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1.
A tax-sheltered account always protects your investment interest from taxes.
False. A tax-sheltered account lets interest grow within your account without taxes until it is withdrawn. Once it is withdrawn, it may be taxed.
2.
Which of the following is not a tax-sheltered investment you can use to compound interest?
Municipal bonds. Tax-deferred retirement plans and deferred annuities provide compounding interest, but municipal bonds pay only simple interest. However, you can get the effect of compound interest with a municipal bond mutual fund if you reinvest the dividends.
3.
_______ are taxed at a relatively low rate if you hold your investments long enough.
Capital gains. Long-term capital gains are taxed at a lower rate to encourage investment.
4.
Investments in which earnings are allowed to build tax-free are called ______.
Tax-deferred. Tax-deferred investments are those in which earnings are allowed to build tax-free until you receive them as income.
5.
Investments in which earnings build tax-free until you withdraw them are called _______.
Tax-deferred. "Tax-deferred" means that earnings build tax-free until you withdraw them.