charity and minimize taxes for heirs. Which strategy is most tax-efficient?

    Answer: Leave traditional IRA assets to charity and Roth IRA or taxable accounts to heirs

    Charities are tax-exempt and can receive pre-tax IRA assets without paying income tax, while heirs benefit more from Roth or stepped-up basis accounts.

  7. Which of the following is the primary purpose of the 4% withdrawal rule in retirement income planning?

    Answer: Provide a sustainable withdrawal rate that avoids depleting a portfolio over 30 years

    The 4% rule (from the Trinity Study) suggests withdrawing 4% of the initial portfolio in year one and adjusting for inflation annually to sustain a 30-year retirement.