Question

In what way does a 401(k) differ from an individual retirement account (IRA)?

A 401(k) is created through an individual’s employer.
A 401(k) can be created by individuals who deposit money.
A 401(k) allows consumers to contribute before taxes.
A 401(k) is a good long-term investment strategy.

Answer 1

"A 401(k) is created through an individual’s employer."

Explanation: A 401(k) is an employer‑sponsored retirement plan (employees enroll through their employer). An IRA is opened individually by the person. While 401(k) contributions are often made pre‑tax (like traditional IRAs), individuals cannot set up a 401(k) on their own and IRAs have different rules and lower contribution limits.