Roth Versus Traditional IRAs (Third Edition) (00321324)

The decision to fund a traditional IRA or a Roth IRA has been the subject of debate, uncertainty, and sometimes confusion. This course describes the variables that may affect the choice between the IRA types, as well as other factors that should be considered. Taxpayers will be able to convert other account balances to Roth IRAs, without current income restrictions, beginning in 2010. This course explains if and when traditional IRA accounts should be converted to Roth IRAs.
Final Exam > Results Page

final exam score:

83%

Question 1

Correct

Return from a traditional IRA exceeds that of a Roth IRA if:

The individual's tax rate is the same when funds are withdrawn as when funds are invested.

(You Answered) (Correct Answer) The individual's tax rate declines between the time funds are invested and withdrawn.

The individual's tax rate increases from the time funds are invested to the time funds are withdrawn.

The individual withdraws only the required minimum from the traditional IRA annually.

Question 2

Correct

Using outside personal funds to pay the tax to convert a traditional IRA to a Roth IRA:

(You Answered) (Correct Answer) Essentially creates a bigger IRA

Guarantees the Roth IRA accumulations will exceed what would have accumulated in the traditional IRA

Is not allowed

Is required if the individual wants to convert a traditional IRA to a Roth IRA

Question 3

Correct

An investor in a Roth IRA must begin to withdraw a required minimum distribution from the account at age:

62

65

70 1/2

(You Answered) (Correct Answer) A required minimum distribution is never required for a Roth IRA

Question 4

Correct

What is meant by the Roth RMD benefit?

The Roth IRA required minimum distribution is a set amount, whereas the RMD of a traditional IRA must be calculated annually.

The Roth IRA required minimum distribution may commence for the investor no sooner than age seventy-five, not 70 ½.

The Roth IRA required minimum distribution is calculated on the investor's original contributions, not the contributions plus yield.

(You Answered) (Correct Answer) No required minimum amount must be distributed from a Roth IRA.

Question 5

Incorrect

At what time does the "Roth RMD benefit" accrue?

When the investor reaches age sixty-five

(Correct Answer) After the traditional IRA investor's RMD beginning date of age 70 ½

(You Answered) When the investor begins to withdraw earnings as well as the original contribution amount

When the Roth IRA investor begins to withdraw a greater distribution than is possible for the traditional IRA Investor

Question 6

Incorrect

The goal in considering the tax rate factor is for investors:

To fund traditional IRAs that reduce salary in low tax rate environments and Roth IRAs in high tax rate times

To fund Roth IRAs when retirement is just a few years away and tax rates will decline.

(Correct Answer) To fund Roth IRAs in low tax rate times and traditional (salary reduction) IRAs in high tax rate environments

(You Answered) To fund salary reduction IRAs to lower tax rates in all environments except when bequests of IRA amounts are planned.

Question 7

Correct

Which of the following is a consideration in planning for IRA use?

(You Answered) (Correct Answer) Anticipating future tax rates of heirs

How many personal exemptions a taxpayer claims on his or her Form 1040

The amount of charitable contributions made in a tax year

Having children who have already graduated college

Question 8

Correct

To achieve tax diversification, taxpayers should consider:

Use of municipal bond mutual funds as well as equity funds in IRAs

(You Answered) (Correct Answer) Converting just a portion of traditional IRA account balances to Roth accounts

Funding multiple traditional IRA accounts

Direct rollovers of lump-sum qualified plan benefits to a Roth IRA

Question 9

Correct

Many states:

(You Answered) (Correct Answer) Offer deductions for IRA contributions

Generally favor Roth IRAs over traditional IRAs

Do not permit investment in a Roth IRA

Permit much larger contributions to IRAs than federal law permits

Question 10

Correct

Roth IRAs are better used to fund a bypass trust, because, with a Roth IRA:

(You Answered) (Correct Answer) Income taxes are out of the way, and there won’t be an income tax at prohibitive trust rates.

It is easier to fund than a traditional IRA because of bank fees and charges.

Bypass trusts are much more commonly and efficiently used.

Bypass trust assets are directly placed into a taxpayer’s estate.

Question 11

Correct

The decision to convert to a Roth IRA:

Should never be delayed, regardless of the individual’s circumstances

(You Answered) (Correct Answer) Can possibly be delayed, until unknown factors, such as future tax rates, are clearer

Is normally not affected by unknown factors

Is usually a poor decision for most taxpayers

Question 12

Correct

Both traditional and Roth IRA assets are:

(You Answered) (Correct Answer) Normally included in a decedent’s gross estate.

Not subject to federal estate tax.

Not subject to any state’s estate tax.

Subject to the federal estate tax for any portion that is below $5.12 million in 2012.