IRA Basic Skills 4

Question 1

What is the five-year rule for Roth IRA earnings?

Accepted Answer

Earnings can only be withdrawn tax-free if the account is at least 5 years old

Answer

To withdraw Roth IRA earnings tax-free, the account must be at least 5 years old and the owner must be 59½ or older.

Question 2

What type of income qualifies for IRA contributions?

Accepted Answer

Earned income such as wages, salaries, and self-employment income

Answer

IRA contributions must be funded with earned income—money received for work performed, such as wages, salaries, tips, or self-employment income.

Question 3

If you are self-employed, what is the maximum percentage of net self-employment income you can contribute to a SEP IRA?

Accepted Answer

25%

Answer

Self-employed individuals can contribute up to 25% of their net self-employment income to a SEP IRA, subject to annual dollar limits.

Question 4

What is a SIMPLE IRA designed for?

Accepted Answer

Small businesses with 100 or fewer employees

Answer

A SIMPLE (Savings Incentive Match Plan for Employees) IRA is designed for small businesses with 100 or fewer employees as an easy-to-administer retirement plan.

Question 5

What is 'recharacterization' in the context of IRAs?

Accepted Answer

Reversing or redesignating a contribution from one IRA type to another

Answer

Recharacterization allows you to redesignate a contribution made to one type of IRA (e.g., Roth) as a contribution to another type (e.g., traditional).

IRA - Individual Retirement Account Practice Test

IRA - Individual Retirement Account Practice Test

IRA Basic Skills 4