Dave Ramsey chapter 2 test
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T/F: Pretax means the government allows you to invest money after taxes are taken out
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False
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T/F: ESAs are a good way to save for college
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True
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T/F: The Roth IRA is an after tax investment that grows tax-free
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True
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T/F: Once you have a fully funded emergency fund, put 10% of your income into retirement plans
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False
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T/F: The contribution amount for a Roth IRA in 2008 is $5000
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True
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T/F: 457 plans are are designed for employees of non-profit organizations such as hospitals and schools
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False
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T/F: If your money is in a pre-tax retirement plan, you will pay taxes on it when you cash it out
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True
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T/F: If we used a race analogy to describe building wealth, it would be like a marathon
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True
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T/F: Never roll over your 401 (k) when you leave a company
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False
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T/F: You should save for college using savings bonds
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False
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T/F: Pension plans only work if you participate in them. If you put nothing in you will get nothing out
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False
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T/F: Savings bonds are a good way to save for college
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False
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T/F: Never borrow money from your retirement plan
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True
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T/F: When you leave a company, don't move your money form the retirement account
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False
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T/F: An IRA is a specific type of investment
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False
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An Educational Savings Account (ESA) is used for: retirement college an emergency fund a new car
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college
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Which of the following is not a retirement plan? 529 401 (k) 403 (b) 457
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529
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Which is not a benefit of the Roth IRA? a. grows tax-free b. unlimited contributions c. provides penalty-free withdrawals under certain circumstances d. more choices
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b. unlimited contributions
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Baby step 4; why does your emergency fund have to be fully funded before you begin this step
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Invest 15% of your household income into Roth IRAs and pre-tax retirement plans; if you lose money you don't want to be broken when your investing
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List some ways you can avoid student loan debt if you don't have a college fund?
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Scholarship, part time job, go to school part time
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Why should you take a 401 (k) match before you start a Roth IRA
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A company is giving you free money
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Explain what is meant by tax-favored dollars
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You are protected from certain taxes
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Explain the rule of 72
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Dividing the interest rate into 72 will tell you about how many years it will take to double your money
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What should you do with your retirement accounts when you leave a company?
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Direct transfer
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A retirement plan for self-employed people
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SEPP
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A deferred compensation plan
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457
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Used for college savings
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ESA
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Typical retirement plan found in most companies
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401 (k)
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Retirement plan found in non-profit groups
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403 (b)
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Save for college by first using this type of account
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Educational savings account
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Used after you max out the ESA
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UTMA
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Movement of tax-deferred retirement money from one plan to another
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Rollover
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Invest 15% of income for retirement
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Baby step 4
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Manager of a child's UTMA account until he or she reaches age 21
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Custodian
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College funding
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Baby step 5
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The company Jason works for matches his 401(k) contribution up to 5%. Jason takes advantage of this and contributes $200 per month. At the end of one year, how much money will be in his account?
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$4800
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What definition best describes an IRA?
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The tax treatment on virtually any type of investment
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The primary difference between the Roth IRA and the traditional IRA
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The Roth IRA grows tax-free but the traditional doesn't
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Under which conditions are you not able to make a tax-free withdrawal from your Roth IRA?
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Major career change and temporary drop of income
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What is the best option for your retirement plan when you leave a company?
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Do a direct transfer into an IRA
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If you have $3,000 invested in a Roth IRA, what is true about your contribution?
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You have already payed taxes on the money, so it will grow tax free
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Which of the following are good ideas to save for college: ESA Life insurance Pre-paid college tuitions Savings bond
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ESA
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Using the rule of 72, how long will it take your money to double at 12%? 6 years 7.2 years 8 years 9 years
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6 years
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When seeking a financial counselor to help you with your investment, always go with: a. A close family member or friend because you will be helping each other out b. A financial counselor who is sophisticated and uses all of the right vocabulary c. A financial counselor with the heart of a teacher who explains everything to you d. A financial counselor who has at least 5 years of experience
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C
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What does baby step 5 say about saving for your child's college?
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Use tax-favored plans
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Explain how an IRA works
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You invest pre-taxed dollars into an ira and it grows tax-free for the entire of the investment
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Why should you wait until after your emergency fund is in place before you invest in retirement funds?
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You would pull money out of your retirement investment when there was an emergency and therefore resulting in penalties or taxes that would cost you money.
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What are the three "nevers" of college savings?
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Never save for college using insurance, savings bonds, and pre-paid tuition
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What are two reasons not to rely on social security?
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It is unreliable and is always facing problems
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Mike has been maxing out his 401(k) for a few years, but his company provides no matching funds. Should he stop funding the 401(k) and max out a Roth IRA, or keep contributing the max to his 401(k)?
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Stop finding the 401 (k) and max out the Roth IRA
