Personal Finance Chapter 3

1.

1 point

The primary difference between the Roth IRA and a traditional IRA is:

Contributions to your Roth are pre-tax; contributions to a traditional IRA are after-tax.

The Roth IRA grows tax free; the traditional IRA doesn’t.

A traditional IRA grows tax free; the Roth IRA doesn’t.

The IRA allows a contribution amount of $5,000 for non-income producing spouses; the Roth IRA doesn’t.

2.

1 point

What is the best option for your retirement plan when you leave a company?

Do a direct transfer into an IRA.

Leave the plan where it is so it can continue to accrue interest.

Cash out the plan and invest in good mutual funds.

Have sent the money to you and deposit it into a new IRA within 60 days.

3.

1 point

The Roth IRA is an after-tax investment that grows tax free.

True

False

4.

1 point

Movement of tax-deferred retirement money from one plan to another

Federal Thrift Plan

Pension

Educational Savings Account

Rollover

5.

1 point

Using the Rule of 72, how long will it take your money to double at 12% interest?

6 years

8 years

9 years

7.2 years

6.

1 point

Caleb's comapny offers a 5% match on a 401(k). If he makes $40,000 annually, what should his investment plan look like if his total investment is $6,000?

$6,000 total investment: $2,000 in 401(k) and $4,000 in a Roth IRA

$6,000 total investment: $6,000 in a Roth IRA

$6,000 total investment: $6,000 in 401(k)

$4,000 total investment: $2,000 in 401(k) and $2,000 in a Roth IRA

7.

1 point

Used after you max out the ESA

UTMA

Baby Step 5

SEPP

401(k)

8.

1 point

Typical retirement plan found in most companies

457

401(k)

403(b)

Roth IRA

9.

1 point

Under which condition are you not able to make a tax-free withdrawl from your Roth IRA?

Over 59 and one half years old

Death or disability

Major career change and temporary drop of income

First-time home purchase up to $10,000

10.

1 point

Pension plans only work if you participate in them. If you put nothing in, you will get nothing out.

True

False

11.

1 point

If you have $3,000 invested in a Roth IRA, what is true about your contribution?

You have already paid taxes on the money, so it will grow tax free.

You will pay taxes only on the growth of $3,000.

You maxed out your contribution.

Both a and b

12.

1 point

Typical retirement plan found in most companies

SEPP

401(k)

457

401(k)

13.

1 point

Manager of a child’s UTMA account until he or she reaches age 21

Custodian

Educational Savings Account

Federal Thrift Plan

Rollover

14.

1 point

If your money is in a pre-tax retirement plan, you will pay taxes on it when you cash it out.

True

False

15.

1 point

Which of the following are good ideas to save for college?

Life Insurance

Savings bonds

ESA

Pre-paid college tuition

16.

1 point

The contribution amount for a Roth IRA in 2008 is $5,000.

True

False

17.

1 point

When seeking a financial counselor to help you with your investments, always go with:

A financial counselor who is sophisticated and uses all of the right vocabulary

A financial counselor who has at least five years experience

A close family member or friend because you will be helping each other out

A financial counselor with the heart of a teacher who explains everything to you

18.

1 point

College Funding

SEPP

UTMA

Baby Step 4

Baby Step 5

19.

1 point

Once you have a fully funded emergency fund, put 10% of your income into retirement plans.

True

False

20.

1 point

You should save for college using savings bonds.

True

False

21.

1 point

Save for college by first using this type of account

Federal Thrift Plan

Roth IRA

Educational Savings Account

403(b)

22.

1 point

What does Baby Step 5 say about saving for your children's college?

Use insurance or savings bonds

Use pre-paid college tuition

Use a Certificate of Deposit

Use tax-favored plans

23.

1 point

Which is an advantage of a Roth IRA?

Offers more choices

Grows tax free

Higher bracket at retirement

All of the above

24.

1 point

What definition best explains an IRA?

The tax treatment on virtually any type of investment

A type of investment at a bank

Investment that uses pre-tax dollars

A type of investment at a bank or investment firm that has good tax benefits

25.

1 point

Therese and Kyle went to open a Roth IRA for their 10 year old son. What is the current contribution allowed?

$2,500: a chil dunder 18 can do up to one half the maximum contribution limit

$5,000 starting in 2008

$2,000 per year starting in 2008

$0: not eligible if you do not have an earned income

26.

1 point

Invest 15% of income for retirement

Custodian

Baby Step 4

UTMA

Baby Step 5

27.

1 point

ESAs are a good way to save for college.

True

False

28.

1 point

Retirement plan found in non-profit groups (schools, hospitals

Federal Thrift Plan

403(b)

Roth IRA

UTMA

29.

1 point

If your company does not provide any
type of 401(k) match, what is the best investment option?

Contribute nothing into your 401(k) if there is no match.

Fully fund the 401(k) up to 15% of your income.

Invest the maximum amount allowed in a Roth IRA, and then go back and fund the 401(k) to complete 15% of your income.

Find another job with a company that offers a retirement plan.

30.

1 point

457 plans are designed for employees of non-profit organizations such as hospitals and schools.

True

False

31.

1 point

A retirement plan for self-employed people

401(k)

Federal Thrift Plan

Baby Step 5

SEPP

32.

1 point

The company Jason works for matches his 401(k) contribution up to 5%. Jason takes advantage of this and contributes $200 per month. At the end of one year, how much money will be in his account?

$2,400

$4,800

$5,000

$1,200

33.

1 point

If you borrow against your retirement plan, under which conditions must you pay it back?

If you leave the company voluntarily

If you are forced to leave the company

You die and you leave everything to your spouse

All of the above

34.

1 point

Pre-tax means the government allows you to invest money after taxes are taken out.

True

False

35.

1 point

Never roll over your 401(k) when you leave a company.

True

False