IRA Basic Skills 5

Question 1

What penalty applies if you fail to take your Required Minimum Distribution (RMD) from a traditional IRA?

Accepted Answer

25% excise tax on the amount not withdrawn

Answer

The IRS imposes a 25% excise tax (reduced to 10% if corrected promptly) on the amount that should have been withdrawn as an RMD.

Question 2

Can you contribute to both a traditional IRA and a Roth IRA in the same tax year?

Accepted Answer

Yes, but total contributions across both cannot exceed the annual limit

Answer

You can contribute to both a traditional and a Roth IRA in the same year, but your combined contributions cannot exceed the annual IRS limit.

Question 3

What is the deadline to make an IRA contribution for a given tax year?

Accepted Answer

The tax filing deadline (typically April 15) of the following year

Answer

You have until the federal tax filing deadline, generally April 15, to make IRA contributions for the prior tax year.

Question 4

Which of the following circumstances allows a penalty-free early IRA withdrawal?

Accepted Answer

Paying health insurance premiums while unemployed

Answer

Unemployed individuals who pay health insurance premiums may qualify for a penalty-free early IRA withdrawal under IRS hardship exceptions.

Question 5

What is the primary advantage of a Roth IRA over a traditional IRA for young investors?

Accepted Answer

Tax-free growth over many decades

Answer

Young investors benefit most from Roth IRAs because tax-free compounding over a long time horizon can result in significantly more wealth.

IRA - Individual Retirement Account Practice Test