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Planning Intermediate:
Tax Sheltering
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1.
Which of the following is not true about 401(k) plans?
Choose wisely. There is only one correct answer.
Earnings from the plans are tax-deferred until retirement.
Contributions to traditional 401k's are made with pre-tax earnings.
Employees are limited to only one option for investing the money in their plans.
In most plans, employers match employee contributions.
Employees are limited to only one option for investing the money in their plans. This is not true of 401(k) plans.
2.
Which of the following is not true about Keogh plans?
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They are retirement plans for the self-employed and their employees.
The plan owner controls the plan's investments.
Earnings may be withdrawn before age 59 1/2 without penalty.
Earnings may be withdrawn before age 59 1/2 without penalty. This is not true of Keogh plans.
3.
Earnings on annuity contributions are tax-free.
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True
False
False. Earnings on annuity contributions are TAX-DEFERRED until withdrawn.
4.
Tax avoidance is illegal.
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True
False
False. Tax avoidance is perfectly proper. Tax evasion is illegal.
5.
Which of the following is true about the tax advantages of tax-free municipal bonds?
Choose wisely. There is only one correct answer.
They are free from all taxation.
They are free from state taxation.
They are generally free from federal taxation.
The are free from capital gains taxes.
They are generally free from federal taxation. Tax-free municipal bonds are not, however, free from capital gains taxes.
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