SIE Understanding Trading, Customer Accounts and Prohibited Activities Question 11: Answer and Explanation

Question: 11

Which of the following is a characteristic of a retirement account?

• A. It is opened by a person who is retired.
• B. It is opened by a person who is an employee of a corporation.
• C. It is opened by a person who owns an annuity to place in the account.
• D. It is opened by a person who desires tax deferral on the investment return.

Correct Answer: D

Explanation:

D: Choice D reflects a significant attraction of retirement accounts: tax deferral. Choice A is not necessarily true, and a retired person may not need tax deferral. Choice B may be true of an employee-sponsored retirement account, such as a 401k. However, not every retirement account is opened by an employee. It may be opened by a self-employed person, or the spouse of a person with income. Choice C does not reflect the typical use of a retirement account. A person with an annuity already has tax deferral. Many teachers may begin contributing to a retirement annuity in a 403b account.