AFIP Tax Planning and Retirement Strategies Flashcards
6 cards from real AFIP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 AFIP Tax Planning and Retirement Strategies flashcards as text
Which retirement savings vehicle allows employees to contribute pre-tax dollars and is sponsored by a for-profit employer?
Answer: 401(k) plan
A 401(k) plan is an employer-sponsored defined contribution retirement plan available to employees of for-profit companies, allowing pre-tax salary deferrals.
What distinguishes a 'defined benefit' plan from a 'defined contribution' plan?
Answer: Defined benefit plans guarantee a specific retirement income; defined contribution plans depend on investment performance
Defined benefit plans (pensions) promise a specific monthly benefit at retirement, while defined contribution plans define only the contribution amount with no guaranteed benefit.
What is the primary purpose of a 'Section 1035 exchange' in the context of insurance and annuity products?
Answer: To exchange one annuity or life insurance policy for another without triggering a taxable event
A Section 1035 exchange allows policyholders to transfer the cash value from one life insurance or annuity contract to a new one without recognizing a taxable gain.
For a married couple filing jointly in the U.S., what is the primary benefit of 'income splitting' in retirement planning?
Answer: It may reduce the couple's overall tax burden by utilizing lower marginal tax brackets
Income splitting between spouses in retirement can keep combined income in lower marginal tax brackets, potentially reducing the household's total tax liability.
What is the 'catch-up contribution' provision in U.S. retirement law?
Answer: An additional contribution amount permitted for individuals aged 50 and older in retirement accounts
Catch-up contributions allow individuals aged 50 and older to contribute amounts above the standard annual limits to 401(k)s, IRAs, and other qualified retirement plans.
What is a 'qualified longevity annuity contract' (QLAC) and what planning problem does it address?
Answer: A deferred annuity that begins payments at an advanced age, reducing RMDs and insuring against outliving assets
A QLAC is a deferred income annuity purchased within a retirement account that can delay payments up to age 85, reducing RMDs and providing income protection for advanced age.