Which plan defers employee salary into a retirement plan, may be matched by the employer, and allows catch-up contributions for those over age 50?

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Multiple Choice

Which plan defers employee salary into a retirement plan, may be matched by the employer, and allows catch-up contributions for those over age 50?

The plan that fits all three features is the 401(k) plan. In a 401(k), you choose to defer part of your salary into the retirement plan, which helps reduce your current taxable income. Many employers also offer a matching contribution, which adds extra money to your retirement savings. If you’re 50 or older, you can make catch-up contributions, allowing you to save more than the standard limit. These elements—pre-tax salary deferral, potential employer match, and catch-up contributions—are what make the 401(k) the best choice for this description. IRAs and Roth IRAs are individual accounts you fund yourself rather than through payroll deferrals with an employer, and while they have their own tax differences and limits, they don’t embody the employer-sponsored salary-deferral with matching in the same way. A 403(b) works similarly to a 401(k) but is typically associated with certain nonprofit and public-sector employers, so the general description most commonly points to the 401(k) in private-sector contexts.

The plan that fits all three features is the 401(k) plan. In a 401(k), you choose to defer part of your salary into the retirement plan, which helps reduce your current taxable income. Many employers also offer a matching contribution, which adds extra money to your retirement savings. If you’re 50 or older, you can make catch-up contributions, allowing you to save more than the standard limit. These elements—pre-tax salary deferral, potential employer match, and catch-up contributions—are what make the 401(k) the best choice for this description.

IRAs and Roth IRAs are individual accounts you fund yourself rather than through payroll deferrals with an employer, and while they have their own tax differences and limits, they don’t embody the employer-sponsored salary-deferral with matching in the same way. A 403(b) works similarly to a 401(k) but is typically associated with certain nonprofit and public-sector employers, so the general description most commonly points to the 401(k) in private-sector contexts.

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