AFC Retirement & Investment Planning 4

Question 1

A 58-year-old client wants to withdraw from her traditional IRA due to a financial hardship. What is the federal penalty tax for early withdrawal?

Accepted Answer

10%

Answer

Withdrawals from a traditional IRA before age 59½ are subject to a 10% early withdrawal penalty in addition to ordinary income tax.

Question 2

Which of the following investment strategies involves systematically investing a fixed dollar amount at regular intervals regardless of market price?

Accepted Answer

Dollar-cost averaging

Answer

Dollar-cost averaging reduces the impact of volatility by purchasing more shares when prices are low and fewer when prices are high.

Question 3

A client has a defined benefit pension plan. Which factor primarily determines the monthly benefit at retirement?

Accepted Answer

Years of service and final salary

Answer

Defined benefit plans calculate retirement income using a formula that typically includes years of service and the employee's salary history.

Question 4

What is the primary tax advantage of a Health Savings Account (HSA) when used as a retirement savings tool after age 65?

Accepted Answer

Withdrawals for any purpose are penalty-free and taxed as ordinary income

Answer

After age 65, HSA funds can be withdrawn for any purpose without a penalty, though non-medical withdrawals are taxed as ordinary income like a traditional IRA.

Question 5

A client's portfolio has a standard deviation of 15% and an expected return of 10%. The risk-free rate is 3%. What does the Sharpe ratio measure?

Accepted Answer

Excess return earned per unit of total risk

Answer

The Sharpe ratio is calculated as (portfolio return − risk-free rate) / standard deviation, measuring return earned per unit of risk taken.

AFC - Accredited Financial Counselor Practice Test

AFC - Accredited Financial Counselor Practice Test

AFC Retirement & Investment Planning 4