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Exam 16: Retirement Planning

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Question 71

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Contributions to a traditional IRA are always tax deductible.

A) True
B) False

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Question 72

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A(n) ________ is a pension plan in which you and your employer or your employer alone contribute funds directly to a retirement account set aside specifically for you.

A) defined-benefit plan
B) cash balance plan
C) defined-contribution plan
D) percentage plus inflation plan
E) none of the above

F) A) and C)
G) B) and E)

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Question 73

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Social Security is a plan where current workers' contributions pay for current retiree's benefits.

Which of the following statements about saving for college is not true?

A Coverdell Education Savings Account works just like the Roth IRA for qualified education expenses, except with respect to contributions.

The Savers Tax Credit is designed to encourage low to moderate income workers contribute to their retirement accounts.

By law, everyone must contribute the maximum amount into their 401(k) plans at work.

Many older companies have changed from a defined-benefit plan to a(n) ________, which is a retirement plan where workers are credited with a percentage of their pay each year, plus a predetermined rate of interest.

Social Security is a system where current workers' pay taxes that are used to pay current retirees' benefits. How is Social Security funded?

Jose does not have a retirement plan at work. He currently earns $30,000 in salary and is in the 15% marginal tax bracket. If he contributes the maximum contribution of $5,000 to his traditional IRA, how much money will he save on his income tax liability?

Erica works for a company with a 401(k) plan. The company matches at $0.50 on the dollar the first 6% of the employee's salary contributed to the 401(k) . If Erica earns $90,000 and contributes 12% of her salary, how much will the employer match be in dollars for the year?

What are the advantages and disadvantages of a defined-contribution plan like a 401k?

With a ________, you, and usually your employer, pay funds into your retirement plan.

Contributions to Roth IRAs are tax deductible.

Frank is considering a new job. However he is concerned about his pension fund. He knows that ________ which is the requirement that he must work for his firm for a specified period of time prior to gaining ownership of the retirement contributions made by his employer has to be met first.

According to the author, 401(K) plans are actually do it yourself variation of a profit-sharing/thrift plan.

Jahwana works for a large corporation with a 401(k) retirement plan. The company matches dollar for dollar the first 5% of the employee's salary contributed to the 401(k) . Jahwana currently earns $40,000 in gross salary and she currently contributes 15% of her salary into her 401(k) . How much money in dollars is the total contribution to her account every year?

Why does a tax-deferred retirement account accumulate more money than a taxable account, assuming the same amount is contributed every year and the accounts earn the same return every year?

How are distributions/payouts/settlements taxed?

Which of the following benefits is not provided by Social Security?