CRC Retirement Planning 4

Question 1

A 403(b) plan is most commonly offered by which type of employer?

Accepted Answer

Non-profit organizations, educational institutions, and hospitals

Answer

403(b) plans are tax-sheltered annuity plans available to employees of public schools, non-profits, and certain other tax-exempt organizations under IRC §403(b).

Question 2

A retiree converts $50,000 of traditional IRA assets to a Roth IRA. The converted amount is treated as:

Accepted Answer

Ordinary income in the year of conversion

Answer

Roth IRA conversions are included in ordinary income in the year of conversion and taxed at marginal rates.

Question 3

Which of the following is a characteristic of a cash balance pension plan?

Accepted Answer

The employer bears the investment risk and guarantees a hypothetical account balance

Answer

In a cash balance plan, the employer credits participants with a pay credit and an interest credit, bearing all investment risk while providing a stated hypothetical account balance.

Question 4

The 'net unrealized appreciation' (NUA) strategy allows an employee to:

Accepted Answer

Pay capital gains tax rates (instead of ordinary income rates) on the appreciation of employer stock distributed from a plan

Answer

NUA allows the appreciation in employer stock distributed in-kind from a qualified plan to be taxed at long-term capital gains rates rather than ordinary income rates.

Question 5

In retirement planning, what does the term 'replacement ratio' refer to?

Accepted Answer

The percentage of pre-retirement income needed to maintain the same standard of living in retirement

Answer

The replacement ratio is the percentage of pre-retirement income that a retiree needs to maintain their lifestyle; commonly estimated at 70–90%.

(CRC) Certified Retirement Counselor Practice Test

(CRC) Certified Retirement Counselor Practice Test

CRC Retirement Planning 4