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Quizzes > Business & Finance

IRA Quiz: Which Statement Best Describes an Individual Retirement Account?

Quick, free individual retirement account quiz to check your knowledge. Instant results.

Editorial: Review CompletedCreated By: Kaeli EvansUpdated Aug 24, 2025
Difficulty: Moderate
Questions: 20
Learning OutcomesStudy Material
Colorful paper art depicting elements related to IRA Knowledge Assessment Quiz.

This IRA quiz helps you check your understanding of contributions, taxes, and withdrawals, so you can make smarter retirement choices. You will see which rules you know and where to review. For broader money skills, try our investment quiz or the investment basics test, and go deeper with an investment knowledge check.

What is the primary tax treatment distinction between Traditional IRAs and Roth IRAs?
Traditional contributions are tax-deductible and withdrawals are taxed, Roth contributions are made with after-tax dollars and qualified withdrawals are tax-free.
Both Traditional and Roth IRAs grow tax-deferred and all withdrawals are taxed as ordinary income.
Traditional contributions are made with after-tax dollars, Roth contributions are tax-deductible.
Both Traditional and Roth contributions are tax-deductible but only Traditional withdrawals are tax-free.
Traditional IRAs offer a deduction for contributions while withdrawals are taxed; Roth IRAs use after-tax contributions and allow tax-free qualified distributions.
Which type of IRA allows qualified withdrawals to be completely tax-free?
Roth IRA
Traditional IRA
SIMPLE IRA
SEP IRA
Qualified Roth IRA distributions, after meeting requirements, are tax-free, whereas Traditional and other IRA distributions are taxed as income.
Up to what age can you contribute to a Roth IRA as of current IRS rules?
72 years old
70½ years old
65 years old
There is no age limit for contributions to a Roth IRA, subject to income eligibility.
Unlike Traditional IRAs, Roth IRAs have no age limit for contributions as long as the contributor has eligible earned income under the IRS rules.
What is the combined annual contribution limit to IRAs for individuals under age 50 in 2023?
$6,500
$5,500
$10,000
$7,500
For 2023, the total contribution limit to all IRAs for those under 50 is $6,500 overall, split between Traditional and Roth as desired.
At what age must a Traditional IRA owner start taking Required Minimum Distributions (RMDs)?
65
72
70½
59½
Current IRS rules require Traditional IRA owners to begin RMDs starting at age 72, following the SECURE Act updates.
Which of the following best describes the tax treatment of Traditional IRA contributions for individuals covered by an employer retirement plan?
Contributions are always tax-free on withdrawal if covered by an employer plan.
Contributions are tax-deductible up to certain income thresholds if covered by a workplace plan.
Contributions are never tax-deductible if covered by an employer plan.
Contributions are taxed at capital gains rates if covered by an employer plan.
Traditional IRA contributions can be deducted from taxable income if the individual is covered by a retirement plan, but the deduction phases out above certain AGI limits.
What is the IRS time limit for completing an IRA rollover to avoid taxes and penalties?
30 days
90 days
180 days
60 days
The IRS requires that an individual must complete a rollover from one IRA to another within 60 days to maintain tax-deferred status and avoid penalties.
Which rollover method generally avoids mandatory tax withholding and potential penalty risks?
Trustee-to-trustee direct rollover
Cash withdrawal and personal deposit
Indirect rollover by check
Annual lump-sum rollover
A trustee-to-trustee direct rollover moves funds directly between custodians, avoiding mandatory withholding and 60-day window risks associated with indirect rollovers.
What penalty applies to IRA withdrawals made before age 59½ without a qualifying exception?
10% early withdrawal penalty
No penalty, only income tax
20% early withdrawal penalty
5% early withdrawal penalty
Withdrawals from IRAs before age 59½ generally incur a 10% IRS penalty on top of income tax unless an exception applies.
What is the income phase-out range for allowing full Roth IRA contributions for single filers in 2023?
$200,000 to $220,000
$81,000 to $101,000
$100,000 to $120,000
$138,000 to $153,000
For 2023, single taxpayers with modified AGI between $138,000 and $153,000 face a partial to full phase-out for Roth IRA contributions.
If an IRA owner fails to withdraw the required minimum distribution (RMD), what is the IRS excise tax on the shortfall?
50% of the amount not withdrawn
25% of the prior year's RMD
10% of the gross IRA balance
No excise tax but a penalty interest charge
The IRS imposes an excise tax equal to 50% of the RMD amount that was not taken in the required period.
Which life table is commonly used by the IRS to calculate RMDs for Traditional IRAs?
General Population Mortality Table
Uniform Lifetime Table
Social Security Life Expectancy Table
Required Distribution Factor Table
The IRS Uniform Lifetime Table provides distribution periods based on age to help Traditional IRA owners calculate their RMDs annually.
When converting a Traditional IRA to a Roth IRA, what is the immediate tax consequence?
The converted amount is taxed as ordinary income in the conversion year.
The converted amount is taxed at capital gains rates.
The converted amount is tax-free and penalty-free.
The converted amount is subject to a 10% penalty only.
When funds are converted from a Traditional IRA to a Roth IRA, the pre-tax portion of the converted amount is included in taxable income in the year of conversion.
Which IRA allows only employer contributions and is often used by small businesses?
Roth IRA
SIMPLE IRA
SEP IRA
Coverdell ESA
SEP IRAs are retirement arrangements that permit employers, typically small businesses or self-employed individuals, to make contributions on behalf of employees.
Under IRS rules, how often can you perform an indirect rollover between IRAs?
Once every 6 months.
Unlimited times per year.
Once every 12 months per account owner.
Twice per year.
The IRS permits only one indirect rollover between IRAs per 12-month period per account owner, regardless of the number of IRAs held.
Which strategy describes a 'backdoor Roth IRA' for high-income earners?
Rolling over a 401(k) into a Traditional IRA and leaving it there.
Making nondeductible Traditional IRA contributions and then converting them to a Roth IRA.
Directly contributing to a Roth IRA above the income limit.
Transferring Roth IRA funds into a Traditional IRA.
The backdoor Roth technique involves contributing to a nondeductible Traditional IRA and then converting those funds to a Roth IRA to bypass income limits on Roth contributions.
How does the IRS pro-rata rule affect Roth IRA conversions when you have both pre-tax and after-tax IRA balances?
It taxes the entire conversion at a flat 15% rate.
It taxes the conversion proportionally based on the ratio of pre-tax to total IRA balances.
It allows converting only after-tax contributions tax-free and excludes pre-tax funds.
It requires all after-tax funds to be held in a separate account to avoid taxation.
The pro-rata rule requires that when converting IRAs to a Roth, the taxable portion is determined by the ratio of pre-tax assets to the total IRA balance, preventing selective conversion of basis only.
Under IRS Section 72(t), which condition must be met to avoid the 10% early withdrawal penalty on substantially equal periodic payments (SEPP)?
Payments must only include after-tax contributions.
Payments must total at least the original account balance by age 65.
Payments must be withdrawn in a single lump sum before age 50.
Payments must continue for at least five years or until age 59½, whichever is longer.
Section 72(t) allows penalty-free withdrawals if the account owner takes SEPPs for a period of at least five years or until age 59½, whichever extends longer.
Under the SECURE Act, what is the general distribution requirement for non-spouse beneficiaries inheriting an IRA after 2020?
The inherited IRA must be distributed in full within 10 years of the original owner's death.
The RMD rules apply to the beneficiary based on the original owner's age.
The IRA can remain intact indefinitely without distributions.
The beneficiary must take equal payments over their lifetime.
The SECURE Act requires most non-spouse beneficiaries to withdraw the entire inherited IRA within 10 years, replacing the prior stretch distribution provisions.
Which of the following IRA distributions can be taken penalty-free for a first-time home purchase?
Any amount can be withdrawn for a first home penalty-free at any time.
Up to $20,000 of IRA distributions can be taken penalty-free for home improvement.
Only Roth IRA contributions, not earnings, can be used penalty-free.
Up to $10,000 of IRA distributions can be used penalty-free for a first-time home purchase.
The IRS allows first-time homebuyers to withdraw up to $10,000 from an IRA penalty-free for purchasing a home, though normal income tax applies to Traditional IRA distributions.
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Learning Outcomes

