Retirement Planning Flashcards

A 72-year-old retiree has a traditional IRA valued at $500,000. What is the primary regulation governing withdrawals from this account?

Answer: Required Minimum Distributions must begin by April 1 of the year following age 73

Under the SECURE 2.0 Act, RMDs must begin by April 1 of the year following the year the owner turns 73.

Which retirement plan type allows both employer and employee contributions and is commonly used by self-employed individuals?

Answer: Solo 401(k)

A Solo 401(k) is the only plan that allows both employer and employee elective deferral contributions for self-employed individuals.

What is the 'replacement ratio' concept in retirement planning?

Answer: The percentage of pre-retirement income needed to maintain lifestyle in retirement

The replacement ratio is the percentage of pre-retirement income a retiree needs to maintain their standard of living, typically estimated at 70–90%.

A client wants to retire at 55. Which of the following allows penalty-free withdrawals from a 401(k) at that age?

Answer: The Rule of 55

The Rule of 55 allows penalty-free 401(k) withdrawals if you separate from service in or after the year you turn 55.

In a defined benefit pension plan, which party bears the investment risk?

Answer: The employer

In a defined benefit plan the employer bears all investment risk and is obligated to pay the promised benefit regardless of plan asset performance.

What is the maximum annual contribution limit for a SEP-IRA in 2024?

Answer: $69,000 or 25% of compensation

For 2024, the SEP-IRA limit is the lesser of $69,000 or 25% of compensation (up to the $345,000 compensation cap).

A client is evaluating Social Security claiming strategies. What is the monthly benefit increase for each year of delay beyond full retirement age?

Answer: 8% per year

Delayed retirement credits increase Social Security benefits by 8% per year (2/3% per month) for each year deferred beyond full retirement age up to age 70.