Retirement planning
⏱ ~3-min readAceMark Guide
What this topic is really about
Under current SECURE Act 2.0 rules, individuals must begin taking Required Minimum Distributions (RMDs) from traditional IRAs at age 73. Age 59 1/2 (Option A) is incorrect because it is the age at which penalty-free, voluntary withdrawals may begin, not when distributions become mandatory.
Roth IRA contributions are made with after-tax dollars, allowing qualified distributions in retirement to be completely tax-free. In contrast, Traditional IRA contributions are typically made pre-tax (Option A), meaning withdrawals are taxed as ordinary income rather than being tax-free.
See the mechanism
For the 2024 tax year, the IRS set the basic elective deferral limit for 401(k) plans at $23,000 for employees under age 50. A diagram for this topic isn't available yet — the worked example below walks the same reasoning step by step.
An exam-style question, fully explained
In 2024, the maximum 401(k) employee contribution (under 50) is approximately:
- Identify what the question tests: In 2024, the maximum 401(k) employee contribution (under 50) is approximately:.
- For the 2024 tax year, the IRS set the basic elective deferral limit for 401(k) plans at $23,000 for employees under age 50.
- Option A is outdated and too low, while Option C represents an amount closer to the limit only if catch-up contributions for older workers are included.
Traps the examiner sets
- Age 59 1/2 (Option A) is incorrect because it is the age at which penalty-free, voluntary withdrawals may begin, not when distributions become mandatory.
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