AFK AFK Retirement Planning 3

Question 1

What is the primary advantage of a SEP IRA for a self-employed individual compared to a traditional IRA?

Accepted Answer

Much higher contribution limits

Answer

A SEP IRA allows contributions up to 25% of net self-employment income (up to $69,000 in 2024), far exceeding the $7,000 traditional IRA limit.

Question 2

What is the 4% rule in retirement planning?

Accepted Answer

Withdraw 4% of the portfolio in year one, then adjust for inflation each year

Answer

The 4% rule suggests withdrawing 4% of a retirement portfolio in the first year and adjusting annually for inflation, aiming for a 30-year portfolio lifespan.

Question 3

Which account type is NOT subject to required minimum distributions during the original owner's lifetime?

Accepted Answer

Roth IRA

Answer

Roth IRAs are not subject to RMDs during the original owner's lifetime because contributions were made with after-tax dollars.

Question 4

A SIMPLE IRA is designed for employers with how many employees or fewer?

Accepted Answer

100

Answer

SIMPLE IRAs are available to employers with 100 or fewer employees who received at least $5,000 in compensation in the preceding year.

Question 5

What is a Roth conversion, and what is its primary tax consequence?

Accepted Answer

Transferring traditional IRA funds to a Roth IRA; the converted amount is taxable as ordinary income

Answer

A Roth conversion moves pre-tax funds from a traditional IRA to a Roth IRA, and the converted amount is included in taxable income in the year of conversion.

AFK - Assessment of Fundamental Knowledge Practice Test

AFK - Assessment of Fundamental Knowledge Practice Test

AFK AFK Retirement Planning 3