Which of the following statements about 401(k) plans are true?
I. They are defined benefit plans.
II. They allow employer and employee contributions.
III. Earnings accrue tax-free during the employee's working years.
IV. They allow employee discretion in asset allocation.
V. They always have minimum guaranteed rates of return.

Question

Quizplus · Accepted Answer

I. They are defined benefit plans. - This is false; 401(k) plans are defined contribution plans.
II. They allow employer and employee contributions. - This is true; 401(k) plans allow both employer and employee contributions.
III. Earnings accrue tax-free during the employee's working years. - This is true; earnings in a 401(k) plan grow tax-free until withdrawal.
IV. They allow employee discretion in asset allocation. - This is true; employees can choose how to allocate their contributions among various investment options.
V. They always have minimum guaranteed rates of return. - This is false; 401(k) plans do not have guaranteed rates of return.

Which of the Following Statements About 401(k) Plans Are True