CLU Retirement and Wealth Management 2

Question 1

A 55-year-old client wants to withdraw from their 401(k) to fund a business venture. Which exception to the 10% early withdrawal penalty would NOT apply in this scenario?

Accepted Answer

First-time homebuyer exception

Answer

The first-time homebuyer exception applies to IRAs only, not to 401(k) plans.

Question 2

What is the primary advantage of a Roth conversion ladder for early retirement planning?

Accepted Answer

Tax-free access to converted principal after 5 years without penalty

Answer

Each Roth conversion becomes penalty-free after its own 5-year holding period, allowing early retirees to access funds before age 59½.

Question 3

A defined benefit pension plan uses a 'final average pay' formula. An employee's last 5 years of salary are $80k, $85k, $88k, $90k, and $92k. What is the final average pay used in the benefit calculation?

Accepted Answer

$87,000

Answer

Final average pay is calculated as the arithmetic mean of the specified salary years: ($80k+$85k+$88k+$90k+$92k)/5 = $87,000.

Question 4

Which Social Security claiming strategy allows a married couple to maximize lifetime benefits when one spouse has significantly higher earnings?

Accepted Answer

Higher earner delays to age 70; lower earner claims early for income

Answer

The higher earner's delayed credits maximize the survivor benefit, while the lower earner's early claim provides needed income during the deferral period.

Question 5

Under ERISA, what is the maximum period a defined contribution plan can require for an employee to become fully vested under a cliff vesting schedule?

Accepted Answer

3 years

Answer

ERISA requires cliff vesting to be completed within 3 years for defined contribution plans, meaning 100% vesting by year 3.

CLU - Chartered Life Underwriter Practice Test

CLU - Chartered Life Underwriter Practice Test

CLU Retirement and Wealth Management 2