CTFA Retirement and Employee Benefits Planning 2 — Questions and Answers
Question 1: A charitable remainder unitrust (CRUT) differs from a charitable remainder annuity trust (CRAT) in which key way?
- A CRUT pays a fixed percentage of annually revalued assets; a CRAT pays a fixed dollar amount (Correct answer)
- A CRUT is irrevocable; a CRAT can be revoked by the grantor at any time
- A CRUT allows additional contributions; a CRUT does not
- A CRUT benefits only public charities; a CRAT can benefit private foundations
Correct answer: A CRUT pays a fixed percentage of annually revalued assets; a CRAT pays a fixed dollar amount
A CRUT distributes a fixed percentage of trust assets revalued each year, so payments fluctuate with asset values, while a CRAT pays a fixed annuity amount each year.
Question 2: Under the minimum distribution rules, what is the penalty for failing to take a required minimum distribution from an IRA?
- 25% excise tax on the amount that should have been distributed (reduced to 10% if corrected timely) (Correct answer)
- 50% excise tax on the amount that should have been distributed
- Ordinary income tax plus a 10% early withdrawal penalty
- Forfeiture of the entire IRA balance to the IRS
Correct answer: 25% excise tax on the amount that should have been distributed (reduced to 10% if corrected timely)
SECURE 2.0 reduced the RMD failure penalty from 50% to 25% of the missed RMD amount, further reduced to 10% if the error is corrected within the correction window.
Question 3: Which type of pension plan guarantees a specific monthly benefit at retirement regardless of investment performance?
- Defined benefit (DB) plan (Correct answer)
- Defined contribution (DC) plan
- Cash balance plan
- Money purchase pension plan
Correct answer: Defined benefit (DB) plan
A defined benefit plan promises a specified monthly benefit at retirement, typically based on salary and years of service, with the employer bearing investment risk.
Question 4: What is a qualified domestic relations order (QDRO) used for in retirement planning?
- To assign retirement plan benefits to a former spouse or dependent as part of a divorce settlement (Correct answer)
- To name a minor child as a contingent beneficiary on an IRA
- To allow early withdrawal from a 401(k) without penalty for medical expenses
- To transfer IRA assets between financial institutions without tax consequences
Correct answer: To assign retirement plan benefits to a former spouse or dependent as part of a divorce settlement
A QDRO is a court order that assigns a portion of a qualified retirement plan to an alternate payee (former spouse or dependent) pursuant to a divorce decree.
Question 5: Under the spousal rollover rules, a surviving spouse who inherits an IRA may do which of the following that other beneficiaries cannot?
- Roll the inherited IRA into their own IRA and delay RMDs until they reach age 73 (Correct answer)
- Transfer the IRA to a trust without triggering income taxes
- Elect to receive distributions tax-free as a surviving spouse
- Contribute additional funds to the inherited IRA after rollover
Correct answer: Roll the inherited IRA into their own IRA and delay RMDs until they reach age 73
A surviving spouse can roll an inherited IRA into their own IRA, delaying RMDs until they themselves reach the required beginning date age.
Question 6: Which of the following is the primary difference between a traditional IRA and a Roth IRA with respect to required minimum distributions during the owner's lifetime?
- Traditional IRAs require RMDs beginning at age 73; Roth IRAs have no RMDs during the owner's lifetime (Correct answer)
- Both traditional and Roth IRAs require RMDs beginning at age 73
- Roth IRAs require RMDs beginning at age 59½; traditional IRAs have no RMDs
- Neither traditional nor Roth IRAs require RMDs if the owner is still working
Correct answer: Traditional IRAs require RMDs beginning at age 73; Roth IRAs have no RMDs during the owner's lifetime
Traditional IRAs are subject to RMDs beginning at age 73, while Roth IRAs have no required minimum distributions during the original owner's lifetime.
CTFA Retirement and Employee Benefits Planning 2
A charitable remainder unitrust (CRUT) differs from a charitable remainder annuity trust (CRAT) in which key way?