Understanding 401(k) Plans and Features

The video explores the 401(k) retirement plan, its history, benefits, and drawbacks. Initially designed as a tax deferral for executives, it became popular after the IRS allowed salary contributions. The 401(k) offers tax benefits and employer matches but comes with risks like investment management and fees. It has largely replaced traditional pensions, leading to a retirement savings crisis. Despite challenges, it remains a valuable tool if used wisely.

What year did the IRS rule that employees could contribute to their 401(k) from their salary?

• 1981

• 1996

• 1980

• 1978

What is the most attractive feature of a 401(k) plan?

• Low fees

• Guaranteed returns

• Employer match

• No risk

How does a 'pre-tax' 401(k) contribution benefit you?

• Lowers taxable income

• Increases taxable income

• No tax benefit

• Immediate tax refund

What is a potential risk of managing your own 401(k) investments?

• Guaranteed returns

• Employer manages it

• No fees

• Investment in risky sectors

What percentage of 401(k) participants are unaware of the fees they pay?

• 50%

• 10%

• 37%

• 73%

What is 'vesting' in the context of a 401(k) plan?

• Ownership of all funds from day one

• Delayed ownership of employer contributions

• Immediate ownership of funds

• No ownership of funds

What was the original purpose of the 401(k) plan?

• To replace pensions

• To supplement pensions

• To eliminate retirement savings

• To provide immediate cash

What percentage of private sector workers had pensions at their peak in 1980?

• 13%

• 25%

• 38%

• 50%

What is the recommended personal retirement savings rate according to financial experts?

• 1-3%

• 5-7%

• 20-25%

• 10-15%

What is the key to effectively using a 401(k) plan?

• Ignoring it

• Using it wisely

• Avoiding it

• Relying solely on it