Practice Test GeeksIRA - Individual Retirement Account Practice Test
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Basic Skills Flashcards

7 cards from real IRA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Basic Skills flashcards as text

  1. What is the five-year rule for Roth IRA earnings?

    Answer: Earnings can only be withdrawn tax-free if the account is at least 5 years old

    To withdraw Roth IRA earnings tax-free, the account must be at least 5 years old and the owner must be 59½ or older.

  2. What type of income qualifies for IRA contributions?

    Answer: Earned income such as wages, salaries, and self-employment income

    IRA contributions must be funded with earned income—money received for work performed, such as wages, salaries, tips, or self-employment income.

  3. If you are self-employed, what is the maximum percentage of net self-employment income you can contribute to a SEP IRA?

    Answer: 25%

    Self-employed individuals can contribute up to 25% of their net self-employment income to a SEP IRA, subject to annual dollar limits.

  4. What is a SIMPLE IRA designed for?

    Answer: Small businesses with 100 or fewer employees

    A SIMPLE (Savings Incentive Match Plan for Employees) IRA is designed for small businesses with 100 or fewer employees as an easy-to-administer retirement plan.

  5. What is 'recharacterization' in the context of IRAs?

    Answer: Reversing or redesignating a contribution from one IRA type to another

    Recharacterization allows you to redesignate a contribution made to one type of IRA (e.g., Roth) as a contribution to another type (e.g., traditional).

  6. How does contributing to a traditional IRA reduce your current tax bill?

    Answer: Deductible contributions reduce your taxable income

    Deductible traditional IRA contributions lower your adjusted gross income (AGI), reducing the amount of income subject to federal income tax.

  7. Which of the following best describes 'tax-deferred growth' in a traditional IRA?

    Answer: Investment gains are not taxed until you withdraw the money

    In a traditional IRA, investment earnings compound without being taxed each year; taxes are only owed when you take distributions.