ChFC Retirement Planning Practice Questions

Correct answer: C. $32,000

Since she is age 50 or older, she may make the standard $24,000 elective deferral plus the $8,000 age-50 catch-up, for a total maximum deferral of $32,000 this year.

• A. $24,000 is only the regular elective deferral limit; it ignores the $8,000 catch-up available to her because she is 50 or older.
• B. $28,000 doesn't match either limit alone or the combined total — it understates the full deferral she's permitted.
• C. As someone age 50+, she may defer the regular $24,000 limit plus the $8,000 catch-up contribution, totaling $32,000.
• D. $40,000 overstates her elective deferral limit; it doesn't correspond to the stated deferral and catch-up figures.

• Source: IRS: Retirement topics - 401(k) and profit-sharing plan contribution limits

Correct answer: C. A cash balance defined benefit plan maintained alongside the existing 401(k)/profit-sharing plan

Cash balance plans are defined benefit plans that use actuarial funding to target a specific benefit, allowing substantially larger tax-deferred contributions than defined contribution limits alone — particularly for older, highly compensated owners with a short remaining time horizon to retirement. When layered on top of an existing 401(k)/profit-sharing plan, a cash balance plan is a common strategy for owner-dominated professional practices seeking maximum tax-deferred savings.

• A. A SIMPLE IRA has a much lower contribution ceiling than a 401(k) and would not add capacity beyond what she already has.
• B. A SEP IRA is a defined contribution plan subject to the same overall annual-additions limit as the 401(k)/profit-sharing plan, so it does not add incremental capacity and would require terminating the existing plan.
• C. Correct — a cash balance plan's actuarial funding can substantially exceed DC limits for an older, high-income owner.
• D. 457(b) plans are available only to governmental and certain tax-exempt employers, not a private medical practice, so this is not an option for her.

• Source: IRC section 415 (limits on benefits and contributions)
• Source: IRS: Retirement topics - Defined benefit plan benefit limits

Correct answer: C. She may still make the contribution, but it is nondeductible; her basis is tracked on Form 8606.

Being an active participant in an employer plan only affects the deductibility of a traditional IRA contribution above certain income thresholds — it does not bar the contribution itself (subject to earned income and contribution limits). Above the phase-out range, the contribution becomes nondeductible, and the client's basis is tracked via Form 8606 so it isn't taxed again at distribution.

• A. IRA contributions aren't always deductible — deductibility phases out for active participants in an employer plan once modified AGI exceeds the applicable range, as is the case here.
• B. Active participation in an employer plan doesn't bar making a traditional IRA contribution at all; it only affects whether the contribution is deductible.
• C. Correct. She may still contribute, but because her income is above the phase-out range as an active participant, the contribution is nondeductible; nondeductible basis is tracked on Form 8606 to avoid double taxation later.
• D. There's no automatic recharacterization of a nondeductible traditional IRA contribution into a Roth contribution; converting to Roth (a 'backdoor Roth') requires an affirmative, separate conversion step.

Correct answer: C. The employee may make catch-up contributions to both the 401(k) and the IRA, since both catch-up provisions begin at age 50

Both 401(k) plans and traditional/Roth IRAs permit catch-up contributions beginning in the year a participant turns 50. A 55-year-old is eligible for catch-up contributions to both account types simultaneously (subject to each plan's own base and catch-up limits).

• A. Incorrect — IRA catch-ups also begin at age 50, not 59½.
• B. Incorrect — there is no service-length requirement, with the same employer or otherwise, for 401(k) catch-up eligibility; it is purely age-based (50+).
• C. Correct — age 50 is the uniform catch-up eligibility threshold across both plan types.
• D. Incorrect — age 60 has no bearing on standard catch-up eligibility (it relates to a separate, higher 'super catch-up' amount under SECURE 2.0 for ages 60-63 in employer plans only).