CFG Retirement Income & Estate Planning 2 — Questions and Answers
Question 1: A 73-year-old client failed to take her required minimum distribution (RMD) from her IRA for the current year. What is the IRS excise tax penalty on the amount not withdrawn?
- 10%
- 25% (Correct answer)
- 50%
- 15%
Correct answer: 25%
The SECURE 2.0 Act reduced the RMD failure penalty from 50% to 25% (and 10% if corrected in a timely manner).
Question 2: Which estate planning tool allows an elderly client to transfer a home to heirs while retaining the right to live there for life, avoiding probate?
- Revocable living trust
- Lady Bird deed (enhanced life estate) (Correct answer)
- QTIP trust
- Charitable remainder trust
Correct answer: Lady Bird deed (enhanced life estate)
A Lady Bird deed (enhanced life estate deed) lets the owner retain control and lifetime use of the property while automatically transferring it to named beneficiaries at death outside of probate.
Question 3: A client wants guaranteed income for both herself and her spouse, with payments continuing to the survivor. Which annuity payout option best fits?
- Life-only annuity
- Period-certain annuity
- Joint-and-survivor annuity (Correct answer)
- Installment refund annuity
Correct answer: Joint-and-survivor annuity
A joint-and-survivor annuity provides income for both spouses' lifetimes, with payments continuing (often at a reduced rate) after the first spouse dies.
Question 4: Under the SECURE 2.0 Act, what is the new age at which RMDs must begin for individuals born between 1951 and 1959?
- 70½
- 72
- 73 (Correct answer)
- 75
Correct answer: 73
SECURE 2.0 raised the RMD starting age to 73 for individuals born between 1951 and 1959, and to 75 for those born in 1960 or later.
Question 5: A widower inherits a traditional IRA from his non-spouse sibling. Under the SECURE Act 2.0, which rule generally applies to his distributions?
- He must deplete the account within 5 years
- He must take RMDs annually and deplete within 10 years (Correct answer)
- He can stretch distributions over his own life expectancy
- No distributions are required until age 73
Correct answer: He must take RMDs annually and deplete within 10 years
Most non-spouse beneficiaries must deplete inherited IRAs within 10 years, and if the original owner had already started RMDs, the beneficiary must also take annual distributions.
Question 6: Which Social Security strategy allows a higher-earning spouse to delay benefits while the lower-earning spouse files early, maximizing the household's total lifetime income?
- File and suspend
- Restricted application
- Coordinated claiming (Correct answer)
- Delayed retirement credits stacking
Correct answer: Coordinated claiming
Coordinated claiming involves one spouse filing early (often the lower earner) while the higher earner delays to age 70, maximizing the survivor benefit and total household income.
Question 7: An 80-year-old client has a large estate and wants to reduce estate taxes while making charitable gifts. Which strategy provides income to the client during life with the remainder passing to charity?
- Donor-advised fund
- Charitable lead trust
- Charitable remainder trust (Correct answer)
- Private foundation
Correct answer: Charitable remainder trust
A charitable remainder trust (CRT) pays income to the client (or other beneficiaries) for life or a term, with the remaining assets passing to the designated charity.
CFG Retirement Income & Estate Planning 2
A 73-year-old client failed to take her required minimum distribution (RMD) from her IRA for the current year.
What is the IRS excise tax penalty on the amount not withdrawn?