Which of the following is not considered an advantage of an IRA?

Prepare for the BPA Personal Financial Management Test with our comprehensive resource. Utilize flashcards and multiple choice questions, complete with hints and explanations, to enhance your exam readiness.

The correct response indicates that withdrawals from an IRA cannot be made at any time without penalty. This is an important aspect of Individual Retirement Accounts (IRAs) that distinguishes them from more accessible savings accounts. In fact, withdrawing funds from a traditional IRA before the age of 59½ typically incurs a penalty, along with taxes on the income.

The other options highlight the benefits of having an IRA. For example, the growth of investments within an IRA is indeed tax-deferred until withdrawals are made, which means you can potentially grow your savings without immediate tax implications. Moreover, contributions to a traditional IRA can be deducted from your taxable income, providing a tax advantage that can enhance your savings. When choosing an IRA, you also have the flexibility to select your investments, allowing you to set your level of risk and potential return based on your financial goals and risk tolerance.

Understanding these nuances helps one recognize the valuable privileges and restrictions that come with an IRA, reinforcing the importance of knowing when and how you can access those funds without penalty.

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