Sample Questions
Question 1
Easy
What is the primary purpose of substantially equal periodic payments (SEPP) under IRC Section 72(t)?
Solution
B is correct.
SEPP under Section 72(t) allows individuals to take distributions from retirement accounts before age 59½ without incurring the 10% early withdrawal penalty. The payments must continue for the longer of five years or until age 59½. Three IRS-approved methods exist for calculating SEPP amounts: required minimum distribution, fixed amortization, and fixed annuitization.
SEPP under Section 72(t) allows individuals to take distributions from retirement accounts before age 59½ without incurring the 10% early withdrawal penalty. The payments must continue for the longer of five years or until age 59½. Three IRS-approved methods exist for calculating SEPP amounts: required minimum distribution, fixed amortization, and fixed annuitization.
Question 2
Medium
Sequence-of-returns risk is most damaging to a retirement portfolio under which specific condition?
Solution
A is correct.
Sequence-of-returns risk is most severe when large losses occur early in the distribution phase because withdrawals lock in those losses permanently, leaving fewer assets to benefit from later recoveries.
Sequence-of-returns risk is most severe when large losses occur early in the distribution phase because withdrawals lock in those losses permanently, leaving fewer assets to benefit from later recoveries.
Question 3
Hard
When an indirect (60-day) rollover from a traditional IRA is completed, what withholding rule applies?
Solution
B is correct.
Unlike eligible rollover distributions from qualified employer plans (which are subject to mandatory 20% withholding), IRA distributions are NOT subject to mandatory withholding. The account owner can elect withholding or waive it. However, the full original amount must be redeposited within 60 days to avoid taxes and penalty — even if withholding was taken, the owner must make up the withheld amount from other funds to roll over the full balance. The 20% mandatory withholding rule applies only to distributions from employer-sponsored plans (401(k), 403(b), etc.).
Unlike eligible rollover distributions from qualified employer plans (which are subject to mandatory 20% withholding), IRA distributions are NOT subject to mandatory withholding. The account owner can elect withholding or waive it. However, the full original amount must be redeposited within 60 days to avoid taxes and penalty — even if withholding was taken, the owner must make up the withheld amount from other funds to roll over the full balance. The 20% mandatory withholding rule applies only to distributions from employer-sponsored plans (401(k), 403(b), etc.).
