Test your knowledge

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If you are unmarried and you earn no money at all from work this year, how much can you contribute to an individual retirement account for this year?

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Nothing

The full allowable amount

The amount you would have been able to contribute last year

An amount between $0 and the full allowable amount

Nothing. If you are unmarried, you must have earned income in order to contribute.

What is the name for the party that holds funds you contribute to your IRA?

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Transfer agent

Collection agent

Custodian

Bank

Custodian. When holding funds, the party is referred to as a custodian.

Which of the following may fund a Roth IRA?

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A cash value life insurance policy

A vintage Rolls-Royce valued at two million dollars

A bond that does not pay periodic interest

A collection of rare metals

A bond that does not pay periodic interest. This is called a zero coupon bond, and it is allowed as an IRA investment. The others are not.

Capital gains on Roth IRAs are _________.

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Tax-free

Tax-deferred

Taxable

Tax-free. As long as you meet the age and waiting-time requirements, dividends and capital gains are tax-free.

You can generally have both a Roth and a traditional IRA.

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True

False

True. However, you will be penalized if you exceed the yearly contribution limit.

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