Investing for the Future
Tests and Assessments for Session Three
Sample test questions
Last update 10/31/07
Multiple Choice Questions
1. Should a young person save for retirement?
a. yes, because time and compound interest is in their favor
b. no, because middle age is the best time to start saving for retirement
c. no, because money is better invested in education or business
d. it depends on the young person’s situation
2. Why should you invest in a retirement account?
a. to defer paying taxes on the money invested
b. because your employer often matches the money you invest
c. because you can earn a great deal of compound interest over the years
d. all of the above
3. Match refers to:
a. a retirement account that matches your needs the best
b. the money you put in and take out of a retirement account
c. the money another party contributes to an account you contribute to
d. exactly $1 another party puts in to every $1 you put in to an account
4. Tax deferred means:
a. you prefer not to pay taxes
b. you pay taxes now, but not later
c. you pay taxes later, but not now
d. you never have to pay taxes
5. Payroll deduction or automatic deduction:
a. allows an employer to deduct money from an employee’s pay
b. can be invested in a retirement account
c. lowers an employee’s taxable income
d. all of the above
MATCHING
Match the word with the correct phrase by placing the letter in front of the word in the blank space by the phrase.
A. distributionE. IRAs
B. matchF. 401(k) plans
C. payroll deductionG. 403 (b) plans
D. tax deferredH. automatic deduction
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__G__These are provided by nonprofit employers, such as schools, churches, etc. Employers can match
some or all of your contribution.
__C*_ Allows an employer to deduct money from an employee’s pay and invest in a retirement account.
__F__These are provided by some employers who can match some or all of your contribution.
__A__Refers to the money paid out from an investment, such as interest income.
__E__You can deposit up to $4,000 a year into these and they grow tax free until you withdraw it,
then you pay taxes on the amount you withdraw.
__D__Means taxes will be paid on something, like a retirement account, at a later date.
__B__Refers to the amount or proportion of money that another party will contribute to that you
contribute to.
__H*_Another term used for an employer to deduct money from an employee’s pay to invest in a
retirement account.
* C and H are interchangeable
TRUE OR FALSE
Place a “T” for true of “F” for false in the blank in front of the statement.
__F__It is important to invest money into your long term retirement fund because these investments are safe and never carry risks.
__T__403(b) plans are provided by nonprofit employers, such as schools, churches, etc., otherwise, they
are just like 401(k) plans.
__T__With a Roth IRA you always have to pay taxes on the money you put into it. However, you will never pay taxes on the money you withdraw when you take it out at age 59 ½ or older.
__T__Simplified Employee Pension Plans (SEPs) are for owners of small businesses (fewer than 25 employees) and the self employed.
__F__The IRS regularly changes the maximum contribution per year to a retirement account, due to the fluctuation in stocks and bonds.
__T__Having your retirement savings deducted out of your salary first means you’ll pay income taxes on fewer of the dollars that you earn.
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