FFC Retirement and Estate Planning Flashcards

What is the federal estate tax exemption amount per individual for 2024?

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.

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?

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.

Which retirement income strategy involves converting a lump-sum into a series of guaranteed payments for life, protecting against longevity risk?

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.

What is 'portability' in the context of federal estate tax planning for married couples?

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.

What is a key advantage of a Health Savings Account (HSA) in retirement planning beyond its primary healthcare purpose?

Answer: After age 65, funds can be withdrawn for any purpose with only ordinary income tax, making it similar to a traditional IRA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.

In a defined benefit pension plan, how is the retirement benefit typically calculated?

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.