Investment Bell Ringer 11

401(k)s and IRAs are both…

• Types of investments that you can choose to have in an investment account

• Investment accounts that are commonly offered by employers

• A type of savings account that generally offers around a 1% rate of return

• Investment accounts that you can open to help you invest for retirement

All of the following are advantages of a 401(k), EXCEPT…

• You don’t pay taxes on your investments’ growth each year

• You can invest your 401(k) into a wider variety of asset types than you can with an IRA

• Your employer may match some of your 401(k) contributions

• You can contribute more money into a 401(k) than into an IRA

Which type of retirement account is an investment option for ANY young person?

• Traditional IRA

• Pension

• 401(k)

• Social security

Katrina works for Penny's Pickles, which offers a 401(k) match for up to 3% of her salary, which is $65,000 per year. In her budget, she only has $150 per month available to save for retirement. What should she do?

• Opt out of the 401(k) plan since she doesn’t have much to contribute; use the money elsewhere in her budget

• Contribute $75/mo to her 401(k) and $75/mo to an IRA, so that she's diversified

• Save the $150/mo in a bank account until she has enough to max out her 401(k), and then invest

• Contribute the full $150/mo to the 401(k) because her company will match that full amount, "doubling" her investment every month

Sam is 22, just started his first full-time job, and is selecting his investments through his company's 401(k) plan. Why might a target date fund (TDF) be a good option for Sam?

• A TDF is actively managed by a fund manager but comes with low fees

• A TDF buys a single stock and bond so that beginner investors can practice day trading

• A TDF is insured by the federal government, so Sam's money is protected even if the fund performs poorly

• A TDF will automatically adjust his asset allocation based on the retirement year he has chosen

What is one question an investor should ask when deciding whether or not they would like to open a Roth IRA or a Traditional IRA?

• Do I want to make a guaranteed return of 6% or 8%?

• Do I want to pay taxes now or later?

• Do I want to take advantage of my employer’s matching contribution?

• Do I want to take on more or less risk?