Tax-Advantaged Investing Flashcards
6 cards from real Investment practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Tax-Advantaged Investing flashcards as text
What is a SEP IRA?
Answer: A simplified retirement plan for self-employed individuals and small business owners with higher contribution limits
A SEP (Simplified Employee Pension) IRA allows self-employed individuals and small business owners to contribute significantly more than a traditional IRA — up to 25% of compensation or $69,000 in 2025.
What is tax-loss harvesting?
Answer: Selling losing investments to offset capital gains and reduce your tax bill
Tax-loss harvesting involves strategically selling investments at a loss to offset taxable capital gains from other investments, potentially lowering your overall tax liability for the year.
What is capital gains tax?
Answer: A tax on the profit earned from selling an investment for more than its purchase price
Capital gains tax is levied on the profit made when you sell an investment for more than you paid for it, with long-term rates (assets held over one year) being lower than short-term rates.
What is the 'wash-sale rule' in investing?
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
The wash-sale rule prevents investors from claiming a tax loss on a security if they buy the same or a substantially identical security within 30 days before or after the sale.
What is the difference between short-term and long-term capital gains tax rates in the U.S.?
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
The IRS taxes short-term capital gains (from assets held one year or less) at ordinary income tax rates, while long-term gains receive preferential rates of 0%, 15%, or 20% depending on income.
What is a Flexible Spending Account (FSA) and how does it differ from an HSA?
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
FSAs are employer-sponsored accounts for medical expenses that generally must be used within the plan year (use-it-or-lose-it), while HSAs roll over indefinitely and allow investment for long-term growth.