Fun with IRAs

Remember that when you're doing the 1,500 or so practice questions in our new Pass the 7 ExamCram Online Test Prep, you're seeing questions that should be very similar to what you'll see on the test. But only some of them will seem like close replicas; many of the questions at the testing center are going to shock the heck out of you. Half of those shockers are really familiar concepts that have been distorted so horribly that you no longer recognize what you're being asked. The other half are just questions no one could have known would show up based on the exam outline. That's why you have to develop test-taking skills. You need to use process of elimination so that you will minimize the errors that people make on questions they sort of knew and maximize the number you get right on questions your sort of don't. Let's enjoy a practice question on IRAs and approach it with all the skill and strategy you can muster:

Which of the following is true of a Roth Individual Retirement Arrangement but not a Traditional Individual Retirement Arrangement?
A. REITs may be held within the account
B. income limits prevent the deductibility of contributions
C. income limits prohibit certain individuals from making contributions
D. withdrawals must begin the year following the individual's 70 1/2th birthday

EXPLANATION: your job is to read each answer choice and ask first if it's true about Roth IRAs and then, is it not true of Traditional IRAs. Start with A--is that true of a Roth; can you buy REITs in it? Sure? Is that not true of the Traditional IRA? No, you can also buy them in a Traditional IRA, so choice "A" is eliminated. Your odds now rise from 25% to 33.3%. What about B--do income limits prevent the deductibility of contributions? Uh-oh. You don't deduct contributions to a Roth, so I guess income limits don't affect the deductibility. Unless you're reading it wrong, which is what the question wants you to worry about. Hmm. What about C--do income limits prohibit individuals from making contributions to their Roth IRA? Yes. Does that happen in a Traditional IRA? Actually, no, it does not. But most people confuse this statment with whether a rich person with a 401K established can deduct her contribution to a Traditonal IRA--totally different question. Of course, you're all turned around now and might not recognize that you just found the right answer--you did. But, you have to eliminate D before you pull the trigger. When do withdrawals have to begin in the Roth? They don't. So, D is, in fact, eliminated. And, even though "B" left us confused, "C" is our best answer.

Excellent, only 259 more questions to go.