CSA Financial Aspects of Aging 3 — Questions and Answers
Question 1: When evaluating a long-term care insurance policy, which factor MOST directly determines the daily benefit amount needed?
- The client's current income tax bracket
- The average cost of care in the client's geographic area (Correct answer)
- The client's existing life insurance coverage
- The client's Social Security benefit amount
Correct answer: The average cost of care in the client's geographic area
The daily benefit amount should be based on the actual cost of care services in the client's local area, since costs vary significantly by region.
Question 2: A 68-year-old man has a $500,000 traditional IRA. His RMD for the year is $19,608. If he fails to take the RMD, what is the IRS penalty on the missed amount?
- 10% excise tax
- 25% excise tax (Correct answer)
- 50% excise tax
- 35% income tax surcharge
Correct answer: 25% excise tax
The SECURE 2.0 Act reduced the RMD failure penalty to 25% of the missed amount (reduced further to 10% if corrected promptly), replacing the prior 50% penalty.
Question 3: Which of the following is considered a 'countable asset' for Medicaid long-term care eligibility?
- Primary residence (when spouse resides there)
- Checking and savings accounts (Correct answer)
- One automobile regardless of value
- Irrevocable prepaid funeral contract
Correct answer: Checking and savings accounts
Checking and savings accounts are countable assets for Medicaid purposes, while a primary home (when a spouse lives there), one vehicle, and irrevocable burial contracts are typically exempt.
Question 4: A 75-year-old client withdraws $20,000 from her traditional IRA. How is this distribution taxed?
- As long-term capital gains at preferential rates
- As ordinary income in the year of distribution (Correct answer)
- As tax-free income since she is over 70½
- Subject only to the 3.8% net investment income tax
Correct answer: As ordinary income in the year of distribution
Traditional IRA distributions are taxed as ordinary income in the year they are received, regardless of the account holder's age.
Question 5: What does the 'Community Spouse Resource Allowance' (CSRA) protect in Medicaid planning?
- The institutionalized spouse's income
- A portion of the couple's assets for the spouse remaining at home (Correct answer)
- The family home from estate recovery
- Medicare premium costs for the community spouse
Correct answer: A portion of the couple's assets for the spouse remaining at home
The CSRA allows the community (non-institutionalized) spouse to retain a federally defined minimum and maximum share of the couple's countable assets.
Question 6: Which investment vehicle provides a guaranteed income stream for life and is most analogous to a private pension?
- Variable annuity without a living benefit rider
- Single premium immediate annuity (SPIA) (Correct answer)
- Equity-indexed annuity with cap rate
- Deferred variable annuity in accumulation phase
Correct answer: Single premium immediate annuity (SPIA)
A single premium immediate annuity (SPIA) converts a lump sum into a guaranteed lifetime income stream, functioning similarly to a defined benefit pension.
Question 7: Under the Employee Retirement Income Security Act (ERISA), what is the maximum percentage of a pension benefit that can be assigned to a former spouse via a Qualified Domestic Relations Order (QDRO)?
- 25%
- 50%
- No federal statutory maximum (Correct answer)
- 75%
Correct answer: No federal statutory maximum
ERISA does not set a maximum percentage — a QDRO can assign any portion of a pension benefit to an alternate payee, as determined by the divorce court.
CSA Financial Aspects of Aging 3
When evaluating a long-term care insurance policy, which factor MOST directly determines the daily benefit amount needed?