AFIP AFIP Tax Planning and Retirement Strategies

Question 1

What is the primary tax advantage of a Traditional IRA contribution for an eligible U.S. taxpayer?

Accepted Answer

Contributions may be tax-deductible, reducing current taxable income

Answer

Traditional IRA contributions may be tax-deductible depending on income and workplace plan participation, reducing the taxpayer's current-year taxable income.

Question 2

How does a Roth IRA differ from a Traditional IRA regarding tax treatment?

Accepted Answer

Roth IRA contributions are after-tax; qualified withdrawals are tax-free

Answer

Roth IRA contributions are made with after-tax dollars, but qualified withdrawals in retirement are completely tax-free, including earnings.

Question 3

What is the IRS penalty for taking an early withdrawal from a 401(k) plan before age 59½?

Accepted Answer

10% penalty tax plus ordinary income tax

Answer

Early withdrawals from a 401(k) before age 59½ are subject to a 10% early withdrawal penalty in addition to ordinary income taxes on the distribution.

Question 4

What is a Required Minimum Distribution (RMD) and when does it begin for a Traditional IRA?

Accepted Answer

A mandatory annual withdrawal from retirement accounts, beginning at age 73 under SECURE 2.0

Answer

RMDs are mandatory annual withdrawals from tax-deferred retirement accounts; under the SECURE 2.0 Act, they begin at age 73 for most taxpayers.

Question 5

Which type of annuity provides guaranteed income payments for the rest of the owner's life, regardless of how long they live?

Accepted Answer

Life annuity

Answer

A life annuity guarantees income payments for the duration of the annuitant's lifetime, providing protection against the risk of outliving retirement assets.

(AFIP) Certified Association of Finance & Insurance Professionals Practice Test

(AFIP) Certified Association of Finance & Insurance Professionals Practice Test

AFIP AFIP Tax Planning and Retirement Strategies