CFC Retirement Planning 1 — Questions and Answers
Question 1: What is the 2024 annual contribution limit for a 401(k) plan for employees under age 50?
- $7,000
- $23,000 (Correct answer)
- $66,000
- $15,500
Correct answer: $23,000
For 2024, the employee elective deferral limit for 401(k) plans is $23,000 for participants under age 50.
Question 2: Under IRS rules, required minimum distributions (RMDs) from traditional IRAs must generally begin at age:
- 59½
- 65
- 73 (Correct answer)
- 70½
Correct answer: 73
The SECURE 2.0 Act raised the RMD starting age to 73 for individuals who reach age 72 after December 31, 2022.
Question 3: Which retirement plan feature allows employees to make after-tax contributions that grow tax-free?
- Traditional 401(k)
- Roth 401(k) (Correct answer)
- SEP-IRA
- Defined benefit plan
Correct answer: Roth 401(k)
Roth 401(k) contributions are made with after-tax dollars, and qualified withdrawals including earnings are entirely tax-free.
Question 4: A defined benefit pension plan provides retirement income based on:
- Account balance at retirement
- A formula using salary and years of service (Correct answer)
- Employee contributions only
- Investment returns in the plan
Correct answer: A formula using salary and years of service
Defined benefit plans calculate benefits using a formula that typically incorporates final average salary, years of service, and a benefit multiplier.
Question 5: The '4% rule' in retirement planning suggests retirees can withdraw 4% of their initial portfolio annually with a high probability of:
- Maximizing investment returns
- Not outliving assets over a 30-year retirement (Correct answer)
- Avoiding all taxes on withdrawals
- Generating guaranteed income for life
Correct answer: Not outliving assets over a 30-year retirement
Research by Bengen showed that a 4% initial withdrawal rate, adjusted annually for inflation, historically sustained a 30-year retirement across market cycles.
Question 6: Which retirement account allows self-employed individuals to contribute both as employer and employee, potentially contributing up to 25% of compensation plus elective deferrals?
- Simple IRA
- Traditional IRA
- Solo 401(k) (Correct answer)
- Roth IRA
Correct answer: Solo 401(k)
A Solo 401(k) allows self-employed individuals to make both employee elective deferrals and employer profit-sharing contributions, maximizing contribution potential.
CFC Retirement Planning 1
What is the 2024 annual contribution limit for a 401(k) plan for employees under age 50?