FREE AFC Investment and Retirement Planning Questions and Answers

Question 1

A 25-year-old client is in a low tax bracket but expects their income and tax rate to increase significantly in the future.
They want to start saving for retirement in an IRA.
Which type of account would an AFC® most likely explain as being potentially more advantageous for this client's long-term tax situation?

Accepted Answer

Roth IRA

Answer

Traditional IRA

Answer

SEP IRA

Answer

SIMPLE IRA

Question 2

A client is leaving their job and has a significant balance in their 401(k). They want to move the funds to an IRA to gain more investment options while avoiding immediate taxes and penalties. Which of the following methods is the most secure and recommended way to accomplish this?

Accepted Answer

A direct rollover where funds are transferred from the 401(k) custodian to the IRA custodian.

Answer

An indirect rollover where a check is made out to the client.

Answer

A 401(k) loan followed by a deposit into the new IRA.

Answer

Cashing out the 401(k) and depositing the funds into an IRA within 90 days.

Question 3

Which of the following investment principles is primarily designed to reduce unsystematic (or diversifiable) risk by holding a variety of assets that do not move in the same direction at the same time?

Accepted Answer

Diversification

Answer

Market Timing

Answer

Dollar-Cost Averaging

Answer

Compounding

Question 4

A client earns $70,000 per year and their employer offers a 401(k) plan with a dollar-for-dollar match on contributions up to 4% of their salary. The client is currently contributing 2%. To receive the full employer match, what is the minimum additional annual amount the client must contribute?

Accepted Answer

$1,400

Answer

$700

Answer

$2,800

Answer

$2,100

Question 5

An individual has a Traditional IRA and was born in 1958. According to the SECURE 2.0 Act, at what age must they begin taking Required Minimum Distributions (RMDs)?

Accepted Answer

Age 73

Answer

Age 59 ½

Answer

Age 70 ½

Answer

Age 75

Question 6

When the Social Security Administration calculates a person's retirement benefit, what is the primary factor used to determine their Primary Insurance Amount (PIA)?

Accepted Answer

The average of the highest 35 years of inflation-indexed earnings.

Answer

The individual's highest single year of earnings.

Answer

The performance of the stock market in the five years before retirement.

Answer

The total number of years the individual paid into Social Security.