Lesson 7 Day 3 Saving for Retirement

What is the main feature of an Individual Retirement Account (IRA)?

• It is a retirement savings account that you open and manage yourself.

• It is a savings account managed by your employer.

• It is a government-funded pension plan.

• It is a joint account shared with family members.

What is one benefit of contributing to a Traditional IRA?

• You can reduce your taxable income for the year.

• You pay taxes immediately on your contributions.

• You increase your taxable income for the year.

• You cannot withdraw your money at retirement.

If you earn $50,000 and contribute $5,000 to a Traditional IRA, what is your taxable income for the year?

• $45,000

• $50,000

• $55,000

• $5,000

If you withdraw money from a Traditional IRA before age 59½, what is the consequence?

• You pay no taxes or penalties.

• You owe taxes and a 10% penalty.

• You only pay a 5% penalty.

• You receive a tax refund.

Suppose you are planning for retirement and want to maximize your savings growth without annual taxation. Which IRA feature would best support this goal?

• Immediate taxation on growth.

• Growth without being taxed each year.

• Annual withdrawal penalties.

• No growth on contributions.

Which statement best describes the growth of earnings in a Roth IRA?

• Earnings grow tax-free, and withdrawals are tax-free after retirement age.

• Earnings are taxed every year.

• Earnings are taxed only when withdrawn.

• Earnings are never taxed, even before retirement.

If you have a Roth IRA, when do you pay taxes on your contributions?

• Immediately, when you make the contribution.

• Only after retirement.

• When you withdraw the money.

• Never.

What happens if you withdraw earnings from a Roth IRA before age 59½?

• You pay a 10% penalty and income taxes

• You pay no taxes or penalties

• You pay only income taxes

• You pay only a 5% penalty

If you withdraw only the money you contributed to your Roth IRA before age 59½, what are the tax and penalty consequences?

• No taxes or penalties

• 10% penalty only

• Income taxes only

• Both taxes and penalties

What is a 401(k)?

• A retirement savings plan that your employer typically offers.

• A type of health insurance plan.

• A government tax form.

• A student loan program.