AFC Retirement & Investment Planning 5

Question 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 What is the excise tax penalty on the amount not withdrawn?

Accepted Answer

25%

Answer

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.

Question 2

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

Accepted Answer

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

Answer

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.

Question 3

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

Accepted Answer

The higher earner delays claiming until age 70

Answer

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

Question 4

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

Accepted Answer

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

Answer

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

Question 5

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

Accepted Answer

A 30-year corporate bond

Answer

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

AFC - Accredited Financial Counselor Practice Test

AFC - Accredited Financial Counselor Practice Test

AFC Retirement & Investment Planning 5