Personal financial and wealth planning
The Retirement Vehicle
Match the account to the rate: Roth grows tax-free with no lifetime RMDs, traditional defers then is taxed, and conversions fill the low brackets.
How the exam words it
- -The stem gives a prior year-end balance and a life-expectancy factor and asks for the required minimum distribution beginning at age 73.
- -It contrasts Roth and traditional treatment and asks about tax-free qualified distributions or the absence of lifetime RMDs.
- -It provides AGI, tax-exempt interest, and benefits and asks for provisional income or the taxable portion of Social Security.
- -It describes an early distribution and asks whether a penalty exception applies, or how large a Roth conversion fits a bracket.
The playbook
- 1Compute the RMD as the prior year-end balance divided by the life-expectancy factor, starting at age 73, and remember a Roth owner has no lifetime RMD.
- 2Treat qualified Roth distributions as fully tax-free and traditional distributions as fully taxable ordinary income.
- 3Find provisional income as AGI plus tax-exempt interest plus half of benefits, then apply the 50 and 85 percent inclusion tiers.
- 4Size a Roth conversion to fill the current bracket without spilling over, and match penalty exceptions to the 10 percent early-distribution rule.
The trap
Applying a lifetime RMD to a Roth owner, taxing a qualified Roth distribution, or dropping tax-exempt interest from provisional income. Roth owners have no lifetime RMD and qualified payouts are tax-free.
How the exam varies it
The same pattern, re-skinned along these axes:
Traditional versus Roth taxation and the age-73 RMD triggerProvisional income and the taxable share of Social SecurityEarly-distribution penalty exceptions versus bracket-filling Roth conversions
Drill this pattern
8 questions of The Retirement Vehicle from across the AUD topics. Clear it by getting 5 right with a streak of 3.