IRA Knowledge 2 — Questions and Answers
Question 1: What is the penalty for withdrawing from a traditional IRA before age 59½?
- 5% early withdrawal penalty
- 10% early withdrawal penalty (Correct answer)
- 15% early withdrawal penalty
- 20% early withdrawal penalty
Correct answer: 10% early withdrawal penalty
The IRS imposes a 10% early withdrawal penalty on distributions taken before age 59½, in addition to ordinary income tax.
Question 2: Which of the following is a qualified exception to the 10% early withdrawal penalty for IRAs?
- Buying a vacation home
- Paying off credit card debt
- Permanent disability (Correct answer)
- Funding a business startup
Correct answer: Permanent disability
Permanent disability is one of the IRS-recognized exceptions that waives the 10% early withdrawal penalty.
Question 3: What is the maximum annual contribution to a Roth IRA for someone under age 50 in 2024?
- $5,000
- $6,000
- $7,000 (Correct answer)
- $8,000
Correct answer: $7,000
For 2024, the IRA contribution limit for individuals under 50 is $7,000 per year.
Question 4: How does a SEP-IRA differ from a traditional IRA in terms of contribution limits?
- SEP-IRA has the same limit as a traditional IRA
- SEP-IRA allows contributions up to 25% of compensation or $69,000 (2024) (Correct answer)
- SEP-IRA limits contributions to $15,000 per year
- SEP-IRA contributions are not tax-deductible
Correct answer: SEP-IRA allows contributions up to 25% of compensation or $69,000 (2024)
A SEP-IRA allows employers to contribute up to 25% of an employee's compensation or $69,000 for 2024, far exceeding traditional IRA limits.
Question 5: At what age must traditional IRA holders begin taking Required Minimum Distributions (RMDs)?
- Age 70½
- Age 72
- Age 73 (Correct answer)
- Age 75
Correct answer: Age 73
Following the SECURE 2.0 Act, the RMD starting age for traditional IRAs is 73 for individuals born between 1951 and 1959.
Question 6: Which type of IRA does NOT require the account holder to take Required Minimum Distributions during their lifetime?
- Traditional IRA
- SEP-IRA
- SIMPLE IRA
- Roth IRA (Correct answer)
Correct answer: Roth IRA
Roth IRAs are unique in that the original owner is never required to take RMDs during their lifetime.
Question 7: What does 'spousal IRA' allow a married couple to do?
- Split one IRA account between two spouses
- Allow a non-working spouse to contribute to an IRA based on the working spouse's income (Correct answer)
- Double the contribution limit for a working spouse
- Combine both spouses' incomes to reduce tax liability
Correct answer: Allow a non-working spouse to contribute to an IRA based on the working spouse's income
A spousal IRA allows a non-working or low-earning spouse to contribute to their own IRA based on the working spouse's earned income.
IRA Knowledge 2
What is the penalty for withdrawing from a traditional IRA before age 59½?