401(k) Plan

## Which type of contributions does a Traditional 401(k) allow? - [x] Pre-tax contributions - [ ] After-tax contributions - [ ] Both pre-tax and after-tax - [ ] None of the above > **Explanation:** A Traditional 401(k) is funded by pre-tax dollars, which allows you to deduct contributions from your taxable income. ## What is the maximum contribution limit for 401(k) plans in 2023 for individuals under 50? - [x] $22,500 - [ ] $19,500 - [ ] $25,000 - [ ] $20,000 > **Explanation:** The contribution limit for individuals under 50 is $22,500, which is up by $2,000 from previous years. ## Which of the following statements about a Roth 401(k) is true? - [ ] You receive a tax deduction when you contribute - [x] Withdrawals can be tax-free if qualified - [ ] Contributions are made with pre-tax dollars - [ ] There is no withdrawal option before retirement > **Explanation:** A Roth 401(k) allows for tax-free withdrawals on qualified distributions, even if the concept of “qualified” may sound like a high school club! ## What’s the primary difference between a Traditional and Roth 401(k)? - [x] When you pay taxes on contributions and withdrawals - [ ] How much you can contribute - [ ] Who matches your contributions - [ ] None of the above > **Explanation:** The distinction lies in the timing of tax payments—one pays taxes upfront (Roth), while the other postpones it until retirement (Traditional). Kind of like waiting for the right moment to reveal a plot twist! ## What happens to your 401(k) when you switch jobs? - [ ] It automatically transfers to your new employer - [ ] You can withdraw it with no penalties - [x] You can roll it over into another retirement plan - [ ] It becomes taxable > **Explanation:** When switching jobs, you have the option to roll over into another plan without incurring taxes or penalties. It’s like transferring your favorite playlist! ## What is a catch-up contribution? - [ ] A type of tax document - [ ] The additional amount individuals over 50 can contribute - [x] A way to contribute more funds before retirement - [ ] A grabbing process for losing funds > **Explanation:** Catch-up contributions let those over 50 contribute extra to maximize their savings—like the bonus level in a video game! ## If your employer offers matching contributions, should you contribute enough to get the full match? - [ ] No, it’s not necessary - [x] Yes, it’s free money! - [ ] Only if you want to retire - [ ] Only if you remember to do it > **Explanation:** Always max out employer matches—it’s like finding money on the ground, only more legal and responsible! ## What's one big reason many Americans don't take full advantage of 401(k)s? - [ ] They don’t know how to use them - [ ] They are waiting until they're older - [ ] They forget to enroll - [x] They struggle with budgeting > **Explanation:** Many people find budgeting a challenge, but contributing to a 401(k) is also a great way to enforce that budget! Out of sight, out of mind! ## When can you withdraw from a 401(k) without penalties? - [ ] Anytime after you reach 18 - [ ] Once you leave the employer - [x] Usually after age 59.5 - [ ] When you feel like retiring > **Explanation:** Generally, to avoid penalties, plan to withdraw once you hit the golden age of 59.5—though you might be too busy relaxing on a beach! ## What should you do if you're overwhelmed with managing your 401(k)? - [ ] Ignore it until retirement - [ ] Get a financial advisor - [x] Research and educate yourself - [ ] Just cash it out > **Explanation:** Education is key! Whether it’s talking to an advisor or looking into resources, knowledge about your plan will help you make the best moves.