Retirement Planning for Financial Advisors Flashcards

What is the penalty for failing to take a Required Minimum Distribution (RMD) from a retirement account?

Answer: 25% excise tax on the amount not withdrawn (reduced to 10% if corrected timely)

SECURE 2.0 reduced the RMD failure penalty to a 25% excise tax on the shortfall, further reduced to 10% if corrected within two years.

A client wants to transfer retirement assets from one IRA to another without tax consequences. The safest method is:

Answer: Direct trustee-to-trustee transfer

A direct trustee-to-trustee transfer moves assets between IRAs without the client ever receiving the funds, avoiding mandatory withholding and the 60-day rollover deadline.

For Social Security retirement benefits, the full retirement age (FRA) for individuals born in 1960 or later is:

Answer: 67

For individuals born in 1960 or later, the full retirement age for Social Security benefits is 67.

Which ERISA provision requires employer-sponsored retirement plans to provide benefits to a non-working spouse upon the employee's death?

Answer: Qualified Joint and Survivor Annuity (QJSA)

ERISA requires defined benefit plans and certain defined contribution plans to offer a Qualified Joint and Survivor Annuity, protecting the non-employee spouse at the participant's death.

A 401(k) participant who separates from service at age 55 can take distributions without the 10% early withdrawal penalty under which rule?

Answer: Age 55 separation from service exception

The age 55 exception allows employees who separate from service in the year they turn 55 or later to take 401(k) distributions penalty-free from that plan.

What is the primary difference between a SIMPLE IRA and a SEP-IRA?

Answer: SIMPLE IRAs allow employee salary deferrals; SEP-IRAs are funded only by employer contributions

SIMPLE IRAs allow employees to make salary deferral contributions and require employer contributions, while SEP-IRAs are funded entirely by employer contributions with no employee deferrals.