NAB Estate and Tax Planning 1

Question 1

What is the purpose of a will?

Accepted Answer

To specify how your assets should be distributed after death and name guardians for minor children

Answer

A will is a legal document expressing your wishes for asset distribution, guardianship of children, and appointment of an executor after your death.

Question 2

What is the difference between a traditional IRA and a Roth IRA?

Accepted Answer

Traditional IRA contributions are tax-deductible now but taxed on withdrawal; Roth contributions are after-tax but withdrawals are tax-free

Answer

Traditional IRAs offer upfront tax deductions with taxed withdrawals, while Roth IRAs use after-tax money but provide tax-free growth and withdrawals in retirement.

Question 3

What is a tax deduction?

Accepted Answer

An amount subtracted from taxable income, reducing the overall tax owed

Answer

Tax deductions reduce your taxable income, which in turn lowers the amount of tax you owe. Common deductions include mortgage interest, charitable contributions, and certain business expenses.

Question 4

What is the difference between a tax deduction and a tax credit?

Accepted Answer

A deduction reduces taxable income; a credit directly reduces the amount of tax owed dollar-for-dollar

Answer

Tax credits are generally more valuable because they directly reduce tax liability dollar-for-dollar, while deductions only reduce the income subject to tax.

Question 5

What is a beneficiary designation?

Accepted Answer

A person or entity you name to receive assets from accounts like life insurance or retirement plans upon your death

Answer

Beneficiary designations on accounts like 401(k)s, IRAs, and life insurance policies override will provisions, making them critical to keep updated.

(NAB) National Australia Bank Practice Test

(NAB) National Australia Bank Practice Test

NAB Estate and Tax Planning 1