Which retirement account is funded with pretax contributions based on earned income and has an age limit of 70 1/2 with contribution limits?

Which retirement account is funded with pretax contributions based on earned income and has an age limit of 70 1/2 with contribution limits?

• A. IRA
• B. Roth IRA
• C. 401k
• D. 403B

Answer: (A)

This question tests the characteristics of a Traditional IRA. A Traditional IRA is funded with pretax contributions that are based on earned income (and depending on your other retirement plan participation, your deduction may be available). Historically there was an age limit for making contributions, set at 70 1/2, and there are annual contribution limits you must stay within. That combination—pretax funding tied to earned income, plus an age cap on contributions—points to a Traditional IRA as the account described. Roth IRAs are funded with after-tax money, so they don’t fit the pretax contribution description. Employer-sponsored plans like 401(k) or 403(b) are not subject to the same old-age contribution cutoff, and their rules differ in other ways, so they don’t match the stated criteria.

This question tests the characteristics of a Traditional IRA. A Traditional IRA is funded with pretax contributions that are based on earned income (and depending on your other retirement plan participation, your deduction may be available). Historically there was an age limit for making contributions, set at 70 1/2, and there are annual contribution limits you must stay within.

That combination—pretax funding tied to earned income, plus an age cap on contributions—points to a Traditional IRA as the account described. Roth IRAs are funded with after-tax money, so they don’t fit the pretax contribution description. Employer-sponsored plans like 401(k) or 403(b) are not subject to the same old-age contribution cutoff, and their rules differ in other ways, so they don’t match the stated criteria.