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Stocks 201: Stocks and Taxes

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1.
Which type of tax-advantaged account offers the potential for tax-exempt distributions?
Choose wisely. There is only one correct answer.
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.
2.
All other things being equal, which would you rather own in a taxable account?
Choose wisely. There is only one correct answer.
The stock of a solid business that grows steadily over time but pays no dividend. You would prefer to own in a taxable account the stock in a solid business that grows steadily over time, but pays no dividend. This would allow you to hold the stock for a long time, deferring the realization of capital gains. Dividends would be taxable.
3.
You must generally begin making mandatory withdrawals from 401(k) and traditional IRA accounts when you reach what age?
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73. You must generally begin making mandatory withdrawals from 401(k) and traditional IRA accounts when you reach 73.
4.
If you buy a stock for $20 and sell it for $30, the $10 gain is a form of ordinary income.
Choose wisely. There is only one correct answer.
False. The $10 gain is a capital gain, and may be taxed differently from ordinary income; it depends on how long you held the stock.
5.
If you sell a stock six months after buying it and you realize a profit on it, your gain will be taxed at _______.
Choose wisely. There is only one correct answer.
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.