Investment Tax-Advantaged Investing 3

Question 1

What is a SEP IRA?

Accepted Answer

A simplified retirement plan for self-employed individuals and small business owners with higher contribution limits

Answer

A retirement account exclusively for government employees

Answer

A savings account that converts to an IRA at retirement

Answer

A special IRA for employees of nonprofit organizations

Question 2

What is tax-loss harvesting?

Accepted Answer

Selling losing investments to offset capital gains and reduce your tax bill

Answer

Harvesting dividends from tax-free accounts to avoid income tax

Answer

Moving taxable investments to a Roth IRA to avoid future taxes

Answer

Timing stock purchases to maximize tax credits

Question 3

What is capital gains tax?

Accepted Answer

A tax on the profit earned from selling an investment for more than its purchase price

Answer

A tax on dividends paid by companies to shareholders

Answer

A tax on interest earned in a savings account

Answer

A penalty for withdrawing from a retirement account early

Question 4

What is the 'wash-sale rule' in investing?

Accepted Answer

An IRS rule that disallows a tax loss if you repurchase the same or substantially identical security within 30 days before or after the sale

Answer

A rule requiring investors to wash out gains before claiming losses

Answer

A regulation prohibiting the sale of stocks within the first month of purchase

Answer

A rule limiting how often you can rebalance a tax-advantaged account

Question 5

What is the difference between short-term and long-term capital gains tax rates in the U.S.?

Accepted Answer

Short-term gains (assets held one year or less) are taxed as ordinary income; long-term gains (over one year) receive preferential lower rates

Answer

Short-term gains are taxed at a flat 5%; long-term at 15% always

Answer

Both are taxed at the same rate regardless of holding period

Answer

Long-term gains are taxed higher to discourage speculative investing

Question 6

What is a Flexible Spending Account (FSA) and how does it differ from an HSA?

Accepted Answer

An FSA is a use-it-or-lose-it employer benefit for medical costs with no investment component, while an HSA rolls over and can be invested

Answer

An FSA is the same as an HSA but offered only by large employers

Answer

An FSA has higher contribution limits than an HSA

Answer

An FSA requires a high-deductible health plan to qualify