Sample Questions and Answers
What is the maximum contribution limit for an individual to a SIMPLE IRA in 2024?
A. $13,000
B. $15,500
C. $18,000
D. $20,500
Answer: A
Which of the following is an advantage of a Roth IRA over a traditional IRA?
A. Tax-free withdrawals in retirement
B. Contributions are tax-deductible
C. There are no income limits for contributions
D. It has a higher contribution limit than a traditional IRA
Answer: A
At what age can you begin taking penalty-free withdrawals from a Roth IRA?
A. 59½
B. 62
C. 65
D. 70½
Answer: A
Which of the following best describes a 457(b) plan?
A. A retirement plan available to government employees and certain nonprofit workers
B. A retirement plan designed for self-employed individuals
C. A tax-advantaged investment account available for high-income earners
D. A plan with mandatory employer contributions
Answer: A
What is the primary advantage of a traditional 401(k) plan over a Roth 401(k) plan?
A. Roth 401(k) plans have lower contribution limits
B. Traditional 401(k) contributions are made with pre-tax dollars, reducing current taxable income
C. Roth 401(k) plans offer more investment options
D. Traditional 401(k) plans allow for tax-free withdrawals at retirement
Answer: B
Which of the following best describes a pension plan?
A. A retirement plan where contributions are determined by the employee’s salary
B. A retirement plan where the employer guarantees a fixed benefit upon retirement
C. A retirement plan where both employer and employee contributions are optional
D. A plan where employees control their investment decisions
Answer: B
What is the primary difference between a SEP IRA and a SIMPLE IRA?
A. SEP IRAs only allow employee contributions, while SIMPLE IRAs allow both employee and employer contributions
B. SIMPLE IRAs are for self-employed individuals, while SEP IRAs are for small businesses
C. SEP IRAs have higher contribution limits than SIMPLE IRAs
D. SIMPLE IRAs are tax-exempt, while SEP IRAs are taxable
Answer: C
What is the minimum age for penalty-free withdrawals from a 401(k) plan?
A. 59½
B. 60
C. 62
D. 65
Answer: A
What is the tax advantage of contributing to a traditional IRA?
A. Contributions are tax-deductible, reducing your taxable income for the year
B. Contributions are taxed at a lower rate than ordinary income
C. Distributions are tax-free in retirement
D. There is no tax benefit from contributing to a traditional IRA
Answer: A
Which of the following is a requirement for participating in a 401(k) plan?
A. The employee must be over 40 years old
B. The employer must match employee contributions
C. The employee must be employed by a non-profit organization
D. The employee must meet minimum service requirements set by the employer
Answer: D
What is the main purpose of the “catch-up” contribution option for individuals 50 and older?
A. To allow individuals to contribute additional funds to their retirement account beyond the regular limit
B. To allow individuals to take earlier withdrawals from their retirement accounts
C. To give individuals tax breaks on withdrawals from their retirement accounts
D. To allow individuals to reduce taxable income for the current year
Answer: A
What is the primary purpose of a Health Savings Account (HSA)?
A. To provide tax-free income during retirement
B. To cover qualified medical expenses tax-free
C. To offer tax deductions on employer health insurance premiums
D. To save for long-term care expenses
Answer: B
Which of the following is NOT eligible for inclusion in an employer-sponsored 401(k) plan?
A. Cash compensation
B. Stock options
C. Employer contributions
D. Employee contributions
Answer: B
What is the tax benefit of contributing to a traditional 401(k) plan?
A. Contributions are tax-deductible, reducing current taxable income
B. Contributions are taxed at a lower rate than regular income
C. Contributions are tax-free at the time of withdrawal
D. Contributions are tax-free during the year they are made
Answer: A
Which of the following is a requirement for a retirement plan to be considered a “qualified plan” under the Internal Revenue Code?
A. It must provide tax-deferred growth of contributions
B. It must be available to all employees, regardless of tenure
C. It must guarantee a fixed benefit upon retirement
D. It must allow contributions only from highly compensated employees
Answer: B
At what age must required minimum distributions (RMDs) begin for a traditional IRA?
A. 59½
B. 62
C. 70½
D. 72
Answer: D
Which of the following is an advantage of a defined contribution plan over a defined benefit plan?
A. It guarantees a fixed monthly income after retirement
B. It allows employees to make voluntary contributions
C. It places the investment risk on the employer
D. It offers higher contribution limits
Answer: B
What is the primary disadvantage of a defined benefit pension plan?
A. It provides unpredictable retirement income
B. It requires contributions from both employer and employee
C. It can place a financial burden on the employer if the plan becomes underfunded
D. It allows employees to choose their investment options
Answer: C
Which of the following is TRUE regarding a SIMPLE IRA?
A. It allows for both employee and employer contributions
B. It has no contribution limits
C. It is a type of Roth IRA
D. Employer contributions are optional
Answer: A
In which of the following retirement plans is the employee responsible for choosing the investments?
