Strategy Intermediate: Avoiding Taxes at Retirement

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1.

An annuity is a contract with a life insurance company.

Choose wisely. There is only one correct answer.

True

False

True. An annuity can be bought only from an insurance company.

2.

Earned income includes retirement and Social Security benefits.

Choose wisely. There is only one correct answer.

True

False

False. The income you get from working is called earned income. Retirement and Social Security benefits are unearned income.

3.

The amount of your minimum required retirement distribution is based on your _______.

Choose wisely. There is only one correct answer.

Overall income

Life expectancy

Income average

Life expectancy. The amount of your minimum distribution is based on your life expectancy as determined by IRS actuarial tables.

4.

Going over the contribution limit in your retirement account will lead to a _______ tax penalty.

Choose wisely. There is only one correct answer.

6 percent

10 percent

25 percent

6 percent. This penalty is meant to discourage overcontributing.

5.

Retirement plan distributions are added to your overall taxable income.

Choose wisely. There is only one correct answer.

True

False

True. The IRS treats them as taxable income.

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