Investment Tax-Advantaged Investing 2

Question 1

What is a Health Savings Account (HSA) in the context of investing?

Accepted Answer

A tax-advantaged account for medical expenses that can also serve as a long-term investment vehicle

Answer

An HSA offers a triple tax advantage: contributions are pre-tax, growth is tax-free, and withdrawals for qualified medical expenses are tax-free, and unused funds can be invested and grow for retirement.

Question 2

What is required to contribute to an HSA?

Accepted Answer

You must be covered by a High-Deductible Health Plan (HDHP)

Answer

To contribute to an HSA, you must be enrolled in an HSA-eligible High-Deductible Health Plan (HDHP) and cannot be covered by other disqualifying health insurance.

Question 3

What is a 529 plan?

Accepted Answer

A tax-advantaged savings plan designed to encourage saving for future education costs

Answer

A 529 plan is a state-sponsored, tax-advantaged savings plan where contributions grow tax-free and withdrawals are tax-free when used for qualified education expenses.

Question 4

What does 'vesting' mean in the context of a 401(k) employer match?

Accepted Answer

The period of time an employee must work before gaining full ownership of employer-contributed funds

Answer

Vesting refers to the schedule by which an employee earns full ownership of employer-matched 401(k) contributions — leaving a job before being fully vested may result in forfeiting some employer contributions.

Question 5

What is a Roth 401(k)?

Accepted Answer

A 401(k) plan option that allows after-tax contributions so qualified withdrawals are tax-free

Answer

A Roth 401(k) is an employer-sponsored plan that combines the high contribution limits of a 401(k) with the after-tax, tax-free withdrawal benefits of a Roth IRA.

Investment Practice Test

Investment Practice Test

Investment Tax-Advantaged Investing 2