  1. Identify the key features of traditional and Roth IRAs
  2. Compare contribution limits and withdrawal rules
  3. Evaluate tax implications of IRA distributions
  4. Apply IRA rollover and transfer guidelines
  5. Demonstrate understanding of required minimum distributions
  6. Master strategies for IRA-based retirement planning

Cheat Sheet

  1. Understand the Key Features of Traditional and Roth IRAs - Dive into the world of IRAs by comparing tax-deductible contributions of Traditional IRAs with the tax-free withdrawals of Roth IRAs. Knowing the perks and rules for each helps you pick the perfect fit for your future.
  2. Know the Contribution Limits and Age Considerations - For 2024, you can stash up to $7,000 if you're under 50, or $8,000 if you're 50 and over across both IRA types. Keeping these numbers in mind ensures you maximize your retirement savings without penalty.
  3. Grasp the Withdrawal Rules and Penalties - Early withdrawals from Traditional IRAs before age 59½ can cost you a 10% penalty plus income tax, while Roth contributions are always penalty-free but earnings have a five-year clock. Understanding these rules prevents surprise fees that could eat into your nest egg.
  4. Comprehend the Tax Implications of IRA Distributions - Traditional IRA distributions are taxed as ordinary income, whereas qualified Roth distributions slip through tax-free. Mastering these differences allows you to craft a tax-savvy retirement income plan.
  5. Learn About IRA Rollover and Transfer Guidelines - Rolling over between Traditional IRAs or converting to a Roth IRA can be powerful - but watch out for potential tax hits on conversions. Properly executed trustee-to-trustee transfers keep your savings moving smoothly without penalties.
  6. Understand Required Minimum Distributions (RMDs) - Once you hit age 73, the IRS requires you to withdraw a calculated minimum each year from Traditional IRAs or face hefty penalties. Planning ahead keeps you compliant and your retirement income flowing steadily.
  7. Recognize the Absence of RMDs for Roth IRAs - Roth IRAs don't force you to take required distributions during your lifetime, so your money can grow tax-free for as long as you like. This golden feature makes Roths a fantastic tool for legacy and estate planning.
  8. Explore Strategies for IRA-Based Retirement Planning - Mixing Traditional and Roth IRAs delivers flexibility to manage tax brackets both now and in retirement. Strategically allocating contributions today can lead to decades of tax savings tomorrow.
  9. Be Aware of the 5-Year Rule for Roth IRAs - To access your Roth earnings tax-free, your account must be at least five years old, and you must be 59½ or older. Each conversion has its own five-year clock, so plan conversions early to unlock all benefits.
  10. Understand the Benefits of Leaving a Roth IRA to Heirs - Roth IRAs can be passed on tax-free, giving your loved ones a powerful financial gift. Beneficiaries may still need to take RMDs, so mapping out inheritance rules ensures your legacy remains intact.
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