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1.
The idea behind creating a class of "qualified dividends" is to prevent _______.
Double taxation. The idea behind making some dividends qualified is to reduce double taxation -- that is, taxation of the same profits at both the corporate and shareholder levels.
2.
If you sell a stock six months after buying it and you realize a profit on it, your gain will be taxed at _______.
The ordinary income rate. This is a short-term gain and is therefore taxed at the ordinary income rate, which is higher than the tax rate on long-term gains.
3.
Which type of tax-advantaged account offers the potential for tax-exempt distributions?
A Roth IRA. A Roth IRA offers tax-free distributions, as long as certain rules are met. The downside is that Roth IRAs must be funded with after-tax dollars.
4.
When does your five-taxable-year period for Roth IRAs start?
On Jan. 1 of the tax year when you make your first contribution or conversion to a Roth IRA.
5.
What does "stepped-up basis" mean?
An investment's basis changes to that of the market value on the day of your death. Stepped-up basis is most commonly known in estate planning, where if you die, the basis will step up to that of the day of your death. Whoever inherits the stock will thus enjoy less tax on it.
