Retirement and Investment Quiz

What is the term used for the point in a person's life when he or she stops working completely or partially?

• Retirement

• Semi-retirement

• Tax-deferred

• After-tax investment

Answer explanation

Retirement is the term used for the point in a person's life when he or she stops working completely or partially, making it the correct choice.

Tags

CCSS.L.11-12.4C

CCSS.L.6.4C

CCSS.L.7.4C

CCSS.L.8.4C

CCSS.L.9-10.4C

What type of investment lowers your current taxable income because it is taken out of your wages before taxes have been calculated and deducted?

• After-tax investment

• Traditional IRA

• Pre-tax investment

• Roth IRA

Answer explanation

A pre-tax investment lowers your current taxable income by deducting the investment amount from your wages before taxes are calculated, reducing your tax liability.

Which type of IRA allows the money to be tax-exempt when it is withdrawn after being in the account for at least 5 years and the saver is at least 59½ years old?

• Traditional IRA

• 401(k)

• Roth IRA

• Tax-deferred account

Answer explanation

The correct choice is Roth IRA because it allows tax-exempt withdrawals after 5 years in the account and the saver is at least 59½ years old.

What is a 401(k) plan?

• A retirement savings plan that is sponsored and set up by an employer

• An individual retirement account that is opened by an individual

• A savings plan in which the income is taxed at the time of withdrawal

• A deposit made to a retirement account that is deducted from wages after taxes

Answer explanation

A 401(k) plan is a retirement savings plan sponsored and set up by an employer, making it the correct choice among the options provided.

What is the penalty for early withdrawal from a traditional IRA before the age of 59½?

• 5% penalty

• 10% penalty

• No penalty

• 15% penalty

Answer explanation

The correct penalty for early withdrawal from a traditional IRA before the age of 59½ is a 10% penalty.

What is a SEP IRA plan?

• A tax-deferred retirement savings program for employees of educational institutions and some nonprofit organizations.

• A retirement savings plan for self-employed professionals in which the pre-tax money invested is tax-deferred until it is withdrawn.

• A retirement savings plan that is sponsored by an employer for its employees.

• A retirement savings plan that has strict rules as to when the money can be withdrawn without a penalty.

Answer explanation

A SEP IRA plan is a retirement savings plan for self-employed professionals where pre-tax money invested is tax-deferred until withdrawn, making it the correct choice.

What is a 403(b) plan?

• A retirement savings plan for self-employed professionals in which the pre-tax money invested is tax-deferred until it is withdrawn.

• A tax-deferred retirement savings program for employees of educational institutions and some nonprofit organizations.

• A retirement savings plan that is sponsored by an employer for its employees.

• A retirement savings plan that has strict rules as to when the money can be withdrawn without a penalty.

Answer explanation

A 403(b) plan is a tax-deferred retirement savings program for employees of educational institutions and some nonprofit organizations, making the second answer choice the correct one.

What is the penalty for making a withdrawal from an IRA before age 59½?

• 5% of the withdrawal amount

• 10% of the withdrawal amount

• 15% of the withdrawal amount

• No penalty

Answer explanation

The penalty for making a withdrawal from an IRA before age 59½ is 10% of the withdrawal amount, as stated in the tax regulations.

What is the maximum amount Leo can contribute annually to his 401(k) if he is younger than 50 years old?

• $11,250

• $18,000

• $937.50

• $2,250

Answer explanation

The correct choice is $18,000 because individuals under 50 years old can contribute up to this amount annually to their 401(k) accounts.

Laura has to withdraw 15% of the money from her retirement account after 10 years due to medical bills. If her account had $10,000 at that time, how much did she withdraw?

• $1,500

• $1,350

• $1,650

• $2,000

Tags

CCSS.6.RP.A.3C