This section covers the tax implications of pension and retirement plan distributions and how they impact an individual's income tax.
Which of the following retirement accounts allows for tax-free withdrawals in retirement?
Not Correct
Correct!
Select an option above to see an explanation here.
A) Traditional IRAs allow for tax-deductible contributions and tax-deferred growth, but withdrawals are taxed as ordinary income in retirement. B) Roth IRAs allow for tax-free withdrawals in retirement, as contributions are made with after-tax dollars. C) 401(k) plans allow for pre-tax contributions and tax-deferred growth, but withdrawals are taxed as ordinary income in retirement. D) Non-Qualified Plans do not offer the same tax advantages as qualified plans and may have different tax implications.
At what age must an individual begin taking Required Minimum Distributions (RMDs) from their retirement accounts?
A) Age 55 is not the age for RMDs. B) Age 59.5 is when individuals can withdraw from qualified retirement plans without incurring an early withdrawal penalty. C) Age 65 is a common retirement age but not the age for RMDs. D) Age 72 is when individuals must begin taking RMDs from their retirement accounts.
In 1986, the Tax Reform Act introduced the concept of the Roth IRA, which allowed individuals to contribute after-tax dollars to a retirement account and withdraw funds tax-free in retirement. This tax law change significantly impacted how individuals planned for retirement and their tax strategies.
What is the penalty for withdrawing funds from a qualified retirement plan before the age of 59.5?
A) A 5% penalty tax is not the correct penalty for early withdrawals. B) A 10% penalty tax is applied to withdrawals made from a qualified retirement plan before the age of 59.5. C) A 15% penalty tax is not the correct penalty for early withdrawals. D) There is a penalty for early withdrawals from qualified retirement plans.
Jane, age 65, recently retired and began receiving distributions from her pension and 401(k) plan. She must include these distributions as part of her taxable income for the year and pay income tax on the amounts received. However, she also has a Roth IRA; any withdrawals from that account are tax-free.
Become a Pro Member to see more questions
Example Series 65 Example Practice Question
- Required Minimum Distribution (RMD): The minimum amount that must be withdrawn from a retirement account each year, starting at age 72 (previously 70.5 before the SECURE Act of 2019).
- Age 72: The age at which RMDs must begin for most retirement accounts, such as traditional IRAs and 401(k)s. - April 1st: The deadline for taking the first RMD is April 1st, following the year the account owner turns 72. - December 31st: The deadline for taking subsequent RMDs is December 31st each year after the first RMD.