SIE Exam Question 278: Answer and Explanation

Question: 278

At withdrawal, pre-tax contributions and earnings in a traditional IRA are:

• A. Taxed at the investor's ordinary income rate
• B. Taxed at the investor's long-term capital gains rate
• C. Not taxed if the investor is at least 59½ years old
• D. Not taxed

Correct Answer: A

Explanation:

A: Contributions to a traditional IRA are usually made with pre-tax dollars, and thus they are taxed upon withdrawal. Additionally, although earnings in an IRA grow tax free, they are taxed upon withdrawal. Taxation of both pre-tax contributions and earnings occurs at the investor's ordinary tax rate, and the investor's age has no bearing on whether or not his withdrawals will be taxed.