Employer-Sponsored Retirement Plans

Question 1

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Incorrect. You answered "". But the correct answer is "". Please make sure and read the information at the bottom to better understand the answer.

If you're eligible to participate in a 403(b) plan instead of a 401(k) plan at work, you're likely an employee of?

(A) A public school system.

(B) A church or synagogue.

(C) A non-profit hospital.

(D) All of the above.

According to the Internal Revenue Service (IRS), a 403(b) plan, also known as a tax-sheltered annuity (TSA) plan, is a retirement plan for certain employees of public schools, employees of certain tax-exempt organizations, and certain ministers. For the most part, 403(b) plans work the same way as traditional 401(k) plans. Their respective names refer only to the section of the tax code that describes these plans.

Question 2

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Incorrect. You answered "". But the correct answer is "". Please make sure and read the information at the bottom to better understand the answer.

The term "401(k)" comes from?

(A) The section of the Internal Revenue Service tax code that outlines it.

(B) The maximum amount of income you can have and still contribute ($401,000).

(C) The amount of revenue your employer must earn ($401,000) before offering a plan to employees.

(D) The amount ($401) you can contribute monthly to the plan.

The "401(k)" designation comes from the Internal Revenue Service tax code section that authorizes and describes this particular defined contribution retirement plan. This section of the IRS tax code was enacted into law in 1978 to allow taxpayers a break on taxes for deferred income.

Question 3

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If you have money invested in a 401(k) plan at one employer and change jobs, which of the following can you do with your account balance?

(A) Move it into a 401(k) plan offered by your new employer.

(B) Deposit it into an IRA account.

(C) Leave it in your previous employer's plan.

(D) All of the above.

When you start a new job, there are several options you can consider for handling your 401(k) account balance with your prior employer. Your first option is to leave the funds with your ex-employer. You can also choose to 'rollover' your 401(k) into the 401(k) plan offered by your new employer or into an Individual Retirement Account or IRA. In most cases, an IRA would be the recommended option, as you'll have a wide array of investment options with minimal fees. The final option would be to cash out from your prior 401(k) account, although you'll be subject to early withdrawal fees plus ordinary income taxes on the withdrawn amount. You'll also negatively impact your retirement plans if you take that option.

Question 4

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Who is responsible for the investment decisions associated with your 401(k) account balance?

(A) Your employer.

(B) Your immediate supervisor.

(C) Your plan administrator.

(D) You, the plan participant.

401(k) plans generally provide plan participants with authority over the direction of their investments. Employers or officers, or directors of an employer generally do not have fiduciary duties for your investment decisions, except for determining what investment options are offered by your specific 401(k) plan.

Question 5

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Which of the following are NOT benefits of participating in a 401(k) retirement plan at work?

(A) To be eligible for potential employer matches to your contributions.

(B) To allow your savings and investments to grow on a tax-deferred basis.

(C) To reduce your taxable income.

(D) Penalty-free withdrawals.

One of the basic premises of a 401(k) account is to reduce an employee's taxable income based on the amount contributed into a 401(k) account and allow those savings to grow on a tax-deferred basis until those funds are withdrawn from the account. Withdrawals made before age 59 1/2 are subject to a 10% Federal penalty and taxable as ordinary income, so 401(k) accounts are not a good home for temporary savings. Also, to receive matching contributions from employers, employees must be contributing to their 401(k) accounts.

Question 6

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If you have a "vesting schedule" associated with your 401(k) plan, you?

(A) Have a defined schedule as to when all of, or portions of, the employer-matched portion of your 401(k) plan becomes yours.

(B) Have a defined schedule as to when all of or portions of your 401(k) plan become yours.

(C) Have a defined schedule for the periodic reallocation of your 401(k) account balance into different types of investment options.

(D) Have a defined schedule for "casual Fridays" written in your dress code.

Within the framework of a retirement plan, 'vesting' means ownership. Each employee will own or 'vest' a percentage of their account each year they are part of the plan within that plan. An employee who is fully or 100% vested owns 100% of their account balance, and their employer cannot take those funds back for any reason. An employee's own contributions to the plan are always 100% vested when the contributions are made. Employer contributions may have different vesting requirements, depending on the sponsored plan.

Question 7

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401(k) plans are a type of retirement plan otherwise known as?

(A) A defined benefit plan.

(B) A defined contribution plan.

(C) A pension contribution plan.

(D) An employment savings plan.

Retirement plans in which the employee and/or the employer contribute to the employee's individual account are Defined Contribution Plans, according to the IRS. The account at distribution includes the contributions and investment gains or losses, minus any investment and administrative fees.

Question 8

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What age must you reach before you can draw from your 401(k) account without having to pay the penalty?

(A) 55.

(B) 59 1/2.

(C) 65.

(D) 66 1/2.

If you take a distribution from your 401(k) or IRA before you reach 59 1/2 years of age, you're assessed a 10% penalty tax in addition to any other taxes you owe on the withdrawal, which is treated as ordinary income for taxation purposes. However, there are conditions where withdrawals can be made penalty-free before you reach 59 1/2 years of age. Some exclusions exist where you are permitted to withdraw funds without penalty. Examples of those include higher education expenses, first-time home purchases, or paying for unreimbursed medical expenses.

Question 9

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Incorrect. You answered "". But the correct answer is "". Please make sure and read the information at the bottom to better understand the answer.

When is it a good idea to reallocate your 401(k) investments?

(A) When your time horizon changes for retirement.

(B) When your investment strategy changes from conservative to aggressive or aggressive to conservative.

(C) When your allocation becomes out of balance due to growth or a decline in a specific investment type.

(D) All of the above.

Asset allocation refers to the way account balances are divided between different asset classes. Most experts recommend investing more aggressively when you are further away from retirement and more conservatively as you get closer to retirement. So reallocations make sense as you get older and get closer to retirement, or if your retirement plans change. Experts also recommend that you distribute funds across multiple investments and continuously make sure the amounts you have in each type of investment remain in the proper balance.

Question 10

Correct!

Incorrect. You answered "". But the correct answer is "". Please make sure and read the information at the bottom to better understand the answer.

When you contribute to a 401(k) plan at work?

(A) The money is put into investments of your employer's choice.

(B) The money is held by your employer as an investment in the company you work for.

(C) You are offered a choice of investments to put your money by the third-party administrator selected by your employer to manage the plan.

(D) The money is invested in US Treasury notes that you can redeem with the Federal government when you retire.

The investment options available within your 401(k) plan will depend on who your plan provider is and the investment choices they decide to make available. Most 401(k) plans make at least three investment choices available. Some of the more common options include mutual funds, company stock, individual stocks, bonds, other securities, or variable annuities. Choosing the right combination of investments can help maximize your 401(k) account's future value.

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