Quiz Answers

Tax Questions:

1. You can take an IRA deduction for the amount you contributed to a 401(k) plan last year. False. For more details click here.

2. You can make a contribution to a SEP-IRA and a Roth IRA. True. For more details click here.

3. You must complete a rollover distribution from a retirement plan to an IRA account by the 60th day following the day on which you receive the distribution. True. For more details click here.

4. The IRS does not allow a split refund. Your refund must go to one account with a U.S. financial institution. False.

   According to IRS.gov, split refunds are allowed. Split refunds let you divide your refund, in any quantity you want, and then direct deposit the money in up to three different accounts with U.S. financial institutions.

5. Interest payments on your personal credit card are deductible. False.

   According to IRS.gov, interest on a personal credit card is not deductible. However, interest on a credit card for business use is tax deductible.

   If a credit card is used for both personal and business use, the interest payment needs to be allocated.

   Here’s a formula to follow:

   Business expenses ÷ The total of business and personal expenses
   = Percentage of tax-deductible interest

   For example, you may deduct 70 percent of the entire interest payments, only if 70 percent of the sum of both expenses were business related.

6. If you live on a boat, you have to declare your income for federal tax purposes. True.

Credit & Debt Questions:

7. A debt-to-income ratio of 36 percent or less means your debts are out of control. False.

A debt-to-income ratio of 36 percent or less is what most individuals should aim for. It’s an indication to lenders that you have disciplined spending habits and are credit-worthy.

To calculate your ratio, just follow these three steps:

Step 1. Add up your total monthly gross income. That could include your income from an employer, bonuses, tips, commissions, government benefits, child support, alimony and interest and dividends accruals.

Step 2. Add up your total monthly debt payments. Needless to say, that includes your mortgage payments, your car payments and any minimum payments you make on your credit cards. It does NOT include your taxes or utilities.

Step 3. Divide your debt payments by your monthly income. So the formula is:

Total Monthly Debt Payments ÷ Monthly Gross Income = Debt-to-Income Ratio

Here are the other percentage categories according to the University Credit Union:

37 to 42 percent: Your debts appear manageable. But they can get out of control. Start paying them down now. You may still be able to obtain credit cards, but acquiring loans may prove difficult.

43 to 49 percent: Your debt ratio is too high. Financial difficulties may be likely unless you take immediate action.

50 percent or more: Seek professional help promptly to make plans for drastically reducing debt before it’s too late.

Important: Be sure to recalculate your ratio once each year or whenever you face a significant life event, such as a death in the family, a divorce, a change in jobs, etc.

8. Your age and where you live are factored into your FICO score. False.

   According to myFICO.com, your FICO does not consider: Age, race, where you live, your salary, occupation, title, employer, date employed or employment history.

9. Your payment history and the amounts owed comprise a combined 65 percent of most FICO scores. True.

   According to myFICO.com, FICO® Scores consider five categories: Payment history, amounts owed, length of credit history, new credit and types of credit used.

10. To qualify for the best rates, your FICO score should be in the 600s. False.

    A FICO score of 750 or better will qualify you for the best rates.

11. The fastest way to pay off multiple credit card debts is to pay the credit card balance with the lowest interest rate first. False.

    The fastest way to pay off multiple credit card debts is to pay the credit card balance with the highest interest rate first.

12. With the new CARD Act of 2009, credit card companies can only impose interest charges on balances in the current billing cycle. True.

    For more information about the CARD Act of 2009 click here.

Insurance Questions:

13. Term life insurance policies are available for a set period of time, usually up to 20 years. True.

14. Permanent life insurance policies are available at a higher premium, but stay in force until the policy owner reaches 60 years of age. False.

    Permanent life insurance policies are available at a higher premium, but as long as premiums are paid, can stay in force until the policy owner reaches 100 years of age.

Scoring

11-14 answers correct: Congratulations, you’re financially savvy!

7-10 answers correct: You’re on the right track! Just take some time to brush up on a few personal finance topics.

3-6 answers correct: Oops! Well, there’s no time like the present to learn more about personal finances with free and trustworthy online educational sources.

0-2 answers correct: Uh oh, time to get back-to-basics financially. Taking the time to learn about personal finances will improve your lifestyle and help give you peace of mind.