Retirement Planning Flashcards

A 65-year-old client is choosing between a life-only annuity paying $3,000/month and a joint-and-100%-survivor annuity paying $2,400/month. What is the primary consideration?

Answer: Spouse's life expectancy relative to the income reduction

The decision hinges on comparing the $600/month reduction against the risk that the spouse outlives the annuitant; if the spouse has a long life expectancy the joint option may be superior.

Net Unrealized Appreciation (NUA) is a tax strategy applicable to which type of asset?

Answer: Employer stock distributed from a qualified plan

NUA applies to employer stock distributed in-kind from a qualified plan; the NUA portion is taxed at long-term capital gains rates rather than ordinary income rates upon eventual sale.

Which of the following is NOT a permissible method for calculating 72(t) SEPP payments?

Answer: Life Expectancy Interpolation method

The IRS permits only three SEPP calculation methods: RMD, fixed amortization, and fixed annuitization; there is no 'life expectancy interpolation' method.

A client earns $200,000 and contributes the maximum to a 401(k). What additional retirement strategy maximizes tax-deferred savings?

Answer: Establish a defined benefit/cash balance plan

A defined benefit or cash balance plan allows contributions well above 401(k) limits and generates a current tax deduction, making it the most powerful additional tax-deferred vehicle.

What is the significance of the 'present value of liabilities' in a defined benefit pension plan's funded status calculation?

Answer: It is the discounted value of future benefit obligations used to determine if the plan is underfunded or overfunded

The present value of liabilities discounts all future benefit payments to today's dollars; comparing this to plan assets determines whether the pension is over- or underfunded.

Which withdrawal sequencing strategy is generally most tax-efficient for retirees with taxable, traditional IRA, and Roth IRA accounts?

Answer: Withdraw taxable accounts first, then traditional IRA, then Roth last

The conventional sequence—taxable first, then traditional IRA, then Roth—allows tax-deferred and tax-free accounts to continue growing while taxable gains are managed.

A surviving spouse who inherits an IRA has which unique option not available to other beneficiaries?

Answer: Roll the inherited IRA into their own IRA and delay RMDs to their own RMD age

A surviving spouse can roll an inherited IRA into their own IRA, effectively restarting the RMD clock based on their own age—a right not extended to other designated beneficiaries.