Retirement Planning Flashcards

Which of the following best describes a Qualified Longevity Annuity Contract (QLAC)?

Answer: A deferred income annuity purchased with IRA funds that reduces RMD calculations

A QLAC is a deferred income annuity purchased with qualified funds; up to $200,000 of IRA assets used to buy a QLAC are excluded from RMD calculations until payments begin (max age 85).

Under the SECURE 2.0 Act, what is the catch-up contribution limit for employees ages 60–63 in a 401(k) plan beginning in 2025?

Answer: $11,250

SECURE 2.0 created a super catch-up for ages 60–63 at the greater of $10,000 or 150% of the regular catch-up limit, which equals $11,250 in 2025.

A client is 58, has $800,000 in a 401(k), and wants to access funds without penalty using 72(t) SEPP. Which statement is correct?

Answer: Payments must continue until the later of 5 years or age 59½

SEPP payments must continue for the longer of 5 years or until the account owner reaches age 59½; modifying them before that period ends triggers the 10% penalty retroactively.

What is the primary advantage of a Cash Balance Plan over a traditional defined benefit plan for a high-earning business owner?

Answer: Much higher annual contribution limits than 401(k) alone

Cash balance plans can allow contributions far exceeding 401(k) limits—sometimes $100,000–$300,000+ per year—making them ideal for high-earning owners wanting accelerated retirement savings.

When is the 'four percent rule' most appropriate for a retirement income plan?

Answer: For a 30-year retirement with a balanced portfolio

The 4% rule (Bengen's research) was derived for a 30-year retirement using a balanced stock/bond portfolio and is most applicable in that context.

Which Medicare enrollment period allows retirees who delayed enrollment due to employer group coverage to sign up penalty-free?

Answer: Special Enrollment Period (SEP)

A Special Enrollment Period is available for those who delayed Medicare because of current employer group health coverage and allows penalty-free enrollment within 8 months of coverage ending.

A couple has a large estate and wants to maximize Social Security benefits. Which strategy is generally optimal when one spouse has significantly higher lifetime earnings?

Answer: The higher earner delays to 70; lower earner claims earlier

Having the higher earner delay to 70 maximizes the survivor benefit (which equals the higher earner's benefit), while the lower earner can claim earlier to provide interim income.