A. Defined benefit pension plan
B. 401(k) plan
C. Social Security
D. SIMPLE IRA
Answer: B
What is the key feature of a “cash balance” pension plan?
A. Employees have control over their retirement investments
B. The plan is based on a predetermined percentage of salary
C. The plan defines the amount of annual contributions but not the final payout
D. It provides a lump-sum payout at retirement rather than monthly distributions
Answer: C
Which of the following statements about a Roth IRA is FALSE?
A. Contributions are made with after-tax dollars
B. Withdrawals of contributions are tax-free
C. Earnings grow tax-deferred
D. Required minimum distributions begin at age 70½
Answer: D
Which type of retirement plan is most commonly used by self-employed individuals?
A. 403(b)
B. SEP IRA
C. 401(k)
D. Pension plan
Answer: B
What is the primary benefit of contributing to a Health Savings Account (HSA)?
A. Tax-free income for retirement
B. Tax-free growth of contributions
C. Deductible contributions for taxes
D. Exemption from required minimum distributions
Answer: C
How do employer contributions to a 401(k) plan affect the employee’s taxable income?
A. Employer contributions are taxable to the employee in the year they are made
B. Employer contributions are tax-deductible to the employee but not the employer
C. Employer contributions do not affect the employee’s taxable income for the year
D. Employer contributions are tax-free to the employee upon withdrawal
Answer: C
Which of the following is the maximum contribution limit for a Roth IRA in 2024 for individuals under 50?
A. $5,000
B. $6,000
C. $7,000
D. $8,000
Answer: B
Which of the following is TRUE about a 401(k) plan?
A. Contributions are made with after-tax dollars
B. It allows for both pre-tax and after-tax contributions
C. Employees are only allowed to contribute up to $5,000 per year
D. The employer must contribute to the employee’s account
Answer: B
What happens if you withdraw funds from a traditional IRA before age 59½?
A. You are subject to a 10% early withdrawal penalty
B. You pay ordinary income taxes on the withdrawn amount but no penalty
C. The withdrawal is tax-free if used for a first-time home purchase
D. There is no penalty for early withdrawals
Answer: A
Which of the following retirement plans is available to employees of public schools, charities, and nonprofit organizations?
A. 401(k)
B. 403(b)
C. SIMPLE IRA
D. Pension plan
Answer: B
Which of the following retirement plans provides a fixed monthly income based on the employee’s salary and years of service?
A. Defined contribution plan
B. 401(k)
C. Pension plan
D. SEP IRA
Answer: C
What does a 403(b) plan have in common with a 401(k) plan?
A. Both are retirement plans offered to employees of private businesses
B. Both are available to employees of nonprofit organizations
C. Both have contribution limits and tax benefits
D. Both plans require mandatory employer contributions
Answer: C
At what age can you begin taking penalty-free withdrawals from a 401(k) plan if you leave your job?
A. 55
B. 59½
C. 62
D. 65
Answer: A
How is the contribution limit determined for a 401(k) plan?
A. By the employer’s profit-sharing policy
B. By the IRS limit for annual contributions to tax-deferred plans
C. By the amount the employee can afford to contribute
D. By the plan administrator
Answer: B
What happens to the funds in a 401(k) if the employee leaves their job?
A. The funds are automatically transferred to a pension plan
B. The employee is required to withdraw the funds immediately
C. The employee can leave the funds in the plan or transfer them to an IRA
D. The funds are forfeited to the employer
Answer: C
What is the primary difference between a SEP IRA and a SIMPLE IRA?
A. A SEP IRA has higher contribution limits than a SIMPLE IRA
B. SIMPLE IRAs are for small businesses, while SEP IRAs are for self-employed individuals
C. A SEP IRA allows employee contributions, while a SIMPLE IRA does not
D. SIMPLE IRAs require employer contributions, while SEP IRAs do not
Answer: A
What is the maximum contribution limit for an employer-sponsored 401(k) plan in 2024?
A. $19,500
B. $22,500
C. $26,000
D. $30,000
Answer: B
Which of the following best describes a “Safe Harbor” 401(k) plan?
A. A plan that allows for employee and employer contributions but has no contribution limits
B. A 401(k) plan that automatically enrolls employees and requires employer contributions
C. A plan that provides tax-free withdrawals at retirement
D. A pension plan that guarantees a fixed retirement income
Answer: B
What is the key benefit of contributing to a 457(b) plan for government employees?
A. Contributions grow tax-free
B. No early withdrawal penalties
C. High contribution limits
D. Employer must match contributions
Answer: B
What is the tax advantage of a traditional IRA?
A. Contributions are made with after-tax dollars, but withdrawals are tax-free
B. Contributions are tax-deductible, and earnings grow tax-deferred
C. Contributions grow tax-free and can be withdrawn at any age without penalty
D. Contributions are taxed at a lower rate than regular income
Answer: B
Which of the following retirement plans allows for tax-free withdrawals of both contributions and earnings?
A. 401(k)
B. Traditional IRA
C. Roth IRA
D. Pension plan
Answer: C
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