AFIP AFIP Tax Planning and Retirement Strategies 2

Question 1

Which retirement savings vehicle allows employees to contribute pre-tax dollars and is sponsored by a for-profit employer?

Accepted Answer

401(k) plan

Answer

A 401(k) plan is an employer-sponsored defined contribution retirement plan available to employees of for-profit companies, allowing pre-tax salary deferrals.

Question 2

What distinguishes a 'defined benefit' plan from a 'defined contribution' plan?

Accepted Answer

Defined benefit plans guarantee a specific retirement income; defined contribution plans depend on investment performance

Answer

Defined benefit plans (pensions) promise a specific monthly benefit at retirement, while defined contribution plans define only the contribution amount with no guaranteed benefit.

Question 3

What is the primary purpose of a 'Section 1035 exchange' in the context of insurance and annuity products?

Accepted Answer

To exchange one annuity or life insurance policy for another without triggering a taxable event

Answer

A Section 1035 exchange allows policyholders to transfer the cash value from one life insurance or annuity contract to a new one without recognizing a taxable gain.

Question 4

For a married couple filing jointly in the U.S., what is the primary benefit of 'income splitting' in retirement planning?

Accepted Answer

It may reduce the couple's overall tax burden by utilizing lower marginal tax brackets

Answer

Income splitting between spouses in retirement can keep combined income in lower marginal tax brackets, potentially reducing the household's total tax liability.

Question 5

What is the 'catch-up contribution' provision in U.S. retirement law?

Accepted Answer

An additional contribution amount permitted for individuals aged 50 and older in retirement accounts

Answer

Catch-up contributions allow individuals aged 50 and older to contribute amounts above the standard annual limits to 401(k)s, IRAs, and other qualified retirement plans.

(AFIP) Certified Association of Finance & Insurance Professionals Practice Test

(AFIP) Certified Association of Finance & Insurance Professionals Practice Test

AFIP AFIP Tax Planning and Retirement Strategies 2