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 of the following correctly describes the 'step-up in basis' rule for inherited assets in U.S. tax law?
Answer: The cost basis of inherited assets is reset to fair market value at the time of the owner's death
Under the step-up in basis rule, inherited assets receive a new cost basis equal to their fair market value on the date of the original owner's death, eliminating embedded capital gains.
What is the 'Saver's Credit' (Retirement Savings Contributions Credit) designed to do?
Answer: Offer a tax credit to low- and moderate-income individuals who contribute to retirement accounts
The Saver's Credit is a non-refundable tax credit of up to 50% of retirement contributions, available to eligible low- and moderate-income taxpayers to encourage retirement savings.
In the context of retirement planning, what does 'sequence of returns risk' mean?
Answer: The danger that poor investment returns early in retirement can permanently deplete a portfolio
Sequence of returns risk is the danger that experiencing negative returns early in retirement, while making withdrawals, can severely and permanently reduce portfolio longevity.
What is the tax treatment of Social Security benefits for higher-income retirees in the United States?
Answer: Up to 85% of Social Security benefits may be subject to federal income tax depending on combined income
Depending on 'combined income' (adjusted gross income + nontaxable interest + half of Social Security), up to 85% of Social Security benefits may be federally taxable.
What is a 'Stretch IRA' strategy, and how did the SECURE Act affect it?
Answer: A strategy where non-spouse beneficiaries spread IRA distributions over their lifetime; the SECURE Act limited most non-spouse beneficiaries to a 10-year distribution window
The Stretch IRA allowed non-spouse beneficiaries to take RMDs over their own life expectancy; the SECURE Act eliminated this for most non-spouse beneficiaries, replacing it with a 10-year rule.
Which strategy involves converting Traditional IRA funds to a Roth IRA during a year when the account holder has unusually low income?
Answer: A Roth conversion
A Roth conversion involves transferring funds from a Traditional IRA to a Roth IRA, with the converted amount taxed as ordinary income — most advantageous during low-income years.