NAB Personal Finance Planning 4

Question 1

What is the primary tax advantage of a traditional 401(k) plan?

Accepted Answer

Contributions reduce taxable income in the year they are made

Answer

Withdrawals in retirement are tax-free

Answer

There is no contribution limit

Answer

Employer contributions are taxed as income immediately

Question 2

How does a Roth IRA differ from a traditional IRA in tax treatment?

Accepted Answer

Contributions are after-tax; qualified withdrawals are tax-free

Answer

Contributions are tax-deductible; withdrawals are taxed

Answer

Both contributions and withdrawals are tax-free

Answer

Contributions and withdrawals are both taxed

Question 3

What is 'asset allocation' in investment planning?

Accepted Answer

Dividing investments among asset classes like stocks, bonds, and cash

Answer

Selecting individual stocks within a portfolio

Answer

The process of selling underperforming assets

Answer

Calculating total portfolio value at year end

Question 4

A 30-year-old investor's portfolio should typically be MORE aggressive than a 60-year-old's primarily because:

Accepted Answer

Younger investors have more time to recover from market downturns

Answer

Younger investors pay lower tax rates

Answer

Bonds outperform stocks over short time horizons

Answer

Stock returns are guaranteed over any 5-year period

Question 5

What is the annual contribution limit for a Health Savings Account (HSA) for an individual in 2024?

Accepted Answer

$4,150

Answer

$2,000

Answer

$3,200

Answer

$7,750

Question 6

Which insurance type protects income if an illness or injury prevents you from working?

Accepted Answer

Disability income insurance

Answer

Term life insurance

Answer

Umbrella liability insurance

Answer

Homeowners insurance

Question 7

What does 'diversification' mean in a personal investment portfolio?

Accepted Answer

Spreading investments across different assets to reduce risk

Answer

Investing all funds in the highest-returning asset class

Answer

Concentrating assets in one sector to maximize gains

Answer

Matching the exact composition of the S&P 500 index