Chapter 3 Short Answers

Question 1

What are the advantages of a Roth IRA?

Answer 1

They are tax-free

Question 2

What is Baby Step 4 and why does your emergency fund have to be fully funded before you begin this step?

Answer 2

Baby Step 4 are small investments and it should be fully funded because you can lose money and you don’t want to go broke

Question 3

List some ways to can avoid student loan debt if you don’t have a college fund.

Answer 3

1) ESA

2) If you cant meet income standards then use a 529 plan

Question 4

Why should you take a 401 (k) match (if a company offers one) before you start a Roth IRA?

Answer 4

Because that’s free money that the company will be giving to you

Question 5

Explain what is meant by tax-favored dollars?

Answer 5

Is protected against certain taxes

Question 6

Why worry about retirement when every worker pays into Social Security?

Answer 6

Because Social Security is facing trouble

Question 7

Explain how the rule of 72 works

Answer 7

Dividing the interest rate into 72 will tell you about how many years it will take to double your money