IRA Knowledge 4 — Questions and Answers
Question 1: What is the income phase-out range for Roth IRA contributions for a single filer in 2024?
- $73,000–$83,000
- $87,000–$102,000
- $146,000–$161,000 (Correct answer)
- $153,000–$168,000
Correct answer: $146,000–$161,000
For 2024, single filers can contribute to a Roth IRA with a modified AGI up to $146,000, with a phase-out up to $161,000.
Question 2: Which of the following investments is generally PROHIBITED inside an IRA?
- Index funds
- Real estate investment trusts (REITs)
- Life insurance contracts (Correct answer)
- Bonds
Correct answer: Life insurance contracts
The IRS prohibits holding life insurance contracts inside an IRA; other investments like stocks, bonds, and REITs are generally permitted.
Question 3: What is 'earned income' for IRA contribution purposes?
- Only W-2 wages from an employer
- Wages, salaries, tips, self-employment income, and alimony received (Correct answer)
- Investment dividends and capital gains
- Social Security benefits and pension income
Correct answer: Wages, salaries, tips, self-employment income, and alimony received
Earned income for IRA purposes includes wages, salaries, tips, self-employment income, and taxable alimony — not passive investment income.
Question 4: What is the penalty for over-contributing to an IRA?
- 5% excise tax per year the excess remains
- 6% excise tax per year the excess remains (Correct answer)
- 10% excise tax applied once
- The excess is automatically returned with no penalty
Correct answer: 6% excise tax per year the excess remains
The IRS charges a 6% excise tax each year on excess IRA contributions that are not corrected before the tax deadline.
Question 5: Which of the following correctly describes a 'self-directed IRA'?
- An IRA where the brokerage automatically rebalances your portfolio
- An IRA that allows investment in alternative assets like real estate, private equity, and precious metals (Correct answer)
- An IRA only available to self-employed individuals
- An IRA with no annual contribution limits
Correct answer: An IRA that allows investment in alternative assets like real estate, private equity, and precious metals
A self-directed IRA allows account holders to invest in a broader range of alternative assets beyond typical stocks and mutual funds.
Question 6: How does an inherited IRA differ from a regular IRA for a non-spouse beneficiary under the SECURE Act?
- The beneficiary can stretch distributions over their lifetime
- The beneficiary must withdraw all funds within 10 years (Correct answer)
- The beneficiary must take RMDs starting immediately regardless of age
- The beneficiary can roll the inherited IRA into their own IRA
Correct answer: The beneficiary must withdraw all funds within 10 years
The SECURE Act of 2019 eliminated the stretch IRA for most non-spouse beneficiaries, requiring full distribution within 10 years of the original owner's death.
Question 7: What is the primary tax advantage of a traditional IRA for eligible contributors?
- Contributions are made with after-tax dollars and grow tax-free
- Contributions may be tax-deductible, reducing current taxable income (Correct answer)
- Withdrawals are always completely tax-free
- There is no income tax ever owed on traditional IRA funds
Correct answer: Contributions may be tax-deductible, reducing current taxable income
Eligible contributors can deduct traditional IRA contributions from their taxable income, lowering their tax bill in the year of contribution.
IRA Knowledge 4
What is the income phase-out range for Roth IRA contributions for a single filer in 2024?