Investment Tax-Advantaged Investing

Question 1

What is a Traditional IRA?

Accepted Answer

An investment account where contributions may be tax-deductible and growth is tax-deferred until withdrawal

Answer

A Traditional IRA allows eligible individuals to make tax-deductible contributions, grow investments tax-deferred, and pay ordinary income tax only upon withdrawal in retirement.

Question 2

What makes a Roth IRA different from a Traditional IRA?

Accepted Answer

Roth IRA contributions are made with after-tax dollars, but qualified withdrawals are tax-free

Answer

With a Roth IRA, you contribute after-tax dollars so there is no upfront deduction, but your investments grow tax-free and qualified withdrawals in retirement are entirely tax-free.

Question 3

What is the 2025 annual contribution limit for an individual IRA (Traditional or Roth) for those under age 50?

Accepted Answer

$7,000

Answer

For 2024 and 2025, the IRS allows individuals under age 50 to contribute up to $7,000 per year to a Traditional or Roth IRA.

Question 4

What is a 401(k) plan?

Accepted Answer

An employer-sponsored retirement savings plan where contributions are made pre-tax and grow tax-deferred

Answer

A 401(k) is an employer-sponsored retirement plan that allows employees to contribute a portion of their pre-tax salary, reducing taxable income, with growth tax-deferred until withdrawal.

Question 5

What is an employer match in a 401(k)?

Accepted Answer

An employer contribution to an employee's 401(k) based on the employee's own contributions

Answer

An employer match is when a company contributes to an employee's 401(k) based on the employee's own contributions, such as matching 50 cents for every dollar up to 6% of salary.

Investment Practice Test

Investment Practice Test

Investment Tax-Advantaged Investing