F.52 Retirement income and distribution strategies Flashcards
Learners will develop a better understanding of effective retirement income and distribution strategies in order to optimize financial plans and ensure client satisfaction.
Which of the following retirement accounts require minimum distributions when the account holder reaches the age specified by current tax laws?
A. Traditional IRAs
B. Roth IRAs
C. 401(k) plans
D. A and C
D. Both A and C
Traditional IRAs and 401(k) plans are subject to Required Minimum Distributions (RMDs) once the account holder reaches the age determined by tax laws. Roth IRAs, in contrast, are not subject to RMDs during the original account holder’s lifetime, allowing the funds to continue growing tax-free without mandatory withdrawals.
F.52 Retirement income and distribution strategies
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
A. Convert the IRA to a Roth IRA
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.
F.52 Retirement income and distribution strategies
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
D. Purchase an annuity
An annuity can provide a steady stream of income in retirement, which can help accomplish the client’s goal of maintaining a steady income.
F.52 Retirement income and distribution strategies
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
B. Invest primarily in municipal bonds
Municipal bonds are tax-exempt at the federal level and can help minimize taxes on distributions.
F.52 Retirement income and distribution strategies
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
D. All of the above
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.
F.52 Retirement income and distribution strategies
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)
C. Investing in a portfolio of stocks and bonds
Investing in a portfolio of stocks and bonds can provide growth potential that can help Tom leave a substantial inheritance to his children.
F.52 Retirement income and distribution strategies
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
B. An annuity
F.52 Retirement income and distribution strategies
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)
D. A qualified charitable distribution (QCD)
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.
F.52 Retirement income and distribution strategies
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
B. A Roth IRA conversion
F.52 Retirement income and distribution strategies
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
D. A combination of an annuity and a systematic withdrawal plan
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.
F.52 Retirement income and distribution strategies
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
D. All of the above
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.
F.52 Retirement income and distribution strategies
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
A. The retiree may not receive the full amount of their investment if they pass away before the annuity payments equal the investment amount.
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.
F.52 Retirement income and distribution strategies
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
C. Investing in tax-advantaged accounts
F.52 Retirement income and distribution strategies
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
D. All of the above
F.52 Retirement income and distribution strategies
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
A. It can help manage market risk
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.
F.52 Retirement income and distribution strategies
