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1.
To take best advantage of the tax rules, you usually should pay as much income tax as possible during your working years, so that you don't have to pay it later, during retirement.
False. You should deduct as much tax as possible during your working years, since you likely will be in a lower income bracket–and will be paying taxes at a lower rate–when you have retired.
2.
All of the following are retirement plans except the _______.
None of the above. Retirement plans include 401(k)s, Keoghs, and individual retirement accounts (IRAs), among others.
3.
Failing to take a required minimum distribution from your retirement plan could cost you as much as _______.
One-quarter of the amount you failed to withdraw. The Internal Revenue Service imposes a 25 percent excess accumulation tax on any part of the annual minimum distribution that you fail to take. This tax drops to 10% if the shortfall is corrected in a timely manner.
4.
Susan has an annuity that will make payments for 25 years. She has a _______.
Term certain annuity. A term certain annuity makes payments for a specific number of years.
5.
The amount of tax on an early withdrawal from a retirement plan is _______.
10 percent of the amount withdrawn. The tax penalty equals 10 percent of the amount withdrawn.
6.
You may decide to receive your minimum required retirement distribution in monthly, quarterly, annual, or other periodic installments–the choice is up to you.
True. You decide whether to break your required minimum distribution into four, twelve, or however many payments you would like to receive during the year.