Which of the Following Is a True Statement Regarding Saving

question 26

Multiple Choice

Which of the following is a true statement regarding saving for retirement?

• A) In a given year, a taxpayer may participate in either an employer-sponsored defined benefit plan or defined contribution plan but not both.
• B) In a given year, a taxpayer who receives salary as an employee and also receives self-employment income may participate in an employer-sponsored defined contribution plan or may contribute to a self-employed retirement account but not both.
• C) In a given year, a taxpayer may contribute to an IRA (either traditional or Roth) or contribute to a self-employment retirement account but not both.
• D) None of these is a true statement

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Definitions:

Nominal Annual Rate

The stated or face interest rate of a financial product, not adjusting for compounding or inflation over time.

Effective Annual Rate

This is the interest rate on an investment or loan that accounts for the effects of compounding over a given period, providing a more accurate picture of financial returns or costs.

Monthly Compounding

The process of calculating interest earnings on the principal and previously earned interest every month.

Nominal Annual Interest Rate

The stated interest rate of a bond or loan, not adjusted for inflation, which indicates the periodic interest payment.