U3L7 HW Finance

An investment account where a person saves a portion of income for retirement. Not employer sponsored.

• Social Security

• 401k

• Mutual Fund

• IRA

The potential for loss when investing

• Capital Gain

• Risk

• Return

• Capital Loss

Spreading your assets among several different types of investments

• Will

• Risk

• Diversification

• Allocation

Investment where investors pool their money together to buy stock, bond, and other securities

• Mutual Fund

• Bond

• Common Stock

• Diversification

Employer sponsored retirement savings plan funded by a portion of your salary

• 401k

• Traditional IRA

• Mutual Fund

• Annuity

1. Select the best definition of an IRA.

1. a) An IRA is a tax-advantaged investing tool set up by individuals for retirement savings

2. b) An IRA is a retirement plan offered to you by your employer

3. c) An IRA is an investment type with a fixed rate of return

4. d) An IRA is a retirement savings plan that guarantees a fixed rate of return

• a

• b

• c

• d

2. Select all of the statements that are a true characteristic of a Traditional IRA. (hint: choose 2 correct answers)

1. a) Any money you save into a Traditional IRA is tax deductible

2. b) There is no limit on the amount of money you can contribute to a Traditional IRA

3. c) You are taxed on the money in your Traditional IRA when you withdraw it in retirement (it is taxed as ordinary income)

4. d) You never have to pay taxes when contributing money to a Traditional IRA

• a

• b

• c

• d

3. Select the TRUE characteristic of a Roth IRA.

1. a) There is no limit to the amount you can contribute to a Roth IRA

2. b) The Roth IRA has been around longer than the Traditional IRA (the Roth debuted in the 1930s)

3. c) The capital gains, interest, & growth of a Roth IRA can be withdrawn tax-free in retirement

4. d) You are taxed on the money you withdraw in retirement from your Roth IRA (it is taxed as ordinary income)

• a

• b

• c

• d

4. True or False: You can only have ONE IRA account, so it is important to weigh the pros and cons of a Traditional vs a Roth IRA and choose wisely!

1. True

2. False

• True

• False

1. 401(k)s and IRAs are both…

1. a) Types of investments that you can choose to have in an investment account

2. b) Investment accounts that are commonly offered by employers

3. c) A type of savings account that generally offers around a 1% rate of return

4. d) Investment accounts that you can open to help you invest for retirement

• a

• b

• c

• d