D363 Personal Finance - Set 3 - Part 1

Test your knowledge of technical writing concepts with these practice questions. Each question includes detailed explanations to help you understand the correct answers.

Question 1: What is the purpose of a "health savings account" (HSA)?

To pay for daily expenses without taxes

To provide a tax-advantaged way to save for future medical expenses

To replace traditional health insurance

To pay for non-medical expenses tax-free

Question 2: What is a "COBRA right" in health insurance?

It guarantees health insurance coverage for life

It allows former employees to remain part of a group health plan for a limited time

It provides immediate free health insurance upon job loss

It eliminates the need for private health insurance

Question 3: Which of the following describes "copay" in health insurance?

The amount you pay for prescriptions after insurance

The portion of your health care cost that you must pay at each visit

A refundable fee for medical services

The annual deductible for health insurance

Question 4: What does "portability" refer to in a retirement plan?

The ability to withdraw funds without penalty before retirement

The ability to transfer retirement funds from one employer to another

The capacity to invest in foreign markets

The protection of retirement funds from taxes

Question 5: What is the function of "graduated vesting" in retirement plans?

To allow employees immediate access to all employer contributions

To increase the percentage of vested employer contributions over time

To limit employee access to contributions

To provide a fixed interest rate on all investments

Question 6: Which type of tax-sheltered retirement account is funded with after-tax money?

Traditional IRA

Roth IRA

401(k)

SEP IRA

Question 7: What is a "hardship withdrawal" in a 401(k) plan?

A loan taken against retirement savings without penalty

A penalty-free withdrawal allowed in cases of immediate and significant financial need

A loan that must be repaid with interest

A non-taxable withdrawal for medical expenses

Question 8: Which of the following is a feature of "automatic escalation" in retirement savings?

It automatically increases your retirement income when you turn 65

It raises the contribution rate to a retirement account automatically over time

It decreases the risk level of investments as retirement nears

It adjusts the tax rate on retirement withdrawals

Question 9: What is the primary benefit of having "matching contributions" in a retirement plan?

To reduce the employee’s tax burden

To receive additional contributions from the employer, boosting retirement savings

To protect the employee’s retirement account from market downturns

To allow early withdrawal without penalty

Question 10: What does "required minimum distributions" (RMDs) refer to?

The maximum contribution limit for retirement accounts

The amount of retirement funds you must start withdrawing after a certain age

The minimum amount you must contribute to keep a retirement account active

The mandatory investment in government bonds

Question 11: Which of the following is an advantage of a "spousal IRA"?

It allows both spouses to combine their retirement savings into one account

It enables a non-working spouse to contribute to a tax-deferred retirement account

It allows for tax-free withdrawals at any time

It guarantees employer matching contributions

Question 12: What is the "20 percent withholding rule" in retirement accounts?

A rule that applies to early withdrawals, where 20% of the funds are withheld for taxes

A rule that limits the amount of contributions to a retirement account

A rule that prevents individuals from withdrawing more than 20% of their balance at a time

A rule that sets the minimum withdrawal limit to 20% of the total balance

Question 13: What is the "early withdrawal penalty" for retirement accounts?

5% of the total balance

10% penalty on top of the taxes owed for early withdrawals

15% penalty for any withdrawals before the age of 70

20% penalty on contributions only

Question 14: Which of the following defines a "tax-deferred" retirement account?

Earnings in the account are taxed immediately

Contributions and earnings grow tax-free, but withdrawals are taxed later

Withdrawals are tax-free at any age

All contributions are subject to an immediate 20% tax

Question 15: What does the "one-rollover rule" state for IRAs?

Investors can make unlimited rollovers between IRAs each year

Investors can make only one rollover from one IRA to another within any 12-month period

Rollovers are only allowed for 401(k) accounts, not IRAs

Rollovers must include the entire balance of the account

Question 16: What is the purpose of "self-directed plans" in defined-contribution retirement plans?

To allow employers to make investment decisions for the employee

To give employees control over how their retirement funds are invested

To automatically adjust investments based on market conditions

To limit the risk exposure in retirement portfolios

Question 17: What is the "withdrawal rate" in retirement planning?

The rate at which taxes are deducted from withdrawals

The percentage of savings withdrawn annually to fund retirement

The interest rate applied to retirement account withdrawals

The total amount of money withdrawn over a lifetime

Question 18: What is "lifestyle creep" in personal finance?

An increase in savings as income rises

Spending more as income increases, often leading to financial strain

A gradual reduction in expenses as retirement approaches

The adjustment of spending to match inflation

Question 19: What is the purpose of "FICA taxes"?

To fund government retirement programs such as Social Security and Medicare

To provide tax credits for low-income workers

To reduce the cost of employer-sponsored health insurance

To finance state pension systems

Question 20: What is "maximum taxable yearly earnings" (MTYE) in the context of FICA taxes?

The maximum amount of income subject to FICA taxes

The total amount of FICA taxes an employer must pay

The minimum amount of earnings needed to qualify for Social Security

The percentage of wages that must be paid into Medicare

Need Guaranteed Results?

Our exam support service guarantees you'll pass your OA on the first attempt. Pay only after you pass!

Get Exam Support