AFC Retirement and Estate Planning 2

Question 1

A married couple wants to minimize estate taxes. Which strategy allows one spouse to use the other's unused federal estate tax exemption?

Accepted Answer

Portability election

Answer

Portability allows a surviving spouse to elect to use the deceased spouse's unused federal estate tax exemption by filing an estate tax return.

Question 2

Which type of IRA contribution is made with after-tax dollars, allowing qualified withdrawals to be completely tax-free?

Accepted Answer

Roth IRA

Answer

Roth IRA contributions are made with after-tax dollars, and qualified distributions in retirement are tax-free.

Question 3

A 55-year-old client separates from service in the year they turn 55. Which penalty exception may allow them to take 401(k) distributions without the 10% early withdrawal penalty?

Accepted Answer

Rule of 55

Answer

The Rule of 55 allows penalty-free 401(k) withdrawals if you separate from service in or after the year you turn 55.

Question 4

Which estate planning document designates who will manage an individual's financial affairs if they become incapacitated?

Accepted Answer

Durable power of attorney

Answer

A durable power of attorney designates an agent to manage financial and legal decisions if the principal becomes incapacitated.

Question 5

What is the primary tax advantage of a Health Savings Account (HSA) in the context of retirement planning?

Accepted Answer

Contributions are tax-deductible and withdrawals for any purpose after 65 are penalty-free

Answer

HSAs offer a triple tax advantage: deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses; after 65, withdrawals for any purpose avoid the penalty (though taxed as ordinary income if non-medical).

AFC - Accredited Financial Counselor Practice Test

AFC - Accredited Financial Counselor Practice Test

AFC Retirement and Estate Planning 2