Understanding 401(k) Retirement Accounts

The video tutorial explains the 401(k) retirement savings account, highlighting its tax advantages and how it works. It covers key concepts such as contributions, investments, and account management. The tutorial discusses the differences between traditional and Roth 401(k)s, contribution limits, employer matching, and the importance of avoiding early withdrawals. It also addresses investment choices, fees, and managing multiple 401(k) accounts through rollovers. The video emphasizes the benefits of contributing to a 401(k) as a way to save for retirement effectively.

What is the origin of the name '401(k)'?

• It is named after a financial institution.

• It is named after a famous economist.

• It is a random number assigned by the government.

• It refers to a section of the IRS code.

How does contributing to a traditional 401(k) affect your taxable income?

• It doubles your taxable income.

• It increases your taxable income.

• It has no effect on your taxable income.

• It decreases your taxable income.

What is a key difference between a traditional 401(k) and a Roth 401(k)?

• Traditional 401(k) contributions are after-tax, Roth 401(k) are pre-tax.

• Both are pre-tax contributions.

• Both are after-tax contributions.

• Traditional 401(k) contributions are pre-tax, Roth 401(k) are after-tax.

What happens if you withdraw money from your 401(k) before age 59 and a half?

• You must pay a fine but no taxes.

• You face an early withdrawal penalty and income tax.

• You receive a bonus.

• You can withdraw without any penalties.

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

• A loan provided by the employer.

• A penalty for not contributing enough.

• Extra money the company contributes to your account.

• A bonus given at the end of the year.

What should you consider when choosing investments in a 401(k)?

• The color of the investment brochure.

• The investment's name.

• The risks and fees associated with each investment.

• The popularity of the investment.

What is a self-directed 401(k)?

• A plan that requires no contributions.

• A plan that only invests in company stock.

• A plan that allows additional investment choices.

• A plan with no investment choices.

What is a 'rollover' in the context of 401(k) accounts?

• A bonus for contributing the maximum amount.

• A type of investment option.

• A process to move funds between retirement accounts without tax penalties.

• A penalty for withdrawing funds early.

Why might it be beneficial to consolidate multiple 401(k) accounts?

• To avoid paying taxes on all accounts.

• To simplify management of retirement savings.

• To increase the number of accounts you manage.

• To receive more employer matches.

What is one of the main benefits of contributing to a 401(k)?

• Guaranteed high returns.

• Tax benefits and potential employer match.

• Immediate access to funds.

• No contribution limits.