RMA Taxation & Legal Considerations in Retirement 2 — Questions and Answers
Question 1: A retiree converts $50,000 from a traditional IRA to a Roth IRA in 2024. How is this conversion taxed?
- The $50,000 is added to ordinary income and taxed at the retiree's marginal rate (Correct answer)
- The conversion is tax-free if the retiree is over age 59½
- Only 50% of the converted amount is taxable
- The conversion is subject to a flat 20% withholding tax
Correct answer: The $50,000 is added to ordinary income and taxed at the retiree's marginal rate
Roth conversions are fully taxable as ordinary income in the year of conversion, regardless of the account owner's age.
Question 2: Which of the following Social Security benefit strategies was eliminated by the Bipartisan Budget Act of 2015?
- Delayed retirement credits
- File-and-suspend for spousal benefits (Correct answer)
- Survivor benefit claims
- Windfall Elimination Provision adjustments
Correct answer: File-and-suspend for spousal benefits
The file-and-suspend strategy that allowed one spouse to suspend benefits while the other collected spousal benefits was eliminated in 2015.
Question 3: Under the Government Pension Offset (GPO), how much is a spousal Social Security benefit reduced for each dollar of a government pension?
- One-third of the government pension amount
- One-half of the government pension amount
- Two-thirds of the government pension amount (Correct answer)
- The full government pension amount
Correct answer: Two-thirds of the government pension amount
The GPO reduces spousal or survivor Social Security benefits by two-thirds of the amount of the government pension.
Question 4: A married couple filing jointly has $85,000 in combined income including Social Security. What percentage of Social Security benefits may be subject to federal tax?
- 0%
- Up to 50%
- Up to 85% (Correct answer)
- 100%
Correct answer: Up to 85%
Up to 85% of Social Security benefits are taxable for married couples filing jointly with combined income above $44,000.
Question 5: What is the primary purpose of a Qualified Longevity Annuity Contract (QLAC) in retirement planning?
- To provide tax-free income starting at age 65
- To defer RMDs on a portion of IRA assets and provide income at advanced ages (Correct answer)
- To convert traditional IRA funds to Roth without tax consequences
- To eliminate the need for estate planning documents
Correct answer: To defer RMDs on a portion of IRA assets and provide income at advanced ages
A QLAC allows retirees to use a portion of IRA assets to purchase a deferred annuity that starts at a later age, reducing RMDs in the interim.
Question 6: Which legal document authorizes a designated person to make financial decisions on behalf of an incapacitated individual?
- A living will
- A durable power of attorney (Correct answer)
- A revocable living trust
- A beneficiary designation form
Correct answer: A durable power of attorney
A durable power of attorney remains effective even if the principal becomes incapacitated, allowing the agent to manage financial affairs.
Question 7: Under current law, at what age does the RMD period begin for a person born in 1951?
- Age 70½
- Age 72
- Age 73 (Correct answer)
- Age 75
Correct answer: Age 73
SECURE 2.0 raised the RMD starting age to 73 for individuals born between 1951 and 1959.
RMA Taxation & Legal Considerations in Retirement 2
A retiree converts $50,000 from a traditional IRA to a Roth IRA in 2024.
How is this conversion taxed?