RFC Retirement & Estate Planning Fundamentals 3

Question 1

A 401(k) plan participant terminates employment at age 55. Which rule allows penalty-free withdrawals from that plan?

Accepted Answer

Age 55 Separation from Service Rule

Answer

The age-55 rule allows employees who separate from service in or after the year they turn 55 to take 401(k) distributions penalty-free from that employer's plan.

Question 2

What is the step-up in cost basis rule and how does it affect inherited assets?

Accepted Answer

Inherited assets receive a basis equal to the fair market value on the date of the decedent's death

Answer

Inherited assets generally receive a stepped-up basis equal to the fair market value on the decedent's date of death, eliminating embedded capital gains accumulated during the decedent's lifetime.

Question 3

A Roth IRA conversion is generally most advantageous when the client's:

Accepted Answer

Current tax rate is lower than their expected future tax rate

Answer

Converting to a Roth IRA is most beneficial when current tax rates are lower than anticipated future rates, locking in tax savings on future growth.

Question 4

Which of the following defined contribution plan types has the highest total contribution limit for self-employed individuals?

Accepted Answer

Solo 401(k)

Answer

A Solo 401(k) allows both employee and employer contributions, enabling self-employed individuals to contribute more than a SEP-IRA in many scenarios.

Question 5

What is 'generation-skipping transfer tax' (GSTT) designed to prevent?

Accepted Answer

Transfers that bypass one or more generations to avoid multiple estate taxes

Answer

The GSTT imposes a tax on transfers (gifts, bequests, or trust distributions) made to skip persons — generally grandchildren or younger — to prevent avoiding estate tax at each generational level.

(RFC) Registered Financial Consultant Practice Test

(RFC) Registered Financial Consultant Practice Test

RFC Retirement & Estate Planning Fundamentals 3