Which of these statements concerning traditional IRAs is correct
a) Earnings are not tax deductible
b) Earnings are taxable when withdrawn
c) Contributions are never tax-deductible
d) Contributions are always made by the employer
The Correct Answer Is:
- b) Earnings are taxable when withdrawn
Traditional Individual Retirement Accounts (IRAs) allow individuals to defer taxes on income earned in the account until it is withdrawn. This can significantly reduce an individual’s tax burden when withdrawing funds from their account. However, there are a few caveats to note with this strategy. First, earnings in an IRA are taxable when withdrawn regardless of whether the individual is using the money for retirement savings or other purposes. Second, if an individual has less than $1,000 in their IRA at the time of withdrawal, all of their earnings will be subject to taxation regardless of whether they have used the money for retirement savings or not.
Traditional Individual Retirement Accounts (IRAs) have long been considered a powerful retirement savings vehicle. But the assumption that contributions are never tax-deductible is not always true. In fact, there are a number of exceptions to this rule. If you itemize your deductions on your federal income tax return, you can deduct IRA contributions made during the year. And if you’re covered by a retirement plan at work, such as an employer-sponsored 401(k) or 403(b), your employer may also be able to contribute to your IRA account on your behalf.
Traditional IRAs are incorrectly thought to require contributions from the employee. In fact, employer contributions are not always required. Employers can make voluntary contributions on behalf of their employees through SEP IRA , SIMPLE IRA, and qualified retirement plans.Traditional IRAs are not always true! Employers can make contributions on behalf of their employees. This allows employees to have more control over their retirement savings and helps employers comply with IRS regulations.