Taxation & Legal Considerations in Retirement Flashcards

A 72-year-old retiree fails to take their required minimum distribution for the year. What is the penalty for the missed RMD under SECURE 2.0?

Answer: 25% of the amount not distributed, reduced to 10% if corrected promptly

SECURE 2.0 reduced the RMD penalty from 50% to 25%, and further to 10% if the account owner corrects the missed distribution within the correction window.

Which Medicare surcharge applies to high-income retirees and increases their Part B and Part D premiums?

Answer: Income-Related Monthly Adjustment Amount (IRMAA)

IRMAA is a surcharge added to Medicare Part B and Part D premiums for beneficiaries whose modified adjusted gross income exceeds certain thresholds.

How does a Net Unrealized Appreciation (NUA) strategy benefit an employee with highly appreciated employer stock in a 401(k) plan?

Answer: It permits the appreciation to be taxed at long-term capital gains rates rather than ordinary income rates upon distribution

NUA allows the appreciation on employer stock distributed in kind from a qualified plan to be taxed at preferential long-term capital gains rates instead of ordinary income rates.

A retiree establishes a Charitable Remainder Trust (CRT) and contributes appreciated stock worth $500,000. Which statement is CORRECT?

Answer: The CRT can sell the appreciated stock without paying capital gains tax, providing a larger income stream to the retiree

A CRT is a tax-exempt entity, so it can sell appreciated stock without paying capital gains tax, allowing the full proceeds to be reinvested and distributed to the income beneficiary.

Under portability rules, what must a surviving spouse do to use the deceased spouse's unused estate tax exemption?

Answer: File IRS Form 706 (estate tax return) within the required time period to elect portability

To elect portability and transfer the Deceased Spousal Unused Exclusion (DSUE) amount, the surviving spouse must file a timely estate tax return (Form 706), even if no tax is owed.

Which of the following is a key advantage of holding life insurance in an Irrevocable Life Insurance Trust (ILIT)?

Answer: The death benefit proceeds are excluded from the insured's taxable estate

When life insurance is owned by an ILIT, the death benefit is not included in the insured's gross estate, avoiding estate taxes on those proceeds.

A retiree uses a Qualified Charitable Distribution (QCD) to donate $10,000 directly from their IRA to a charity. What is the primary tax benefit?

Answer: The distribution satisfies the RMD requirement and is excluded from taxable income

A QCD satisfies all or part of the RMD and is excluded from the retiree's taxable income, providing a tax benefit even for those who take the standard deduction.