Retirement Management

Question 1

What is the focus of retirement planning for high-net-worth individuals?

Answer 1

Addressing distribution strategies, asset location, withdrawal methods, and plan-specific issues like Roth conversions and RMDs.

Question 2

What key metrics influence retirement needs analysis?

Answer 2

Savings, time, spending, rate of return, and inflation.

Question 3

What is a 401(k) plan?

Answer 3

A profit-sharing plan allowing employees to defer a portion of their salaries into a tax-deferred account.

Question 4

What are 2024 contribution limits for a 401(k)?

Answer 4

$23,000, plus $7,500 catch-up for those aged 50+.

Question 5

What triggers the 10% penalty for early withdrawals from a 401(k)?

Answer 5

Withdrawals before age 59½ unless exceptions like disability or hardship apply.

Question 6

What is a profit-sharing plan?

Answer 6

A defined contribution plan allowing discretionary employer contributions based on company profits.

Question 7

When are profit-sharing plans useful?

Answer 7

For cyclical businesses or as a supplement to defined benefit plans.

Question 8

What is an age-weighted profit-sharing plan?

Answer 8

A plan favoring older employees by allocating higher contributions to them.

Question 9

What is a defined benefit plan?

Answer 9

A retirement plan guaranteeing specific payouts at retirement, funded by employer contributions.

Question 10

How are contributions to defined benefit plans determined?

Answer 10

Actuarial calculations based on benefit goals, investment returns, and employee demographics.

Question 11

What is the 2024 annual benefit limit for defined benefit plans?

Answer 11

$275,000.

Question 12

What is a cash balance pension plan?

Answer 12

A defined benefit plan mimicking a defined contribution plan with hypothetical individual accounts.

Question 13

Why might employers favor cash balance plans?

Answer 13

Simpler to explain to employees and offers guaranteed returns without market risk.

Question 14

What defines a hybrid retirement plan?

Answer 14

Combining features of defined benefit and defined contribution plans.

Question 15

How are benefits calculated in a hybrid plan?

Answer 15

Based on both employer contributions and a guaranteed retirement benefit.

Question 16

What is Monte Carlo Simulation in retirement planning?

Answer 16

A statistical tool modeling uncertain outcomes to estimate the probability of retirement success.

Question 17

What key inputs are required for Monte Carlo simulations?

Answer 17

Expected returns, standard deviation, and spending needs.

Question 18

What is Section 72(t)?

Answer 18

IRS rules allowing penalty-free early withdrawals using substantially equal periodic payments.

Question 19

What are the penalties for failing to take RMDs?

Answer 19

25% penalty, reduced to 10% if corrected within two years (starting 2023).

Question 20

How are Roth IRA conversions taxed?

Answer 20

The amount converted is taxable in the year of conversion, but future growth is tax-free.

Question 21

When must RMDs begin under Secure Act 2.0?

Answer 21

By April 1 of the year following the year the participant turns 73.

Question 22

What changes did Secure Act 2.0 make to Roth IRAs?

Answer 22

Eliminated RMD requirements for Roth IRAs starting in 2024.

Question 23

What are sustainable withdrawal rate methodologies?

Answer 23

Approaches like baseline, bull/bear market adjustments, and inflation smoothing.

Question 24

What is the tax-efficient ‘bracket stacking’ strategy?

Answer 24

Filling lower tax brackets with withdrawals while deferring excess funds.

Question 25

What is NUA?

Answer 25

A strategy to convert ordinary income tax on retirement assets to long-term capital gains.

Question 26

What is required to use NUA?

Answer 26

Electing a lump-sum, in-kind distribution of employer securities.

Question 27

How does the SECURE Act affect stretch IRAs?

Answer 27

Limits most inherited IRA distributions to 10 years, with exceptions for certain beneficiaries.

Question 28

What qualifies a trust as a designated beneficiary for stretch IRAs?

Answer 28

It must be irrevocable and name identifiable individual beneficiaries.

Question 29

What is the goal of asset location?

Answer 29

Minimizing taxes by placing assets in appropriate accounts (e.g., taxable, tax-deferred, tax-exempt).

Question 30

What assets are suited for taxable accounts?

Answer 30

Index funds, municipal bonds, and tax-managed funds.

Question 31

Which assets are better for tax-deferred accounts?

Answer 31

Dividend stocks, taxable bonds, and high-turnover funds.

Question 32

What is the full retirement age for those born in 1960 or later?

Answer 32

67.

Question 33

How much of Social Security benefits may be taxable?

Answer 33

Up to 85%, depending on income.

Question 34

When can early retirement benefits begin?

Answer 34

At age 62, with permanent reductions.

Question 35

What is Income in Respect of a Decedent (IRD)?

Answer 35

Income the decedent had the right to but never received, subject to income and estate tax.

Question 36

How are RMDs calculated for inherited IRAs?

Answer 36

Using the Single Life Table, based on the beneficiary’s age.

Question 37

What is the formula for present value (PV)?

Answer 37

PV = FV / (1 + r)^n.

Question 38

What is the formula for future value (FV)?

Answer 38

FV = PV × (1 + r)^n.

Question 39

How is the inflation-adjusted rate calculated?

Answer 39

Real Rate = (1 + Nominal Rate) / (1 + Inflation Rate) - 1.

Question 40

What is the difference between an ordinary annuity and an annuity due?

Answer 40

Ordinary annuities pay at the end of each period; annuities due pay at the beginning.

Question 41

What is the future value of a $1,000 ordinary annuity for 15 years at 10%?

Answer 41

$31,772.