Sample Questions and Answers
Which of the following retirement accounts allows for tax-free withdrawals in retirement, assuming specific conditions are met?
A) Traditional IRA
B) 401(k)
C) Roth IRA
D) SEP IRA
Answer: C
What is the maximum contribution limit for a 401(k) plan in 2024 for individuals under the age of 50?
A) $18,000
B) $22,500
C) $25,000
D) $30,000
Answer: B
What is the primary benefit of contributing to a Traditional IRA as opposed to a Roth IRA?
A) Tax-free withdrawals in retirement
B) Immediate tax deduction on contributions
C) Employer matching contributions
D) Higher contribution limits
Answer: B
At what age can you begin taking penalty-free withdrawals from a 401(k) or IRA?
A) 55
B) 59½
C) 65
D) 70
Answer: B
Which of the following is a feature of a Roth IRA that differs from a Traditional IRA?
A) Contributions are made with pre-tax dollars
B) Withdrawals are taxed as ordinary income
C) Contributions are made with after-tax dollars
D) It has a higher contribution limit
Answer: C
What is the standard age at which individuals can begin receiving full Social Security retirement benefits?
A) 62
B) 65
C) 66-67, depending on the year of birth
D) 70
Answer: C
If you withdraw funds from your 401(k) before the age of 59½, what penalty will generally apply?
A) 10%
B) 15%
C) 20%
D) 25%
Answer: A
What is the purpose of a catch-up contribution for individuals over the age of 50?
A) To invest more in a diversified portfolio
B) To increase the annual contribution limit to certain retirement accounts
C) To lower taxable income
D) To avoid early withdrawal penalties
Answer: B
Which of the following statements about Social Security is correct?
A) Social Security benefits are not taxed.
B) Social Security is meant to replace 100% of an individual’s pre-retirement income.
C) Social Security benefits are based on your 35 highest-earning years.
D) Social Security is only available for individuals who have worked for 10 years.
Answer: C
How do employer-sponsored retirement plans, like 401(k)s, help employees save for retirement?
A) They automatically increase your salary each year.
B) They allow employees to contribute pre-tax dollars, lowering their taxable income.
C) They guarantee a fixed monthly pension upon retirement.
D) They require no employee contribution for the employer to provide benefits.
Answer: B
What is the maximum contribution limit for an individual under the age of 50 to an IRA in 2024?
A) $3,500
B) $6,000
C) $7,000
D) $10,000
Answer: B
Which of the following retirement accounts provides the opportunity to grow investments tax-deferred until withdrawal?
A) 401(k)
B) Health Savings Account (HSA)
C) Roth IRA
D) Taxable brokerage account
Answer: A
Which type of employer-sponsored retirement plan typically requires a percentage of your salary to be deducted from your paycheck?
A) Pension plan
B) 401(k)
C) 403(b)
D) Both B and C
Answer: D
What is the benefit of a 401(k) plan’s employer match?
A) It adds additional money to your paycheck.
B) It increases your contributions without requiring extra effort on your part.
C) It allows for higher contribution limits than IRAs.
D) It can be used for purchasing stocks.
Answer: B
Which of the following is an important factor in calculating how much you need to save for retirement?
A) Expected retirement age
B) Current income level
C) Desired lifestyle in retirement
D) All of the above
Answer: D
What happens if you contribute more than the annual contribution limit to your 401(k)?
A) The IRS will return the excess contribution automatically.
B) You will incur a 10% penalty on the excess amount.
C) You will face a 6% penalty on the excess amount each year until corrected.
D) The employer will match the excess contribution.
Answer: C
If an individual is trying to calculate their retirement savings goal, which of the following factors is typically considered?
A) Current savings and investment returns
B) Desired income replacement rate in retirement
C) Anticipated retirement age and life expectancy
D) All of the above
Answer: D
Which of the following is true about a defined benefit pension plan?
A) It is based on the individual’s contribution to the plan.
B) The payout is determined by a formula based on salary and years of service.
C) It allows employees to manage their investment options.
D) It is the same as a 401(k) plan.
Answer: B
What does “vesting” refer to in employer-sponsored retirement plans?
A) The amount of time an employee must work before being entitled to employer contributions.
B) The ability to withdraw from the plan early.
C) The rate of return on investments within the plan.
D) The tax treatment of the contributions.
Answer: A
What is a primary disadvantage of withdrawing funds from an IRA before the age of 59½?
A) Loss of employer matching funds
B) Taxable event and early withdrawal penalties
C) The inability to contribute in future years
D) Immediate increase in taxable income
Answer: B
Which of the following is considered a “primary” source of retirement income for most people?
