CSS Tax Planning for Retirees 1 — Questions and Answers
Question 1: What percentage of Social Security benefits may be included in federal taxable income for a single filer with combined income exceeding $34,000?
- 0%
- 50%
- 85% (Correct answer)
- 100%
Correct answer: 85%
Up to 85% of Social Security benefits are taxable for single filers with combined income (AGI + nontaxable interest + half of SS benefits) above $34,000.
Question 2: What is a Roth conversion and why might it benefit retirees in lower income years?
- Converting a Roth IRA to a traditional IRA to delay taxes
- Moving money from a traditional IRA to a Roth IRA, paying taxes now at a lower rate to enjoy tax-free growth and withdrawals later (Correct answer)
- Rolling over a 401(k) to avoid all taxes permanently
- Converting annuity payments to Roth accounts
Correct answer: Moving money from a traditional IRA to a Roth IRA, paying taxes now at a lower rate to enjoy tax-free growth and withdrawals later
A Roth conversion moves pre-tax retirement funds to a Roth IRA, triggering current income tax; if done in a low-income year, the tax rate is lower, and future qualified withdrawals are tax-free.
Question 3: At what age must traditional IRA and 401(k) account holders begin taking required minimum distributions (RMDs) under current SECURE 2.0 Act rules?
- 70½
- 72
- 73 (Correct answer)
- 75
Correct answer: 73
Under the SECURE 2.0 Act (effective 2023), the RMD starting age was raised to 73 for those born between 1951 and 1959, and will increase to 75 for those born in 1960 or later.
Question 4: Which IRA withdrawal strategy can help retirees minimize taxes by managing their income across tax brackets?
- Always withdrawing from the Roth IRA first
- Bracket management: filling lower tax brackets with traditional IRA withdrawals or Roth conversions before RMDs begin (Correct answer)
- Withdrawing all IRA funds in the first year of retirement
- Using only taxable brokerage accounts for income
Correct answer: Bracket management: filling lower tax brackets with traditional IRA withdrawals or Roth conversions before RMDs begin
Bracket management involves strategically withdrawing traditional IRA funds or completing Roth conversions up to the top of a lower tax bracket before RMDs force higher taxable income.
Question 5: What is a Qualified Charitable Distribution (QCD) and how does it benefit retirees over 70½?
- A tax credit for charitable gifts made after retirement
- A direct transfer of up to $105,000 from an IRA to a qualified charity that counts toward the RMD and is excluded from taxable income (Correct answer)
- A deduction only available to itemizers
- A gift of appreciated stock to a donor-advised fund
Correct answer: A direct transfer of up to $105,000 from an IRA to a qualified charity that counts toward the RMD and is excluded from taxable income
A QCD allows IRA owners 70½+ to transfer up to $105,000 (indexed) directly to a qualified charity; the amount satisfies the RMD and is excluded from gross income.
Question 6: What happens to unused capital loss carryforwards at the death of a taxpayer?
- They transfer to the surviving spouse's individual tax return
- They expire at death and cannot be used by the estate or heirs (Correct answer)
- They carry over to the estate tax return for 10 years
- They are converted to ordinary loss deductions for heirs
Correct answer: They expire at death and cannot be used by the estate or heirs
Capital loss carryforwards are personal to the taxpayer and expire at death; they cannot be transferred to the surviving spouse's separate return or inherited by heirs.
CSS Tax Planning for Retirees 1
What percentage of Social Security benefits may be included in federal taxable income for a single filer with combined income exceeding $34,000?