FFC FFC Retirement and Estate Planning 2 — Questions and Answers
Question 1: What is the federal estate tax exemption amount per individual for 2024?
- $5.49 million
- $9.07 million
- $13.61 million (Correct answer)
- $15 million
Correct answer: $13.61 million
The federal estate tax exemption for 2024 is $13.61 million per individual, meaning estates below this threshold owe no federal estate tax.
Question 2: A client wants to ensure their IRA passes directly to their children without going through probate. What is the most effective way to accomplish this?
- Specify heirs in a will
- Name the children as beneficiaries on the IRA beneficiary designation form (Correct answer)
- Place the IRA into a revocable living trust
- Establish a joint tenancy on the account
Correct answer: Name the children as beneficiaries on the IRA beneficiary designation form
Beneficiary designation forms on retirement accounts override will instructions and allow assets to transfer directly to named individuals outside of probate.
Question 3: Which retirement income strategy involves converting a lump-sum into a series of guaranteed payments for life, protecting against longevity risk?
- Systematic withdrawal plan
- Annuitization (Correct answer)
- Dividend reinvestment
- Bond laddering
Correct answer: Annuitization
Annuitization converts a lump-sum into a stream of guaranteed lifetime income payments from an insurance company, eliminating the risk of outliving one's assets.
Question 4: What is 'portability' in the context of federal estate tax planning for married couples?
- The ability to move retirement assets between spouses tax-free
- Allowing a surviving spouse to use the deceased spouse's unused estate tax exemption (Correct answer)
- The right to transfer real property between states without triggering estate taxes
- Rolling over pension benefits to a surviving spouse's IRA
Correct answer: Allowing a surviving spouse to use the deceased spouse's unused estate tax exemption
Portability allows a surviving spouse to elect to use the deceased spouse's unused federal estate tax exemption, effectively doubling the couple's total exemption with proper filing.
Question 5: What is a key advantage of a Health Savings Account (HSA) in retirement planning beyond its primary healthcare purpose?
- Contributions are unlimited and tax-free
- After age 65, funds can be withdrawn for any purpose with only ordinary income tax, making it similar to a traditional IRA (Correct answer)
- HSA funds earn guaranteed interest from the government
- Withdrawals for non-medical expenses are always penalty-free at any age
Correct answer: After age 65, funds can be withdrawn for any purpose with only ordinary income tax, making it similar to a traditional IRA
After age 65, HSA withdrawals for non-medical expenses are subject only to ordinary income tax (no 10% penalty), making the HSA function like a traditional IRA with the added bonus of tax-free medical withdrawals.
Question 6: In a defined benefit pension plan, how is the retirement benefit typically calculated?
- Based solely on the employee's total contributions plus investment returns
- Using a formula involving years of service and final average salary (Correct answer)
- Determined by the market performance of the plan's investment portfolio
- Equally distributed among all participants regardless of tenure
Correct answer: Using a formula involving years of service and final average salary
Defined benefit plans use a formula—commonly years of service multiplied by a percentage of final average salary—to calculate a guaranteed monthly benefit, regardless of market performance.
FFC FFC Retirement and Estate Planning 2
What is the federal estate tax exemption amount per individual for 2024?