Question

23 which of the following is a disadvantage of an ira account?
money cannot be withdrawn until age 59\frac{1}{2} without a tax penalty.
money can be easily withdrawn at any time.
money cannot be contributed until age 59\frac{1}{2}.
money cannot be contributed after age 59\frac{1}{2}.

Explanation:

Analyze IRA withdrawal rules

Using the Retirement Accounts and Taxation of Withdrawals knowledge points

• IRAs are designed specifically to encourage long-term savings for retirement.
• To enforce this purpose, the IRS imposes a 10% early withdrawal tax penalty on funds taken out before reaching age \(59\frac{1}{2}\), unless a specific exception applies.
• This restriction on liquidity is a primary disadvantage of an IRA compared to standard taxable savings accounts.

Evaluate the given options

• Option 1: Correctly identifies the early withdrawal penalty before age \(59\frac{1}{2}\).
• Option 2: Incorrect, as early withdrawals are penalized and not "easily" done without financial consequences.
• Option 3: Incorrect, contributions can be made at any age as long as you have earned income.
• Option 4: Incorrect, there is no rule stopping contributions after age \(59\frac{1}{2}\).

Answer:

• Money cannot be withdrawn until age 59½ without a tax penalty. (Correct answer)
• Money can be easily withdrawn at any time.
• Money cannot be contributed until age 59½.
• Money cannot be contributed after age 59½.