PFS Retirement Planning 2

Question 1

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

Accepted Answer

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

Answer

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

Question 2

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

Accepted Answer

Solo 401(k)

Answer

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

Question 3

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

Accepted Answer

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

Answer

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

Question 4

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

Accepted Answer

The Rule of 55

Answer

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

Question 5

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

Accepted Answer

The employer

Answer

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

(PFS) Personal Financial Specialist Practice Test