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 correct responses about 401(k) plans are:

• money is set aside for retirement before tax deductions: Contributions to a traditional 401(k) plan are made from pre-tax income, meaning they reduce the taxable income for the year of contribution.

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

The following statements are not true:

• money is set aside for retirement after tax deductions: This is true for a Roth 401(k) but not for traditional 401(k) plans.

• all employers match employee contributions: This is not true; while many do, it is not a requirement.

• money is deposited directly into the employee’s checking account: Contributions are typically deducted from the employee's paycheck and deposited directly into the 401(k) account, not the employee’s checking account.