CFP Ret. Ch. 7 Practice Questions

In July of this year Paul turned 73. He retired years ago and was a participant in his former employer's profit sharing plan. His profit sharing plan had an account balance $600,000 on December 31st last year and $450,000 on December 31st this year. According to the Uniform Lifetime Table the factors for ages 73, and 74 are 26.5 and 25.5 respectively. What is the amount of Paul's first required minimum distribution that he must take by the deadline? A.$22,641 B.$23,529 C.$16,981 D.$16,423

A.$22,641 $600,000/26.5 = $22,641.51 is his RMD. Paul turned age 73 this year and he will be required to take his first distribution for this tax year. The RMD for the first year may be delayed until April 1st of the next year but is still based on the year the taxpayer turns 73. If the owner delays the first RMD until April 1st of the next year, they will then be required to take two RMDs, the RMD for age 73 that was delayed, and the RMD for age 74. SECURE Act 2.0 revised distributions to age 73 start for those reaching 72 after 12/31/22.

In August of this year, Paul is turning 72. He is currently a participant in his employer's profit sharing plan. His profit sharing plan had an account balance of $600,000 on December 31 of this year, and $450,000 on December 31 of last year. According to the Uniform Lifetime Table the factors for ages 72, 73, and 74 are 27.4, 26.5, and 25.5 respectively. What is the amount of Paul's required minimum distribution for this year? A.$16,423 B.Paul does not need to take an RMD. C.$16,981 D.22,642

B.Paul does not need to take an RMD. The SECURE Act 2.0 revised the RMD age to begin distributions to age 73. If Paul retires by age 73, he will begin RMDs. If he continues working, he can continue to defer this RMDs.

Andrea died this year (2024) at the age 77, leaving behind a qualified plan worth $200,000. Andrea began taking minimum distributions from the account after attaining age 70½ and correctly reported the minimum distributions on her federal income tax returns. Before her death, Andrea named her granddaughter, Reese age 22, as the designated beneficiary of the account. Now that Andrea has died, Reese has come to you for advice with respect to the account. Which of the following is correct? A.Reese must distribute the entire account balance within five years of Andrea's death. B.Reese must distribute the entire account balance within ten years of Andrea's death. C.In the year following Andrea's death, Reese must begin taking distributions over Andrea's remaining single-life expectancy. D.Reese can roll the account over to her own name, treat the account as her own and name a new beneficiary.

B.Reese must distribute the entire account balance within ten years of Andrea's death. SECURE Act 2019 changed distribution rules for beneficiaries of account owners that died after 12/31/19. Whether the account owner died before RBD (Required Begin Date) or after, the distribution rules are now the same. All Designated Beneficiaries must withdraw the account balance within 10 years of the owner's death.

Gerry is 72 on April 1, 2023 and has an account balance of $423,598 as of the end of last year. If Gerry takes a $15,000 distribution in December 2023, what is the amount of the minimum distribution tax penalty? A.6% of the amount not taken B.25% of the amount not taken C.$0 D.50% of the amount not taken

C.$0 SECURE Act 2.0 revised Required Minimum Distributions to age 73 as a start date for those that turn 72 after 12/31/22. Gerry will not need to begin RMDs for another year. Any distributions prior to that will not count towards the RMD.

Which of the following is true regarding QDROs? A.The court determines how the retirement plan will satisfy the QDRO (i.e., split accounts, separate interest). B.In order for a QDRO to be valid, the order must be filed on Form 2932-QDRO provided by ERISA. C.All QDRO distributions are charged a 10% early withdrawal penalty. D.A QDRO distribution is not considered a taxable distribution if the distribution is deposited into the recipient's IRA or qualified plan.

D.A QDRO distribution is not considered a taxable distribution if the distribution is deposited into the recipient's IRA or qualified plan. The plan document, not the court, determines how the QDRO will be satisfied. No particular form is required for a QDRO, although some specific information is required. Form 2932-QDRO is not a real form.

Josh recently died on January 5, 2021 at the age of 63, leaving a qualified plan account with a balance of $1,000,000. Josh was married to Kay, age 53, who is the designated beneficiary of the qualified plan. Which of the following is correct? A.Kay must distribute the entire account balance within five years of Josh's death. B.Kay must begin taking distributions over Josh's remaining single-life expectancy. C.Any distribution from the plan to Kay will be subject to a 10 percent early withdrawal penalty until she is 59½. D.Kay can receive annual distributions over her remaining single-life expectancy.

D.Kay can receive annual distributions over her remaining single-life expectancy. Kay can receive distributions over her remaining single-life expectancy. Kay qualifies as an eligible designated beneficiary as she is 10 years younger, not more than 10 years younger. Answer A is incorrect. She is not required to distribute the entire account within 5 years. Answer B is incorrect. Kay can wait (not must) until Josh would have been 72 to begin taking distributions over her recalculated life expectancy. Answer C is incorrect. The distribution will not be subject to the early withdrawal penalty because the distributions were on account of death.

Tom, age 39, is an employee of Star, Inc., which has a profit sharing plan with a CODA feature. His total account balance is $412,000, $82,000 of which represents employee elective deferrals and earnings on those deferrals. The balance is profit sharing contributions made by the employer and earnings on those contributions. Tom is 100 percent vested. Which of the following statements is/are correct? Tom may take a loan from the plan, but the maximum loan is $41,000 and the normal repayment period will be 5 years. If Tom takes a distribution (plan permitting) to pay health care premiums (no coverage by employer) he will be subject to income tax, but not the 10% penalty. A.1 only B.2 only C.1 and 2 D.Neither 1 nor 2

D.Neither 1 nor 2 Statement 1 is incorrect because he can take a loan equal to one-half of his total account balance up to $50,000. Statement 2 is incorrect because the exemption from the 10% penalty only applies to IRAs and only to the unemployed.