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


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.

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