401(k) Flashcard

Front

What is a 401(k)?

Back

A type of savings account that is taxed when contributed, so no taxes are collected when withdrawn at retirement.

Front

What is the maximum contribution limit for a 401(k) plan in 2022?

Back

$20,500

Front

Do employers have to match employee contributions in a 401(k) plan?

Back

Employers can choose whether or not to match employee contributions.

Front

What are the limitations on the combined employer-employee contributions in a 401(k) plan?

Back

$61,000 in 2022 and $66,000 in 2023

Front

What is the penalty for taking withdrawals from a 401(k) before age 59.5?

Back

10% penalty in addition to any taxes owed

Front

When was the 401(k) plan designed?

Back

1978

Front

What is the purpose of 401(k) plans?

Back

To encourage Americans to save for retirement

Front

Why should you open a 401(k) when you are young?

Back

To earn more money due to the power of compounding

Front

What happens to the returns earned in a 401(k) account?

Back

They are reinvested back into the account and begin generating returns of their own

Front

Is opening a 401(k) automatic?

Back

No, you must opt-in to open a 401(k)