FiCEP Investment and Retirement Basics 4

Question 1

A client aged 72 fails to take their Required Minimum Distribution (RMD) from a traditional IRA. What is the IRS penalty on the amount not withdrawn?

Accepted Answer

25% of the RMD amount

Answer

The SECURE 2.0 Act reduced the RMD penalty from 50% to 25% (further reduced to 10% if corrected timely), effective 2023.

Question 2

Which investment concept describes the risk that an investor will be forced to reinvest proceeds at a lower interest rate than the original investment?

Accepted Answer

Reinvestment risk

Answer

Reinvestment risk is the possibility that cash flows from an investment will earn less when reinvested in a new security.

Question 3

A 403(b) plan is primarily available to employees of which type of organizations?

Accepted Answer

Tax-exempt organizations and public schools

Answer

403(b) plans are retirement savings plans for employees of tax-exempt organizations (501(c)(3)) and public educational institutions.

Question 4

What does the 'glide path' refer to in a target-date retirement fund?

Accepted Answer

The gradual shift from aggressive to conservative asset allocation as the target date approaches

Answer

A glide path is the formula that defines how a target-date fund's asset allocation shifts—typically from equities toward bonds—as the investor nears retirement.

Question 5

A client wants to withdraw $5,000 from their Roth IRA at age 45. The account was opened 6 years ago and has $8,000 in contributions and $2,000 in earnings. What is the tax and penalty consequence?

Accepted Answer

No tax or penalty since the account is over 5 years old

Answer

Roth IRA contributions (not earnings) can always be withdrawn tax- and penalty-free; since the $5,000 withdrawal is within the $8,000 contribution basis, there is no tax or penalty.

FiCEP - Financial Counseling Certification Program Practice Test

FiCEP - Financial Counseling Certification Program Practice Test

FiCEP Investment and Retirement Basics 4