AFC Retirement & Investment Planning 2

Question 1

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

Accepted Answer

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

Answer

The conversion is tax-free before age 59 1/2

Answer

There is a 10% penalty on all conversions

Answer

The conversion reduces the tax bracket

Question 2

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

Accepted Answer

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

Answer

Risk that returns will be lower than expected overall

Answer

Risk of not diversifying across time periods

Answer

Risk of inflation eroding income

Question 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?

Accepted Answer

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

Answer

Both claim at 62

Answer

Both claim at FRA

Answer

Lower earner delays to 70, higher earner claims at 62

Question 4

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

Accepted Answer

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

Answer

To ensure retirees spend savings during their lifetime

Answer

To prevent accounts from exceeding balance thresholds

Answer

To fund Social Security

Question 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?

Accepted Answer

$15,000 (contributions only)

Answer

Nothing

Answer

$20,000 (full amount)

Answer

$5,000 (earnings only)

Question 6

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

Accepted Answer

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

Answer

Defined benefit plans are only for government employees

Answer

Defined contribution plans always provide larger benefits

Answer

Defined benefit plans require employee contributions