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Retirement Beginner: Introduction to Individual Retirement Accounts (IRAs)

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1.
Mary is 76 years old and was required to withdraw $8,000 from her traditional IRA last year. She withdrew only $6,000 and did not attempt to correct her mistake. How much of a penalty will she be charged?
Choose wisely. There is only one correct answer.
$500. The penalty (starting in 2023) is one-quarter of what one does not withdraw. Since Mary did not withdraw $2,000, she will be penalized $500.
2.
Your ability to tax-deduct your contributions to an IRA is the same whether you are single or whether you are married and filing taxes separately.
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False. The two situations differ based on adjusted gross income and who is covered by an employer retirement plan, and the limits are far apart.
3.
There are conditions under which you can escape paying taxes on your IRA contributions.
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False. Uncle Sam will tax them in the year you put them in or when you take them out.
4.
How old must you be in order to make an extra contribution to your IRA beyond the normal contribution limit?
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50. The law lets you make an additional contribution if you are this age or older.
5.
The IRA deductibility phase-out point for the spouse covered by another employee retirement plan is higher than the one for the non-covered spouse.
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False. The non-covered spouse has the higher phase-out point, since he or she does not have the benefit of another retirement plan.
6.
There is a penalty when you contribute more than is allowed to an IRA.
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True. The penalty is 6 percent of the excess amount.
7.
Your income never plays a part in how much of your IRA contributions you can deduct from your taxable income.
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False. Your income plays a part if you are also covered by an employer-sponsored retirement plan.
8.
Which of the following is not allowed to fund an IRA?
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Cash value life insurance. Neither this nor collectibles are allowed as IRA investments.
9.
How many times per year may an IRA be rolled over?
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Once. This is the present limit.
10.
Premature withdrawals and insufficient distributions from individual retirement accounts may be taxed.
Choose wisely. There is only one correct answer.
True. You can be penalized for them.