F.52 Retirement income and distribution strategies Flashcards
(21 cards)
Which of the following retirement accounts require minimum distributions at age 72?
A) Traditional IRAs
B) Roth IRAs
C) 401(k) plans
D) All of the above
Traditional IRAs
Explanation: Traditional IRAs require minimum distributions at age 72. Roth IRAs do not require minimum distributions, and 401(k) plans require minimum distributions at age 72 only if you are no longer working.
A client has $500,000 in a traditional IRA and wants to minimize the amount of taxes he pays on his required minimum distributions. Which of the following is a strategy that could accomplish this goal?
A) Convert the IRA to a Roth IRA
B) Roll the IRA over into a 401(k) plan
C) Take the required minimum distributions in smaller amounts over multiple years
D) Withdraw the entire IRA balance as a lump sum
Convert the IRA to a Roth IRA
Explanation: Converting a traditional IRA to a Roth IRA can be a strategy to minimize taxes on required minimum distributions. While the client would pay taxes on the amount converted, once in the Roth IRA, distributions would be tax-free.
A client is planning to retire in two years and has a goal of maintaining a steady income in retirement. Which of the following is a strategy that could help accomplish this goal?
A) Invest primarily in stocks to maximize growth
B) Invest primarily in bonds to minimize risk
C) Invest in a balanced portfolio of stocks and bonds
D) Purchase an annuity
Purchase an annuity
Explanation: An annuity can provide a steady stream of income in retirement, which can help accomplish the client’s goal of maintaining a steady income.
A client has a significant amount of money in a taxable investment account and is concerned about the tax implications of taking distributions in retirement. Which of the following is a strategy that could help minimize taxes?
A) Take distributions in larger amounts to reduce the number of years they are subject to taxes
B) Invest primarily in municipal bonds
C) Invest in a diversified portfolio of stocks and bonds
D) Convert the taxable investment account to a Roth IRA
Invest primarily in municipal bonds
Explanation: Municipal bonds are tax-exempt at the federal level and can help minimize taxes on distributions.
Which of the following is a potential downside of using a systematic withdrawal plan as a retirement income strategy?
A) The retiree may outlive their savings
B) The retiree may not withdraw enough to cover their expenses
C) The retiree may not have enough liquidity for unexpected expenses
D) All of the above
All of the above
Explanation: Using a systematic withdrawal plan as a retirement income strategy can have several potential downsides, including the retiree outliving their savings, not withdrawing enough to cover expenses, and not having enough liquidity for unexpected expenses.
Tom is retiring at age 65 and has a goal of leaving a substantial inheritance to his children. Which of the following retirement income strategies would be best for him?
A) A systematic withdrawal plan
B) An annuity
C) Investing in a portfolio of stocks and bonds
D) A qualified longevity annuity contract (QLAC)
Investing in a portfolio of stocks and bonds
Explanation: Investing in a portfolio of stocks and bonds can provide growth potential that can help Tom leave a substantial inheritance to his children.
Maria is retiring at age 70 and has a goal of maximizing her retirement income. Which of the following retirement income strategies would be best for her?
A) A systematic withdrawal plan
B) An annuity
C) Investing in a portfolio of stocks and bonds
D) A qualified longevity annuity contract
An annuity
Explanation: An annuity can provide a guaranteed stream of income, which can help Maria maximize her retirement income.
John has a goal of leaving a legacy to his favorite charity when he passes away. Which of the following retirement income strategies would be best for him?
A) A systematic withdrawal plan
B) An annuity
C) Investing in a portfolio of stocks and bonds
D) A qualified charitable distribution (QCD)
A qualified charitable distribution (QCD)
Explanation: A QCD allows John to make a tax-free distribution from his retirement account directly to a qualified charity, which can help him achieve his goal of leaving a legacy to his favorite charity.
Sarah has a significant amount of money in a traditional IRA and is concerned about the tax implications of taking required minimum distributions. Which of the following retirement income strategies would be best for her?
A) A systematic withdrawal plan
B) A Roth IRA conversion
C) Investing in a portfolio of stocks and bonds
D) An annuity
A Roth IRA conversion
Explanation: Converting a traditional IRA to a Roth IRA can help minimize taxes on required minimum distributions.
James is retiring at age 65 and has a goal of maintaining a steady income in retirement. Which of the following retirement income strategies would be best for him?
A) A systematic withdrawal plan
B) An annuity
C) Investing in a portfolio of stocks and bonds
D) A combination of an annuity and a systematic withdrawal plan
A combination of an annuity and a systematic withdrawal plan
Explanation: Combining an annuity and a systematic withdrawal plan can help James achieve his goal of maintaining a steady income in retirement while also providing growth potential.
Which of the following factors can impact the amount of retirement income a retiree will receive from a defined benefit pension plan?
