One of the biggest barriers to investing outside of your 401K, or other employer-sponsored retirement plan, is having the basic knowledge around how to start up another account. IRA’s are one of the best retirement investment vehicles available due to their tax benefits, but they are not the most intuitive, especially when comparing a Roth IRA to a Traditional IRA.
So I decided to create a (hopefully) fun little true/false quiz to test your IRA ninja qualifications.
This quiz will address some common IRA myths and misunderstandings. Answers are at the bottom. Share how many you got right and which ones tripped you up! Score 9 out of 10 and above, and you are a certified IRA Ninja (and have no excuse not to be using one)!
IRA Ninja Quiz
1. True or False: You cannot contribute to an IRA if you’ve already maxed out your 401K.
3. True or False: Married couples that file jointly can combine their IRA funds into a jointly funded spousal IRA.
4. True or False: You can begin withdrawing IRA funds in retirement at age 62, the same age you can start collecting Social Security.
5. True or False: You can withdraw Roth IRA funds at any time without incurring tax or penalty.
6. True or False: It does not matter what income level you are at, you can contribute to an IRA.
7. True or False: The 2020 maximum IRA contribution is $6,000 with a catch-up contribution of an additional $1,000 for those over 50.
8. True or False: The deadline to contribute to IRA’s is December 31 (the final day of that calendar year).
9. True or False: You must contribute to an IRA in order to receive the Retirement Savings Contribution Credit.
10. True or False: Traditional IRA’s give you tax benefits now while Roth IRA’s give you tax benefits in retirement.
Answers to the IRA Ninja Quiz:
1. False: Maximum 401K contributions are completely separate from IRA maximum contributions.
2. True: You can, in fact, contribute to both a Roth IRA and a Traditional IRA in the same year.
3. False: There is no such thing as a jointly funded spousal IRA (although there is a spousal IRA). A married couple’s IRA funds cannot be combined in the same account.
4. False: You can withdraw Traditional and Roth IRA funds at age 59.5, and earlier with some exceptions.
5. False: You can withdraw Roth IRA funds after 5 years in the event of disability or it meets the requirements under the First Home rule, or at age 59.5.
6. False: There are IRA income limits, which phase out what you can contribute (Roth) or deduct from your taxes (Traditional).
7. True: The maximum IRA contribution in 2020 is $6,000, unless you are over the age of 50, in which case it is a total of $7,000.
8. False: You can contribute for a given calendar year up until the tax deadline of the following year.
9. False: You can contribute to an IRA or an employer-sponsored retirement plan in order to claim the Retirement Savings Contribution Credit (income limits apply).
10. True: Traditional IRA’s are ‘pre-taxed’, meaning that they are tax deductible contributions, but you must pay taxes on withdrawals. Roth IRA contributions are post-tax, meaning that you pay taxes now, but can withdraw earnings tax-free at retirement.