Question

Which statements are true regarding a traditional individual retirement account? Choose three answers.

Employers create them and match employee contributions.
People can contribute to the account until retirement age.
People can withdraw money penalty-free at any time.
Contributions to the account are limited each year.
Contributions reduce taxable income.

Answer 1

True statements:
- People can contribute to the account until retirement age.
- Contributions to the account are limited each year.
- Contributions reduce taxable income.

Brief notes:
- Traditional IRAs are individual accounts (not employer-created/matched plans).
- Withdrawals before age 59½ are generally subject to income tax plus a 10% early-withdrawal penalty (with some exceptions).
- Deductibility of traditional IRA contributions (and the resulting taxable-income reduction) can be limited by your income and whether you (or your spouse) are covered by an employer retirement plan.
- (Current law: the SECURE Act removed the previous age cap, so contributions are allowed at any age if you have earned income.)