What is an example of an employer-sponsored retirement plan?

What is an example of an employer-sponsored retirement plan?

• A. A traditional savings account
• B. A 401(k) plan
• C. An individual retirement account (IRA)
• D. A dividend investment fund

Answer: (B)

A 401(k) plan is an employer-sponsored retirement plan that allows employees to save a portion of their earnings for retirement on a tax-deferred basis. Contributions are typically made through payroll deductions, and many employers offer matching contributions up to a certain limit, which adds to the value of the employee's retirement savings. The funds in a 401(k) can grow without being taxed until they are withdrawn, usually in retirement, making it a powerful tool for long-term savings. Understanding this concept within the context of the other options is crucial. A traditional savings account, while useful for short-term savings, does not provide the same tax advantages or retirement-specific benefits as a 401(k). An individual retirement account (IRA) is also a retirement saving option but it is not sponsored by an employer; it is set up and funded by individuals. A dividend investment fund can be part of an investment strategy, but it does not inherently function as a retirement plan unless specifically designated for that purpose. Thus, the 401(k) clearly stands out as the example of an employer-sponsored retirement plan.

A 401(k) plan is an employer-sponsored retirement plan that allows employees to save a portion of their earnings for retirement on a tax-deferred basis. Contributions are typically made through payroll deductions, and many employers offer matching contributions up to a certain limit, which adds to the value of the employee's retirement savings. The funds in a 401(k) can grow without being taxed until they are withdrawn, usually in retirement, making it a powerful tool for long-term savings.

Understanding this concept within the context of the other options is crucial. A traditional savings account, while useful for short-term savings, does not provide the same tax advantages or retirement-specific benefits as a 401(k). An individual retirement account (IRA) is also a retirement saving option but it is not sponsored by an employer; it is set up and funded by individuals. A dividend investment fund can be part of an investment strategy, but it does not inherently function as a retirement plan unless specifically designated for that purpose. Thus, the 401(k) clearly stands out as the example of an employer-sponsored retirement plan.