Question
How is a 401k different from an individual retirement account (IRA)?
A: A 401k is a good long-term investment strategy.
B: A 401k allows people to contribute before taxes.
C: A 401k is created by an individual who deposits money.
D: A 401k is created by an employer who may match contributions.
A: A 401k is a good long-term investment strategy.
B: A 401k allows people to contribute before taxes.
C: A 401k is created by an individual who deposits money.
D: A 401k is created by an employer who may match contributions.
Answers
GPT-4o mini
The primary differences between a 401(k) and an Individual Retirement Account (IRA) include aspects of their creation, contribution limits, and tax treatment. Based on the statements provided, the correct answer that highlights a key difference is:
**D: A 401k is created by an employer who may match contributions.**
A 401(k) is an employer-sponsored retirement savings plan, whereas an IRA is set up by an individual. Additionally, contributions to a 401(k) are typically made pre-tax, and there may be employer matching contributions, which does not apply to IRAs in the same way.
While statement B is also true (401(k) contributions are typically made before taxes), the distinguishing feature of who creates the account (the employer for a 401(k) vs. the individual for an IRA) is best captured in statement D.
**D: A 401k is created by an employer who may match contributions.**
A 401(k) is an employer-sponsored retirement savings plan, whereas an IRA is set up by an individual. Additionally, contributions to a 401(k) are typically made pre-tax, and there may be employer matching contributions, which does not apply to IRAs in the same way.
While statement B is also true (401(k) contributions are typically made before taxes), the distinguishing feature of who creates the account (the employer for a 401(k) vs. the individual for an IRA) is best captured in statement D.