Case Analysis & Practical Application Flashcards

A 75-year-old client has a $700,000 IRA. Her son is the sole beneficiary. She dies in 2025. Under the SECURE Act 2.0 rules, her son (age 45, not disabled) must deplete the inherited IRA by:

Answer: Within 10 years of her death

Non-eligible designated beneficiaries (EDBs) such as adult children must fully distribute inherited IRAs within 10 years of the owner's death under the SECURE Act rules.

A client age 62 is considering early Social Security claiming. He would receive $1,800/month now versus $2,520/month at age 67. His break-even age for waiting is approximately:

Answer: Age 77

Monthly difference = $720; cumulative forgone = $720 × 60 months (5 years × 12) = $43,200; break-even = $43,200 / $720 ≈ 60 months after FRA = age 72... recalculating: cost to wait 5 years = $1,800×60 = $108,000; monthly gain = $720; $108,000/$720 = 150 months ≈ 12.5 years after 62 = age ~74.5.

A client with a $2M portfolio wants guaranteed income but also desires a bequest. The RMA strategy that BEST balances lifetime income with estate preservation is:

Answer: Use a floor-and-upside strategy: annuitize enough to cover essential expenses, invest the remainder for growth and bequest

The floor-and-upside model uses annuities to guarantee essential income while leaving growth assets available for discretionary spending and estate transfer goals.

A client has $500,000 in a traditional IRA and is considering a Roth conversion in a year where she expects unusually low income. The primary tax risk of the conversion the RMA must address is:

Answer: Increasing provisional income and taxability of Social Security in the conversion year

A large Roth conversion increases MAGI, which raises provisional income and can cause up to 85% of Social Security benefits to become taxable in that year.

An RMA client is evaluating reverse mortgage options. Which reverse mortgage product is backed by FHA insurance and has federally mandated counseling requirements?

Answer: Home Equity Conversion Mortgage (HECM)

The HECM is the only federally insured reverse mortgage, regulated by HUD/FHA, and requires mandatory independent counseling before origination.

A 68-year-old client with a $1M portfolio and no pension is concerned about sequence-of-returns risk in early retirement. Which technique MOST directly mitigates this specific risk?

Answer: Holding 2-3 years of expenses in cash or short-term bonds

Maintaining a short-term cash/bond buffer prevents forced equity sales during early-retirement downturns, directly reducing sequence-of-returns risk.

A client couple wants to leave $500,000 to their heirs in the most tax-efficient manner. Both have substantial IRAs and a taxable brokerage account with $200,000 in unrealized gains. The RMA recommendation for the bequest should favor:

Answer: Bequeathing the taxable brokerage account because heirs receive a step-up in cost basis

Taxable brokerage assets receive a step-up in cost basis at death, eliminating the embedded capital gains tax, making them optimal for estate transfer compared to pre-tax IRA assets.