Which of the following is true about 401(k) plans? Select all that apply.

Question

(1 point)
Responses

money is set aside for retirement after tax deductions
money is set aside for retirement after tax deductions

money is set aside for retirement before tax deductions
money is set aside for retirement before tax deductions

all employers match employee contributions
all employers match employee contributions

some employers match employee contributions
some employers match employee contributions

money is deposited directly into the employee’s checking account
money is deposited directly into the employee’s checking account

Answer 1

The following statements are true about 401(k) plans:

• money is set aside for retirement before tax deductions: Contributions to a traditional 401(k) plan are made with pre-tax dollars, which reduces your taxable income for the year.

• some employers match employee contributions: Many employers offer matching contributions to incentivize employees to save for retirement, but not all employers do.

The following statements are false:

• money is set aside for retirement after tax deductions: This is true for Roth 401(k) plans, but not for traditional 401(k) plans, where contributions are made before taxes.

• all employers match employee contributions: This is not true as only some employers offer matching contributions, and the terms can vary widely.

• money is deposited directly into the employee’s checking account: This is false because contributions are deducted from the employee's paycheck and deposited into the 401(k) account, not directly into a checking account.