AFIP AFIP Tax Planning and Retirement Strategies 3

Question 1

Which of the following correctly describes the 'step-up in basis' rule for inherited assets in U.S. tax law?

Accepted Answer

The cost basis of inherited assets is reset to fair market value at the time of the owner's death

Answer

Under the step-up in basis rule, inherited assets receive a new cost basis equal to their fair market value on the date of the original owner's death, eliminating embedded capital gains.

Question 2

What is the 'Saver's Credit' (Retirement Savings Contributions Credit) designed to do?

Accepted Answer

Offer a tax credit to low- and moderate-income individuals who contribute to retirement accounts

Answer

The Saver's Credit is a non-refundable tax credit of up to 50% of retirement contributions, available to eligible low- and moderate-income taxpayers to encourage retirement savings.

Question 3

In the context of retirement planning, what does 'sequence of returns risk' mean?

Accepted Answer

The danger that poor investment returns early in retirement can permanently deplete a portfolio

Answer

Sequence of returns risk is the danger that experiencing negative returns early in retirement, while making withdrawals, can severely and permanently reduce portfolio longevity.

Question 4

What is the tax treatment of Social Security benefits for higher-income retirees in the United States?

Accepted Answer

Up to 85% of Social Security benefits may be subject to federal income tax depending on combined income

Answer

Depending on 'combined income' (adjusted gross income + nontaxable interest + half of Social Security), up to 85% of Social Security benefits may be federally taxable.

Question 5

What is a 'Stretch IRA' strategy, and how did the SECURE Act affect it?

Accepted Answer

A strategy where non-spouse beneficiaries spread IRA distributions over their lifetime; the SECURE Act limited most non-spouse beneficiaries to a 10-year distribution window

Answer

The Stretch IRA allowed non-spouse beneficiaries to take RMDs over their own life expectancy; the SECURE Act eliminated this for most non-spouse beneficiaries, replacing it with a 10-year rule.

(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 3