A) The retiree’s age at retirement
B) The retiree’s length of service with the employer
C) The retiree’s salary history with the employer
D) All of the above
All of the above
Explanation: The amount of retirement income a retiree will receive from a defined benefit pension plan is typically based on the retiree’s age at retirement, length of service with the employer, and salary history with the employer.
Which of the following is a potential downside of using a single-premium immediate annuity (SPIA) as a retirement income strategy?
A) The retiree may not receive the full amount of their investment if they pass away before the annuity payments equal the investment amount
B) The retiree may not have enough liquidity for unexpected expenses
C) The retiree may not receive enough income to cover their expenses
D) All of the above
The retiree may not receive the full amount of their investment if they pass away before the annuity payments equal the investment amount.
Explanation: With a SPIA, if the retiree passes away before the annuity payments equal the investment amount, the remaining balance typically goes to the insurance company and not to the retiree’s heirs.
Which of the following retirement income strategies can help minimize the impact of taxes on retirement income?
A) A systematic withdrawal plan
B) An annuity
C) Investing in tax-advantaged accounts
D) All of the above
Investing in tax-advantaged accounts
Explanation: Investing in tax-advantaged accounts, such as traditional IRAs or 401(k) plans, can help minimize the impact of taxes on retirement income.
Which of the following is a potential downside of using a variable annuity as a retirement income strategy?
A) High fees and expenses
B) Limited investment options
C) The potential for market risk
D) All of the above
All of the above
Explanation: Variable annuities can come with high fees and expenses, limited investment options, and the potential for market risk.
Which of the following is a potential benefit of using a bucket strategy as a retirement income strategy?
A) It can help manage market risk
B) It can help maximize investment returns
C) It can provide a guaranteed stream of income
D) It can minimize taxes on retirement income
It can help manage market risk
Explanation: The bucket strategy involves dividing retirement savings into different buckets based on when the funds will be needed. This can help manage market risk by ensuring that funds needed in the short term are not subject to market volatility.
Bill is retiring at age 70 and has a goal of maximizing his retirement income while also leaving a legacy to his children. Which of the following retirement income strategies would be best for him?
A) A systematic withdrawal plan
B) An annuity
C) Investing in a portfolio of stocks and bonds
D) A combination of an annuity and a QCD
A combination of an annuity and a QCD
Explanation: Combining an annuity with a QCD can help Bill maximize his retirement income while also leaving a legacy to his children.
Jane is retiring at age 65 and has a goal of maintaining a steady income in retirement. She also wants to leave a portion of her retirement savings to her favorite charity. Which of the following retirement income strategies would be best for her?
A) A systematic withdrawal plan
B) An annuity
C) Investing in a portfolio of stocks and bonds
D) A combination of an annuity and a QCD
A combination of an annuity and a QCD
Explanation: Combining an annuity with a QCD can help Jane maintain a steady income in retirement while also leaving a portion of her retirement savings to her favorite charity.
Tom is retiring at age 60 and wants to ensure that his retirement income lasts as long as possible. Which of the following retirement income strategies would be best for him?
A) A systematic withdrawal plan
B) An annuity
C) Investing in a portfolio of stocks and bonds
D) A combination of an annuity and a systematic withdrawal plan
A combination of an annuity and a systematic withdrawal plan
Explanation: Combining an annuity with a systematic withdrawal plan can help Tom ensure that his retirement income lasts as long as possible.
Susan is retiring at age 70 and wants to maximize her retirement income while also minimizing taxes on her retirement income. Which of the following retirement income strategies would be best for her?
A) A systematic withdrawal plan
B) A Roth IRA conversion
C) Investing in tax-advantaged accounts
D) An annuity
A Roth IRA conversion
Explanation: Converting a traditional IRA to a Roth IRA can help minimize taxes on retirement income, which can help Susan maximize her retirement income.
Mike is retiring at age 65 and wants to minimize the impact of market risk on his retirement income. Which of the following retirement income strategies would be best for him?
A) A systematic withdrawal plan
B) An annuity
C) Investing in a portfolio of stocks and bonds
D) A bucket strategy
A bucket strategy
Explanation: The bucket strategy can help manage market risk by ensuring that funds needed in the short term are not subject to market volatility.
Emily is 62 years old, has an annual salary of $200,000, and wishes to retire in 5 years. Considering her circumstances, which of the following retirement plans would enable Emily to accumulate the greatest retirement sum over that timeframe?
A) Age-weighted profit sharing plan
B) Defined benefit plan
C) Safe harbor 401(k) plan
D) Cash balance pension plan
Age-weighted profit sharing plan
Explanation: Age-weighted profit sharing plans are designed to provide larger contributions for older employees who are closer to retirement. This design recognizes that older employees have less time to save for retirement compared to their younger counterparts. Therefore, for someone like Emily who is nearing retirement, an age-weighted profit sharing plan would likely allow for larger contributions than the other listed options, enabling her to accumulate the most substantial retirement amount in the given timeframe.
F.52 Retirement income and distribution strategies
