Retirement Savings Vehicle Question
1. What is one major drawback of a Traditional IRA?
- A. Income limits restrict contributions
- B. Required Minimum Distributions (RMDs) start at age 73
- C. Tax-free withdrawals in retirement
- D. No employer matching contributions
2. Why might someone be ineligible to contribute to a Roth IRA?
- A. They are over age 50
- B. Their income exceeds the limit
- C. They are self-employed
- D. They donât have enough taxable income
3. What is a common limitation of both 401(k) and 403(b) plans?
- A. High contribution limits
- B. Employer matching is mandatory
- C. Limited investment options
- D. Mandatory early withdrawals
4. Which retirement vehicle only allows employers to contribute, not employees?
- A. SIMPLE IRA
- B. SEP IRA
- C. Traditional IRA
- D. Roth IRA
5. For a SIMPLE IRA, what is one significant drawback compared to a 401(k)?
- A. There is no employer contribution
- B. It requires a Roth option
- C. Contribution limits are lower
- D. It has higher investment fees
6. What is one potential drawback of a 401(k) that could affect an employeeâs retirement savings?
- A. Employer matching is not possible
- B. Investment fees may be high
- C. Contributions are taxed upfront
- D. There are no RMDs at age 73Â Â Â
7. Which retirement vehicle is best suited for small business owners but has the drawback of requiring equal contributions for all eligible employees?
- A. SIMPLE IRA
- B. SEP IRA
- C. 403(b)
- D. Traditional IRA
8. Why might a 403(b) be preferred over a 401(k) in some situations?
- A. It has a higher contribution limit
- B. It is available to all types of employees
- C. It may offer lower fees than a 401(k)
- D. It allows after-tax contributions only
9. What is a potential drawback of a Roth IRA compared to a Traditional IRA?
- A. Taxable growth
- B. RMDs start at age 73
- C. No immediate tax deduction for contributions
- D. High contribution limits restrict access
10. What retirement vehicle typically has higher fees or less employer oversight, but is designed for public schools and non-profit organizations?
- A. Traditional IRA
- B. Roth IRA
- C. 401(k)
- D. 403(b)
Answer Explanations
1. B. Required Minimum Distributions (RMDs) start at age 73
A Traditional IRA has tax-deferred growth, but one major drawback is that you must start taking RMDs at age 73, even if you donât need the income, which could lead to higher taxable income in retirement.
2. B. Their income exceeds the limit
A Roth IRA has income limits that may restrict higher earners from contributing, which is one of its primary drawbacks. Those above certain income thresholds become ineligible to contribute directly.
3. C. Limited investment options
Both 401(k) and 403(b) plans often have fewer investment choices compared to IRAs, limiting participants to a specific selection of funds provided by the plan.
4. B. SEP IRA
In a SEP IRA, only employers can contribute to the accounts of employees, which could be seen as a disadvantage for those who want to contribute directly to their own retirement savings.
5. C. Contribution limits are lower
While SIMPLE IRAs are easier to administer than 401(k)s, their contribution limits are significantly lower, which can be a drawback for those wanting to maximize savings.
6. B. Investment fees may be high
401(k) plans can sometimes have high fees associated with the planâs administration and investment options, which could reduce overall returns.
7. B. SEP IRA
SEP IRAs are attractive for small business owners due to their high contribution limits, but one of the drawbacks is that employers must contribute the same percentage of compensation to all eligible employees, which may be burdensome for some businesses.
8. C. It may offer lower fees than a 401(k)
A 403(b) plan, typically offered by public schools and non-profit organizations, can have lower fees compared to a 401(k), but it still has the drawback of limited investment options.
9. C. No immediate tax deduction for contributions
Unlike a Traditional IRA, Roth IRAs do not offer an immediate tax deduction for contributions. This could be a disadvantage for those seeking immediate tax relief.
10. D. 403(b)
While a 403(b) plan may offer lower fees than a 401(k), it can sometimes have higher fees or less oversight depending on the employer, which can impact investment growth over time.
About the Financial Authors
Alexander Langan, J.D, CFBS, currently serves as the Chief Investment Officer at Langan Financial Group. In this role, he manages investment portfolios, acts as a fiduciary for group retirement plans and consults with clients regarding their financial goals, risk tolerance and asset allocation.
With a focus on ERISA Law, Alex graduated cum laude from Widener Commonwealth Law School. He then clerked for the Supreme Court of Pennsylvania and worked in the Legal Office of the Pennsylvania Office of the Budget, where he assisted in directing and advising policy determinations on state and federal tax, administrative law, and contractual issues.
Alex is also passionate about giving back to the community, and has helped establish The Foundation of Enhancing Communities’ Emerging Philanthropist Program, volunteers at his church, and serves as a board member of Samara: The Center of Individual & Family Growth. Outside of work and volunteering, Alex enjoys his time with his wife Sarah and their three children, Rory, Patrick, and Ava.
Reid Ruark currently serves as an Associate Investment Advisor at Langan Financial Group where he assists Alex in managing investment portfolios, prepares client reviews, and helps operate social media platforms. In his free time, Reid enjoys spending time with his wife, playing pickleball and connecting with members of the community.
About the Retirement Planning Firm – Langan Financial Group
Langan Financial Group is an award-winning independent financial planning firm with 10+ independent awards and over 100+ 5-star reviews.
Langan Financial Group has two financial planning locations – Harrisburg, Pa and York, Pa. Established in 1985, Langan Financial Group offers a broad range of financial planning services for individuals and organizations.
By being an independent firm, we are not required to sell any specific products or meet any specific quotas. As such, we are able to focus more on providing fiduciary services and customizing a specific personalized financial plan according to your needs.
Disclosures
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.
The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.
