Series 7 Exam Question 176: Answer and Explanation

Question: 176

Which of the following is TRUE regarding qualified retirement plans?

• A. Contributions are made with 100 percent pretax dollars.
• B. Contributions are made with 100 percent after-tax dollars.
• C. Distributions are taxable only prior to age 59½.
• D. Distributions are subject to a 10 percent penalty.

Correct Answer: A

Explanation:

A. Qualified plans under IRS laws allow investors to invest money for retirement with pre-tax dollars (you can write qualified plan contributions off on your taxes). In addition, earnings accumulate on a tax-deferred basis (the investor isn't taxed until withdrawal). However, distributions (tax-deferred earnings and contributions) for which the participant receives a tax deduction are 100 percent taxable.