SIE (Securities Industry Essentials) Practice Exam

Roth 401(k) and Roth IRA plans share which of the following features?

1. Contributions are deductible from federal income tax

2. Qualified distributions are excluded from federal income tax

3. Mandatory distributions begin at age 59 1/2

4. Loans are permitted against the account balance

The correct answer is: Qualified distributions are excluded from federal income tax

Roth 401(k) and Roth IRA plans share the feature of qualified distributions being excluded from federal income tax. This means that when you withdraw money from either of these accounts during retirement, you will not have to pay federal income tax on the money you withdraw. This is different from traditional retirement accounts, where the funds are taxed when withdrawn. The other options are incorrect because -A: Contributions to Roth 401(k) and Roth IRA plans are not deductible from federal income tax. This means that you pay taxes on the money before contributing it to the retirement account. -C: Mandatory distributions begin at age 59 1/2 for traditional retirement accounts, but for Roth accounts, there are no mandatory distributions. This gives you more flexibility in managing your retirement funds. -D: Loans are not permitted against the account balance of Roth accounts. This is different from traditional retirement accounts, where taking out a loan against the account balance is a common option.