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web.groovymark@gmail.com
- December 18, 2024
Question 41
What is a “contributory retirement plan”?
a) A retirement plan where only the employer makes contributions
b) A retirement plan where both the employer and employee contribute
c) A retirement plan that does not require contributions
d) A retirement plan with no tax benefits
Answer: b) A retirement plan where both the employer and employee contribute
Explanation: A contributory retirement plan is one where both the employer and employee contribute to the retirement fund, such as in a 401(k) plan.
Question 42
What is the “cash-balance plan” in retirement planning?
a) A type of defined-benefit plan funded by the employee
b) A type of defined-benefit plan funded solely by the employer with individual accounts for participants
c) A defined-contribution plan where employees make contributions
d) A type of pension plan with no guarantee of benefits
Answer: b) A type of defined-benefit plan funded solely by the employer with individual accounts for participants
Explanation: A cash-balance plan is a type of defined-benefit retirement plan where the employer funds individual accounts for employees, and the accounts earn interest over time.
Question 43
What does the “one-rollover rule” state regarding IRAs?
a) An individual can only contribute once per year to an IRA
b) An individual can only roll over funds from one IRA to another once every 12 months
c) An individual must withdraw all funds from an IRA within one year
d) An individual can only have one IRA at any given time
Answer: b) An individual can only roll over funds from one IRA to another once every 12 months
Explanation: The one-rollover rule limits the frequency of rolling over funds from one IRA to another to once per 12-month period.
Question 44
What is the “required minimum distribution” (RMD) for retirement accounts?
a) The minimum amount that must be withdrawn from retirement accounts annually starting at age 72
b) The minimum contribution that must be made to a retirement account each year
c) The minimum fee charged for managing a retirement account
d) The minimum amount that can be borrowed against a retirement account
Answer: a) The minimum amount that must be withdrawn from retirement accounts annually starting at age 72
Explanation: The RMD is the minimum amount that retirees must begin withdrawing from their tax-advantaged retirement accounts, such as IRAs and 401(k)s, after they reach age 72.
Question 45
What is a “Keogh plan”?
a) A government-sponsored retirement plan for low-income individuals
b) A tax-deferred retirement account designed for self-employed individuals and small-business owners
c) A retirement plan for public sector employees
d) A defined-benefit plan provided by large corporations
Answer: b) A tax-deferred retirement account designed for self-employed individuals and small-business owners
Explanation: A Keogh plan is a tax-advantaged retirement plan that allows self-employed individuals and small-business owners to contribute to retirement savings.
Question 46
What is the main benefit of “tax-sheltered retirement accounts”?
a) Immediate withdrawal of funds without penalties
b) Tax-free growth on all investment earnings
c) Government matching contributions
d) Higher annual interest rates compared to taxable accounts
Answer: b) Tax-free growth on all investment earnings
Explanation: Tax-sheltered retirement accounts allow investment earnings to grow tax-free until the funds are withdrawn, offering significant tax advantages.
Question 47
What does “pretax money” refer to in the context of retirement accounts?
a) Money invested before taxes are calculated, reducing current taxable income
b) Money that has already been taxed
c) Money invested in non-retirement accounts
d) Money used for personal expenses before taxes are paid
Answer: a) Money invested before taxes are calculated, reducing current taxable income
Explanation: Pretax money refers to funds invested in retirement accounts before income taxes are deducted, which reduces the individual’s taxable income for the year.
Question 48
What is the “20 percent withholding rule” for early retirement withdrawals?
a) The IRS requires that 20 percent of early withdrawals be withheld for tax purposes
b) The IRS requires that only 20 percent of retirement savings can be withdrawn early
c) The IRS allows up to 20 percent of retirement funds to be withdrawn without penalty
d) The IRS requires a 20 percent penalty for early withdrawals
Answer: a) The IRS requires that 20 percent of early withdrawals be withheld for tax purposes
Explanation: The 20 percent withholding rule mandates that a portion of early withdrawals from retirement accounts be withheld by the IRS to cover potential taxes owed.
Question 49
What is the “hardship withdrawal” option in a 401(k) plan?
a) An option to withdraw retirement funds without penalty for any reason
b) A distribution allowed for immediate and heavy financial needs, subject to restrictions
c) A withdrawal that requires employer approval but has no penalties
d) A penalty-free withdrawal option available after retirement age
Answer: b) A distribution allowed for immediate and heavy financial needs, subject to restrictions
Explanation: A hardship withdrawal allows employees to take money from their 401(k) plan if they face a significant financial need, but they may still face taxes and penalties.
Question 50
What is “lifestyle creep”?
a) The gradual increase in spending as an individual earns more income
b) The steady decrease in savings over time
c) The tendency to spend less on discretionary items over time
d) The habit of saving more as income increases
Answer: a) The gradual increase in spending as an individual earns more income
Explanation: Lifestyle creep refers to the phenomenon where individuals increase their spending as their income rises, often leading to reduced savings and increased financial strain.
