What is a 401K?

What does the "401(k)" in the account name refer to?

• • The number of years you can contribute

• • The percentage of income you can save

• • Section 401, subsection k of the IRS code

• • A type of investment option

What is a key benefit of contributing to a traditional 401(k)?

• • Withdraw money without penalty before retirement

• • Contributions reduce taxable income

• • Employers contribute more than employees

• • No limits on contributions

When do you pay taxes on a traditional 401(k) investment?

• • Annually on interest earned

• • Upon making contributions

• • After 10 years of contributions

• • When withdrawing during retirement

What is a key feature of a Roth 401(k)?

• • Contributions are made pre-tax

• • Withdrawals in retirement are tax-free

• • Contributions grow without limits

• • Employers cannot contribute to it

At what age can you typically withdraw from a 401(k) without penalties?

• • 50 years old

• • 55 years old

• • 59½ years old

• • 65 years old

What happens if you withdraw from your 401(k) before age 59½?

• • A) No consequences

• • Income tax and early withdrawal penalty apply

• • Only income tax applies

• • Employer match is lost

What is a company match in the context of a 401(k)?

• • Employer pays your full contribution

• • Extra money contributed by the employer based on the employee's contribution

• • The maximum limit you can contribute

• • Tax-free bonus added to your account

Answer explanation

What is the purpose of a vesting period in a 401(k)?

• It limits the number of investment options

• • It allows tax-free withdrawals

• • It specifies how long until employer contributions are fully yours

• • It determines when you can start contributing

What should you check if your 401(k) provider has high fees?

• • Whether you can switch to an IRA

• • The amount of money your employer will contribute

• • If you can reduce your contributions

• • Whether you can withdraw money early

What is a rollover in relation to 401(k) accounts?

• • Increasing your contribution limit

• • Transferring funds from one retirement account to another without tax penalties

• • Receiving additional employer contributions

• • A penalty-free early withdrawal option