CMPS Retirement and Long-Term Planning 4 — Questions and Answers
Question 1: A 55-year-old client separates from their employer and wants penalty-free access to their 401(k). Which rule allows this?
- Rule 72(t) substantially equal periodic payments
- The Rule of 55 for separation from service (Correct answer)
- The 10-year forward averaging rule
- The age 59½ exception for hardship distributions
Correct answer: The Rule of 55 for separation from service
The Rule of 55 allows penalty-free 401(k) distributions if the employee separates from service in or after the year they turn 55.
Question 2: When integrating mortgage planning with retirement income, what is the primary advantage of a 'housing wealth first' strategy?
- It eliminates property taxes during the first decade of retirement
- It preserves investment portfolio longevity by using home equity early and allowing investments to grow (Correct answer)
- It guarantees the home will appreciate faster than the stock market
- It prevents the need to purchase long-term care insurance
Correct answer: It preserves investment portfolio longevity by using home equity early and allowing investments to grow
Using home equity early in retirement (via HECM or downsizing) allows the investment portfolio more time to compound, which can extend overall retirement sustainability.
Question 3: Which scenario correctly describes how a Roth conversion ladder benefits a client who retires early at age 50?
- Roth conversions allow immediate penalty-free withdrawals of converted amounts
- Converted amounts can be withdrawn penalty-free after a 5-year waiting period per conversion (Correct answer)
- Roth conversions eliminate required minimum distributions starting at age 50
- Converting to Roth avoids all federal income taxes on the converted amount
Correct answer: Converted amounts can be withdrawn penalty-free after a 5-year waiting period per conversion
Each Roth conversion has its own 5-year clock; after 5 years, the converted principal (not earnings) can be withdrawn penalty-free, enabling a ladder for early retirees.
Question 4: A CMPS professional is analyzing a client's debt-to-income ratio for mortgage qualification at age 60. Which retirement income source is typically excluded from qualifying income?
- Social Security benefits
- Pension distributions
- 401(k) distributions
- Unemployment benefits (Correct answer)
Correct answer: Unemployment benefits
Unemployment benefits are temporary and typically not counted as qualifying income for mortgage underwriting, unlike stable retirement income sources.
Question 5: What is the primary purpose of a Qualified Longevity Annuity Contract (QLAC) within a retirement account?
- To allow unlimited contributions to an IRA beyond normal limits
- To defer RMDs on the QLAC portion of the account and provide guaranteed income in advanced age (Correct answer)
- To convert taxable retirement accounts to Roth accounts without tax consequences
- To provide tax-free withdrawals for long-term care expenses
Correct answer: To defer RMDs on the QLAC portion of the account and provide guaranteed income in advanced age
A QLAC allows retirees to use a portion of their IRA or 401(k) to purchase a deferred income annuity, reducing RMDs and guaranteeing income starting as late as age 85.
Question 6: A married couple asks whether they should take a joint-and-survivor benefit or the higher single-life pension option. Which factor most strongly supports choosing the single-life option?
- The spouse has substantial independent income and the pensioner is in poor health (Correct answer)
- The couple has no life insurance and no other retirement savings
- The spouse is 10 years younger than the pensioner
- The couple wants to maximize income for both during joint lifetimes
Correct answer: The spouse has substantial independent income and the pensioner is in poor health
If the spouse has independent income and the pensioner is in poor health (shorter life expectancy), the higher single-life payment may provide more total lifetime income.
Question 7: Under the SECURE 2.0 Act, what change was made to the age at which RMDs must begin for those born in 1951 or later?
- RMD age was reduced from 72 to 70½
- RMD age was increased from 72 to 73, and will increase to 75 for those born in 1960 or later (Correct answer)
- RMDs were eliminated entirely for accounts under $500,000
- RMD age was set at 75 for all account holders regardless of birth year
Correct answer: RMD age was increased from 72 to 73, and will increase to 75 for those born in 1960 or later
SECURE 2.0 raised the RMD age to 73 for those born between 1951 and 1959, and to 75 for those born in 1960 or later.
CMPS Retirement and Long-Term Planning 4
A 55-year-old client separates from their employer and wants penalty-free access to their 401(k).
Which rule allows this?