Case Analysis & Practical Application Flashcards

A retired client's total income consists of $30,000 Social Security, $20,000 pension, and $15,000 IRA withdrawal. Her Medicare Part B premium for the next year will be based on her MAGI from:

Answer: Two years prior income (IRMAA lookback)

Medicare IRMAA surcharges are based on MAGI from two years prior; for 2025 premiums, the 2023 tax return is used.

A client experienced a significant income drop due to retirement last year and is now paying high IRMAA surcharges based on prior higher income. The RMA should advise the client to:

Answer: File Form SSA-44 to request a life-changing event adjustment to IRMAA

Form SSA-44 allows clients who experienced a qualifying life-changing event (such as retirement) to request that Social Security use more recent income to adjust IRMAA surcharges.

A 78-year-old client with moderate cognitive decline has a durable power of attorney in place. Her adult daughter is asking the RMA to take investment instructions directly from her. The RMA's CORRECT first step is to:

Answer: Verify the DPOA document's validity and scope, then follow firm compliance procedures for third-party authority

Before acting on a third party's instructions, the adviser must verify the DPOA is valid, currently effective, and grants investment authority, then follow firm compliance protocols.

A client age 65 is choosing between a $600,000 lump-sum pension buyout and a $3,200/month single-life pension. To compare options, the RMA calculates the implied interest rate. If the client's life expectancy is 20 years, approximately what annual return makes them equivalent?

Answer: 4.0%

Using present value of an annuity: PV = $600,000, PMT = $3,200/month ($38,400/yr), n = 20 years; solving for rate yields approximately 4.0%, meaning the pension wins if the client earns less than ~4% on the lump sum.

A client is reviewing her estate plan and asks about the impact of a recent move from a community property state (California) to a common-law property state (Florida). The RMA should note that:

Answer: Property acquired before the move retains its community property character for federal income tax step-up purposes

Under IRC rules, property acquired in a community property state retains its community property status and may still receive a full step-up in basis on both halves at the first spouse's death.

A 64-year-old client is retiring and evaluating Net Unrealized Appreciation (NUA) treatment for company stock inside her 401(k). The primary tax advantage of NUA is:

Answer: Only the cost basis is taxed as ordinary income at distribution; the appreciation is taxed at long-term capital gains rates when the stock is sold

With NUA, the plan's cost basis in the employer stock is taxed as ordinary income at distribution, while the appreciation (NUA) is taxed at preferential long-term capital gains rates when eventually sold.

An RMA client has $1.8M in assets with $800,000 in a traditional IRA. Her estate exceeds the state exemption. Which strategy reduces both income taxes and estate taxes simultaneously?

Answer: Name a charitable remainder trust (CRT) as the IRA beneficiary, providing income to heirs and a charitable deduction to the estate

Naming a CRT as IRA beneficiary removes the IRA from the taxable estate, provides heirs an income stream, and leaves the remainder to charity—addressing both estate and income tax issues simultaneously.