Strategy Intermediate: Avoiding Taxes at Retirement

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1.
During retirement, withdrawing too little from your retirement account will lead to a _______ tax penalty.
Choose wisely. There is only one correct answer.
25 percent. There is a 25 percent tax penalty on the difference between the required minimum distribution and the amount you actually withdrew. It drops down to 10% if corrected in a timely manner.
2.
Earned income includes retirement and Social Security benefits.
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False. The income you get from working is called earned income. Retirement and Social Security benefits are unearned income.
3.
Which of the following is not true about a joint annuity?
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It pays any estate taxes on the taxable amount. It is recommended that an insurance policy be used in conjunction with the annuity to cover taxes.
4.
Which of the following would most likely lower your taxes owed when you take retirement plan distributions?
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Taking distributions in a year when you have a lot of tax deductions. Having deductions can lower your tax burden, so this may be a good time to take your distributions.
5.
The amount of your minimum required retirement distribution is based on your _______.
Choose wisely. There is only one correct answer.
Life expectancy. The amount of your minimum distribution is based on your life expectancy as determined by IRS actuarial tables.