A) Real estate investments
B) Social Security
C) Inheritance
D) Stock dividends
Answer: B
When can you start receiving Social Security benefits at a reduced rate?
A) Age 55
B) Age 59½
C) Age 62
D) Age 65
Answer: C
What is a 403(b) retirement plan?
A) A retirement plan for government employees
B) A retirement plan for nonprofit organizations and public schools
C) A tax-deferred pension plan for teachers only
D) A type of Roth IRA
Answer: B
What is the benefit of using a retirement calculator?
A) It guarantees your retirement goals will be met.
B) It helps you estimate how much you need to save for retirement based on assumptions.
C) It helps you calculate how much Social Security you will receive.
D) It calculates your tax deductions automatically.
Answer: B
Which of the following is a good reason to delay taking Social Security benefits?
A) You need the money immediately.
B) You will earn more in benefits if you wait until after your full retirement age.
C) You plan to work full time during retirement.
D) Social Security taxes are higher if you delay.
Answer: B
What type of retirement plan is most likely to provide a fixed monthly payment during retirement?
A) 401(k)
B) Pension plan
C) IRA
D) Roth IRA
Answer: B
How are Roth IRA contributions taxed?
A) They are taxed when withdrawn.
B) They are taxed at the time of contribution.
C) They are not taxed.
D) They are subject to capital gains tax.
Answer: B
What is the “rule of thumb” for how much income you will need to replace in retirement to maintain your current lifestyle?
A) 50%
B) 70-80%
C) 100%
D) 120%
Answer: B
What is one disadvantage of relying solely on Social Security for retirement income?
A) It typically doesn’t keep pace with inflation.
B) It provides too much income for most retirees.
C) It is only available to people with significant savings.
D) It is not taxable.
Answer: A
What is the recommended maximum percentage of your income that should be contributed to retirement savings each year?
A) 3-5%
B) 6-10%
C) 15%
D) 25%
Answer: C
31. What is the primary advantage of a Roth IRA over a Traditional IRA for retirement planning?
A) Tax-free contributions
B) Employer contributions
C) Tax-free withdrawals in retirement
D) Higher contribution limits
Answer: C
32. Which of the following is the maximum annual contribution limit for a 401(k) plan in 2024 for individuals over the age of 50?
A) $22,500
B) $30,000
C) $27,000
D) $33,000
Answer: B
33. If an employer offers a 401(k) match, what is generally the best option for the employee?
A) Take the employer match and contribute the minimum amount required
B) Avoid contributing to the 401(k) and invest in a taxable account
C) Contribute to the 401(k) only when nearing retirement
D) Rely solely on Social Security for retirement
Answer: A
34. What is the “safe withdrawal rate” often used in retirement planning?
A) 2-3%
B) 4-5%
C) 6-7%
D) 8-10%
Answer: B
35. At what age do you have to begin taking required minimum distributions (RMDs) from a 401(k) or Traditional IRA?
A) 59½
B) 62
C) 65
D) 73
Answer: D
36. Which of the following types of retirement accounts typically provides tax-deferred growth but requires taxes to be paid on withdrawals?
A) Roth IRA
B) 401(k)
C) Traditional IRA
D) Both B and C
Answer: D
37. What is one key difference between a 401(k) and a 403(b) plan?
A) 401(k)s are only available to private-sector employees, while 403(b)s are for nonprofit and public-sector employees.
B) 403(b)s offer higher contribution limits than 401(k)s.
C) 401(k)s are employer-sponsored and 403(b)s are only employee-funded.
D) 403(b)s have no contribution limits.
Answer: A
38. What is the primary function of Social Security in a retirement plan?
A) To provide a guaranteed income for life after retirement
B) To cover all retirement expenses
C) To replace all of a person’s pre-retirement income
D) To provide an emergency fund for early retirement
Answer: A
39. Which of the following is an example of a tax-deferred account?
A) Roth IRA
B) 401(k)
C) Health Savings Account (HSA)
D) Brokerage account
Answer: B
40. What is the benefit of tax diversification in retirement planning?
A) It allows you to take advantage of both tax-deferred and tax-free growth opportunities.
B) It eliminates the need for RMDs.
C) It guarantees a higher rate of return on investments.
D) It lowers contribution limits.
Answer: A
41. What is the most common type of pension plan offered by private companies?
A) Defined contribution plan
B) Cash balance plan
C) Defined benefit plan
D) 401(k)
Answer: A
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