RMA Case Analysis & Practical Application 3 — Questions and Answers
Question 1: A 72-year-old client has a $400,000 IRA and a $200,000 Roth IRA. His life factor from the IRS Uniform Lifetime Table is 27.4. His RMD for the year is approximately:
- $7,299
- $10,949
- $14,599 (Correct answer)
- $21,898
Correct answer: $14,599
RMD = $400,000 / 27.4 ≈ $14,599; Roth IRAs owned by the original owner have no RMD requirement.
Question 2: A client aged 74 wants to reduce her estate and avoid RMDs on charitable gifts. The MOST tax-efficient strategy is:
- Donor-advised fund contribution from IRA
- Qualified Charitable Distribution (QCD) directly to charity from IRA (Correct answer)
- Gifting appreciated securities from brokerage account
- Establishing a charitable remainder trust
Correct answer: Qualified Charitable Distribution (QCD) directly to charity from IRA
A QCD satisfies the RMD requirement, excludes up to $105,000 (indexed) from gross income, and directly benefits the charity—making it the most efficient option for charitable-minded IRA owners.
Question 3: A client retired at 60 with $1.5M in a 401(k) and needs income before 59½ penalties expire. Which rule allows penalty-free access to the 401(k) without triggering the 10% early withdrawal penalty?
- Rule of 55 (Correct answer)
- 72(t) SEPP from the IRA
- Roth conversion ladder
- Net unrealized appreciation (NUA)
Correct answer: Rule of 55
The Rule of 55 allows penalty-free 401(k) distributions if the participant separates from service in or after the year they turn 55.
Question 4: A retired couple has $120,000 in combined Social Security income and $30,000 in traditional IRA withdrawals annually. What percentage of their Social Security benefit is potentially taxable?
- 0%
- 50%
- Up to 85% (Correct answer)
- 100%
Correct answer: Up to 85%
With combined income ($30,000 + half of $120,000 = $90,000) well above the $44,000 threshold for married filers, up to 85% of Social Security may be included in taxable income.
Question 5: A client is evaluating a variable annuity with a guaranteed lifetime withdrawal benefit (GLWB) rider. The key advantage of a GLWB over a SPIA for retirement income planning is:
- Lower internal expenses than a SPIA
- Potential for upside market participation while guaranteeing a minimum income floor (Correct answer)
- No surrender charges on withdrawals
- Complete liquidity of the premium at all times
Correct answer: Potential for upside market participation while guaranteeing a minimum income floor
A GLWB rider allows the account to grow with market performance while guaranteeing a minimum withdrawal percentage for life, unlike a SPIA which irrevocably exchanges principal for income.
Question 6: A client's health is declining and her long-term care insurance policy has a 90-day elimination period. She is now unable to perform 2 of 6 ADLs. What triggers the benefit payment?
- The insurer's approval of the care plan only
- Satisfying the elimination period AND meeting the benefit trigger (2+ ADL impairments or cognitive impairment) (Correct answer)
- Filing a Medicare claim first
- Exhausting all personal savings
Correct answer: Satisfying the elimination period AND meeting the benefit trigger (2+ ADL impairments or cognitive impairment)
Most LTCI policies require both a qualifying benefit trigger (typically 2+ ADL limitations or cognitive impairment) AND completion of the elimination period before benefits begin.
Question 7: A couple both age 65 is deciding between a joint-and-survivor annuity and two single-life annuities. The RMA analysis should prioritize which factor when comparing these options?
- Which option produces the highest combined monthly payment
- Survivor income adequacy if either spouse dies early (Correct answer)
- Which option has the highest internal rate of return if both die at life expectancy
- Tax treatment of annuity income
Correct answer: Survivor income adequacy if either spouse dies early
The primary concern with annuitization for married couples is ensuring the surviving spouse has adequate income, making survivor benefit adequacy the central analytical factor.
RMA Case Analysis & Practical Application 3
A 72-year-old client has a $400,000 IRA and a $200,000 Roth IRA.
His life factor from the IRS Uniform Lifetime Table is 27.4.
His RMD for the year is approximately: