CRPC UPDATED TEST QUESTIONS AND ANSWERS
SURE A+
✔✔SS benefit reductions due to earnings at FRA - ✔✔$1 of benefit for every $3 of
earnings above $41880
✔✔SS benefit reductions due to earnings after FRA - ✔✔none
✔✔What Three aspects comprise provisional income? - ✔✔Gross income + Non-
taxable interest income (muni bonds) + One-half of OASDI benefits
✔✔Spousal Benefits Eligibility SS - ✔✔- Eligible at age 62 or any age if caring for child
under 16 or disabled
-married for at least one year
- one spouse must file for the other to claim spousal benefits
= can receive up to 50% of spouses PIA
✔✔Surviving Spouse Benefits SS - ✔✔- married for atleast 9 months
- can begin benefits as early as age 60
- must be currently unmarried, or remarried after age 60
= up to 100% of spouses PIA, including delayed retirement credits earned
✔✔Divorce Benefits Eligibility SS - ✔✔- married atleast 10 years
- currently unmarried, or remarried after age 60
- claimant must be age 62+
✔✔SS divorce benefits - ✔✔- spousal and survivor benefits
- no impact on ex-spouses benefits
- if divorce is at least two years ago, ex-spouse need not have claimed own benefit, but
must be 62+
,✔✔SS Delay strategy considerations - ✔✔- Life expectancy
- availability of an "income bridge"
✔✔What act created roth IRAs - ✔✔Taxpayer relief act of 1997
✔✔Roth IRA Single phase out - ✔✔117k-132k
✔✔Roth IRA maried filing jointly phase out - ✔✔184k-194k
✔✔Roth married filing separately phase out - ✔✔0-10k
✔✔penalty on withdrawal from roth ira after roth conversion but before roth has been
established for 5 years - ✔✔10% penalty
✔✔Penalty on roth conversion before the age of 59.5 - ✔✔NO penalty
✔✔Recharacterize roth conversion - ✔✔- after a tradition ira is converted to a roth,
changing it back to a traditional
✔✔Reason for recharacterize roth - ✔✔- dramatic drop in value of the converted roth to
avoid paying taxes on money that has since evaporated from an individuals portfolio
✔✔When must recharacterizations be completed by - ✔✔- the last date, including
extensions, for filings ones prior years tax return (typically oct 15)
✔✔Contribution limit for Roth 401k, or roth 403b - ✔✔$18k if under 50; 50+ is $24k
✔✔Two benefits of Roth 401k over roth ira - ✔✔- contribution limits are higher; 18k, or
24k
- contributions can be made regardless of income (no phase out_
✔✔Disadvantages of Roth 401k compared with roth IRA - ✔✔1) if an individual starts
contributing to a roth 401k, then this new 401k has its own 5-year clock
2) Roth 401ks have RMDs upon age 70.5 or retirement (which ever is later)
✔✔How to solve the 2 disadvantages of roth 401ks - ✔✔- roll into roth ira
- this eliminates the RMD's and will go to the existing roth iras 5 year clock
✔✔What need to take place in order for a distribution from a roth ira to be considered
"qualified" - ✔✔1) account must have been opened for at least 5 years
2) the distribution is made after attaining age 59.5, death, or disability, or if it is made to
a first-time homebuyer in an amount up to 10k
,✔✔If a distribution from a roth IRA is not qualified, would that mean that the distribution
would be subject to the 10% early withdrawal penalty if the account owner is under age
59.5? - ✔✔- Not necessarily, the same exceptions to the 10% penalty that apply for trad
iras apply for roths, these include
- qualified higher ed expenses
- medical expenses in excess of 10% (7.5% if account owner or spouse is 65 or older)
and substantially equal periodic payments
✔✔Shirley and Jim Smitten are married and file their taxes jointly. Their modified AGI is
$197,000. Jim makes contributions to the 401(k) plan at work. Shirley's employer offers
no such plan. However, she plans to contribute to her Roth IRA, and Jim has told you
he will contribute to his traditional IRA. They've asked for your help in analyzing their
situation— specifically, can they make a contribution to the Roth IRA for Shirley as they
have planned, and can they make a deductible contribution to Jim's IRA? - ✔✔Their
AGI is $197,000. Shirley cannot contribute to a Roth IRA because their AGI is too high
(phaseout is from $184,000 to $194,000 in 2016). Jim cannot deduct his contribution to
a traditional IRA because their AGI is greater than the phaseout range for a traditional
IRA ($98,000 to $118,000) and he is an active participant. Shirley can contribute (but
not deduct) $5,500 to a traditional IRA because their AGI is above the phaseout for the
spousal IRA and Jim is an active participant. In fact, both can contribute to a
nondeductible IRA.
✔✔Jim (from the previous situation) recently quit his job to paint full time. This year (the
year he began painting full time), his net earnings were $100, and he did not participate
in a qualified retirement plan. Shirley's earnings increased significantly, but she still
doesn't have a retirement plan at work. Their modified AGI is $195,000. She wants to
contribute to her Roth IRA or a traditional IRA; he wants to contribute to his traditional
IRA. How much can they contribute to the Roth IRA and to the traditional IRAs? - ✔✔-
Since neither is an active participant in a qualified plan, the deduction for the spousal
IRA deduction doesn't phase out. They can contribute and deduct $5,500 for Jim's
traditional IRA and contribute and deduct $5,500 for Shirley's traditional IRA.
- They cannot contribute to the Roth IRA since their MAGI is above phaseout ($194,000
of AGI).
✔✔In 2016, Buster and Prunella Gleason's AGI will be $185,000. Prunella joined the
401(k) plan at work as soon as it was offered, and she defers $300 per month. Buster is
disabled and has no income. They have told you they want to deduct the maximum
allowed for Buster, while Prunella wants to contribute the maximum allowed to her Roth
IRA. They ask you to determine those amounts for each. - ✔✔- Buster's deductible
contribution under the spousal IRA is $4,950 and Prunella's Roth contribution is the
same amount. ($194,000 - $185,000)/$10,000 = .9 x $5,500 = $4,950. Because the
Roth phaseout and spousal IRA phaseouts are the same, the calculation is the same for
each.
Return to question.
, ✔✔Immediate Annuities - ✔✔- Distribution phase begins immediately after the initial
deposit
- When an individual purchases an annuity with a lump sum and starts receiving
benefits within a year; this is termed an immediate annuity or single premium immediate
annuity (SPIA)
✔✔Deferred annuities - ✔✔- individual makes an initial deposit(s), but payments from
the annuity back to owner are delayed
✔✔Fixed Annuity - ✔✔- during accumulation phase, deposits go int insurance
company's general account and earns the current interest rate, but no less than stated
minimum
✔✔Variable annuity - ✔✔- deposites purchase units of an -open-end investment
company, just like buying shares of a mutual fund
- units accumulate in separate account
✔✔Who holds investment risk in fixed annuity and variable annuity - ✔✔Fixed annuity:
insurance company
Variable annuity: contact owner- able to choose how the money is invested from a
selection of sub-accounts
✔✔Annuity distribution options - ✔✔1) lump sum
2) periodic withdrawals
3) receive interest only payments
4) annuitize the contract
✔✔Annuity distributions
1) fixed amount
2) period certain - ✔✔1) annuitant receives specific dollar amount until contract value is
exhausted
- if annuitant dies while value remains, the balance is paid to bene
2) benefit is paid for a specific length of time and then ends
- if annuitant dies during, payments will continue to the designated bene
✔✔Annuity distributions
1) interest income
2) Life income - ✔✔1) only interest generated is paid out; contract value, or principal
accumulation is not distributed, so it lasts indefinitely
2) When contract is annuitized the owner exchanges the account value for a stream of
income that will last for life; if annuitant dies nothing is paid to bene "pure or single life
annuity"
✔✔Annuity distributions
SURE A+
✔✔SS benefit reductions due to earnings at FRA - ✔✔$1 of benefit for every $3 of
earnings above $41880
✔✔SS benefit reductions due to earnings after FRA - ✔✔none
✔✔What Three aspects comprise provisional income? - ✔✔Gross income + Non-
taxable interest income (muni bonds) + One-half of OASDI benefits
✔✔Spousal Benefits Eligibility SS - ✔✔- Eligible at age 62 or any age if caring for child
under 16 or disabled
-married for at least one year
- one spouse must file for the other to claim spousal benefits
= can receive up to 50% of spouses PIA
✔✔Surviving Spouse Benefits SS - ✔✔- married for atleast 9 months
- can begin benefits as early as age 60
- must be currently unmarried, or remarried after age 60
= up to 100% of spouses PIA, including delayed retirement credits earned
✔✔Divorce Benefits Eligibility SS - ✔✔- married atleast 10 years
- currently unmarried, or remarried after age 60
- claimant must be age 62+
✔✔SS divorce benefits - ✔✔- spousal and survivor benefits
- no impact on ex-spouses benefits
- if divorce is at least two years ago, ex-spouse need not have claimed own benefit, but
must be 62+
,✔✔SS Delay strategy considerations - ✔✔- Life expectancy
- availability of an "income bridge"
✔✔What act created roth IRAs - ✔✔Taxpayer relief act of 1997
✔✔Roth IRA Single phase out - ✔✔117k-132k
✔✔Roth IRA maried filing jointly phase out - ✔✔184k-194k
✔✔Roth married filing separately phase out - ✔✔0-10k
✔✔penalty on withdrawal from roth ira after roth conversion but before roth has been
established for 5 years - ✔✔10% penalty
✔✔Penalty on roth conversion before the age of 59.5 - ✔✔NO penalty
✔✔Recharacterize roth conversion - ✔✔- after a tradition ira is converted to a roth,
changing it back to a traditional
✔✔Reason for recharacterize roth - ✔✔- dramatic drop in value of the converted roth to
avoid paying taxes on money that has since evaporated from an individuals portfolio
✔✔When must recharacterizations be completed by - ✔✔- the last date, including
extensions, for filings ones prior years tax return (typically oct 15)
✔✔Contribution limit for Roth 401k, or roth 403b - ✔✔$18k if under 50; 50+ is $24k
✔✔Two benefits of Roth 401k over roth ira - ✔✔- contribution limits are higher; 18k, or
24k
- contributions can be made regardless of income (no phase out_
✔✔Disadvantages of Roth 401k compared with roth IRA - ✔✔1) if an individual starts
contributing to a roth 401k, then this new 401k has its own 5-year clock
2) Roth 401ks have RMDs upon age 70.5 or retirement (which ever is later)
✔✔How to solve the 2 disadvantages of roth 401ks - ✔✔- roll into roth ira
- this eliminates the RMD's and will go to the existing roth iras 5 year clock
✔✔What need to take place in order for a distribution from a roth ira to be considered
"qualified" - ✔✔1) account must have been opened for at least 5 years
2) the distribution is made after attaining age 59.5, death, or disability, or if it is made to
a first-time homebuyer in an amount up to 10k
,✔✔If a distribution from a roth IRA is not qualified, would that mean that the distribution
would be subject to the 10% early withdrawal penalty if the account owner is under age
59.5? - ✔✔- Not necessarily, the same exceptions to the 10% penalty that apply for trad
iras apply for roths, these include
- qualified higher ed expenses
- medical expenses in excess of 10% (7.5% if account owner or spouse is 65 or older)
and substantially equal periodic payments
✔✔Shirley and Jim Smitten are married and file their taxes jointly. Their modified AGI is
$197,000. Jim makes contributions to the 401(k) plan at work. Shirley's employer offers
no such plan. However, she plans to contribute to her Roth IRA, and Jim has told you
he will contribute to his traditional IRA. They've asked for your help in analyzing their
situation— specifically, can they make a contribution to the Roth IRA for Shirley as they
have planned, and can they make a deductible contribution to Jim's IRA? - ✔✔Their
AGI is $197,000. Shirley cannot contribute to a Roth IRA because their AGI is too high
(phaseout is from $184,000 to $194,000 in 2016). Jim cannot deduct his contribution to
a traditional IRA because their AGI is greater than the phaseout range for a traditional
IRA ($98,000 to $118,000) and he is an active participant. Shirley can contribute (but
not deduct) $5,500 to a traditional IRA because their AGI is above the phaseout for the
spousal IRA and Jim is an active participant. In fact, both can contribute to a
nondeductible IRA.
✔✔Jim (from the previous situation) recently quit his job to paint full time. This year (the
year he began painting full time), his net earnings were $100, and he did not participate
in a qualified retirement plan. Shirley's earnings increased significantly, but she still
doesn't have a retirement plan at work. Their modified AGI is $195,000. She wants to
contribute to her Roth IRA or a traditional IRA; he wants to contribute to his traditional
IRA. How much can they contribute to the Roth IRA and to the traditional IRAs? - ✔✔-
Since neither is an active participant in a qualified plan, the deduction for the spousal
IRA deduction doesn't phase out. They can contribute and deduct $5,500 for Jim's
traditional IRA and contribute and deduct $5,500 for Shirley's traditional IRA.
- They cannot contribute to the Roth IRA since their MAGI is above phaseout ($194,000
of AGI).
✔✔In 2016, Buster and Prunella Gleason's AGI will be $185,000. Prunella joined the
401(k) plan at work as soon as it was offered, and she defers $300 per month. Buster is
disabled and has no income. They have told you they want to deduct the maximum
allowed for Buster, while Prunella wants to contribute the maximum allowed to her Roth
IRA. They ask you to determine those amounts for each. - ✔✔- Buster's deductible
contribution under the spousal IRA is $4,950 and Prunella's Roth contribution is the
same amount. ($194,000 - $185,000)/$10,000 = .9 x $5,500 = $4,950. Because the
Roth phaseout and spousal IRA phaseouts are the same, the calculation is the same for
each.
Return to question.
, ✔✔Immediate Annuities - ✔✔- Distribution phase begins immediately after the initial
deposit
- When an individual purchases an annuity with a lump sum and starts receiving
benefits within a year; this is termed an immediate annuity or single premium immediate
annuity (SPIA)
✔✔Deferred annuities - ✔✔- individual makes an initial deposit(s), but payments from
the annuity back to owner are delayed
✔✔Fixed Annuity - ✔✔- during accumulation phase, deposits go int insurance
company's general account and earns the current interest rate, but no less than stated
minimum
✔✔Variable annuity - ✔✔- deposites purchase units of an -open-end investment
company, just like buying shares of a mutual fund
- units accumulate in separate account
✔✔Who holds investment risk in fixed annuity and variable annuity - ✔✔Fixed annuity:
insurance company
Variable annuity: contact owner- able to choose how the money is invested from a
selection of sub-accounts
✔✔Annuity distribution options - ✔✔1) lump sum
2) periodic withdrawals
3) receive interest only payments
4) annuitize the contract
✔✔Annuity distributions
1) fixed amount
2) period certain - ✔✔1) annuitant receives specific dollar amount until contract value is
exhausted
- if annuitant dies while value remains, the balance is paid to bene
2) benefit is paid for a specific length of time and then ends
- if annuitant dies during, payments will continue to the designated bene
✔✔Annuity distributions
1) interest income
2) Life income - ✔✔1) only interest generated is paid out; contract value, or principal
accumulation is not distributed, so it lasts indefinitely
2) When contract is annuitized the owner exchanges the account value for a stream of
income that will last for life; if annuitant dies nothing is paid to bene "pure or single life
annuity"
✔✔Annuity distributions
