IRA Basic Skills 2

Question 1

What is the penalty for withdrawing money from a traditional IRA before age 59½?

Accepted Answer

10% early withdrawal penalty

Answer

The IRS imposes a 10% early withdrawal penalty on distributions taken before age 59½, in addition to ordinary income taxes.

Question 2

Which type of IRA allows you to contribute after-tax dollars and withdraw funds tax-free in retirement?

Accepted Answer

Roth IRA

Answer

A Roth IRA is funded with after-tax dollars, meaning qualified withdrawals in retirement are completely tax-free.

Question 3

At what age must traditional IRA owners begin taking Required Minimum Distributions (RMDs)?

Accepted Answer

73

Answer

As of the SECURE 2.0 Act, the RMD age was raised to 73 for individuals who turn 72 after December 31, 2022.

Question 4

Which of the following is NOT a qualifying exception to the 10% early withdrawal penalty?

Accepted Answer

Vacation expenses

Answer

Vacation expenses are not a qualifying exception; the IRS only allows penalty-free early withdrawals for specific hardship situations.

Question 5

What happens to a traditional IRA contribution if your income exceeds the deductibility limit and you're covered by a workplace plan?

Accepted Answer

The contribution becomes non-deductible

Answer

You can still contribute to a traditional IRA, but the contribution becomes non-deductible if income exceeds certain thresholds.

IRA - Individual Retirement Account Practice Test