4
lesson pretestMultiple Choice

Pretest

Question 4 • Mathematics for Data and Financial Literacy

Which disadvantage belongs to a traditional IRA?

Answer
A
no investment options
B
contributions are not tax-deductible
C
early withdrawals may be subject to taxes, penalties
D
mandatory employer contributions

Explanation

Traditional IRAs generally let eligible contributions receive tax-deductible treatment, and account holders choose among investment options. However, withdrawing money before age 59½ may result in income taxes and an additional penalty, with some exceptions. Therefore, the disadvantage is that early withdrawals may be subject to taxes and penalties.

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